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TDS

CA. Dhirendra Singh (Chartered Accountant) (153 Points)

28 November 2007

Can TDS applicable on capital expenditure like as Building costrustion contract ? If yes ,what will hapen in the case of not deducting of TDS.

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14 Replies

Suresh Agrawal (service) (102 Points)
Replied 29 November 2007

Non-deduction of TDS entails interest, penalty and prosecution as provided in the Income Tax Act. There is negligible accounting impact for capital expenditure.

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CA. Dhirendra Singh (Chartered Accountant) (153 Points)
Replied 29 November 2007

But sir as per IT Act if TDS is not deducting on any expenditure than that expenditure should be disallow.So can Depreciation disallow ?

Suresh Agrawal (service) (102 Points)
Replied 29 November 2007

Payment is towards capital asset and not towards depreciation. So any kind of expenditure relating to that asset including depreciation wo'nt be allowed.

CA. Dhirendra Singh (Chartered Accountant) (153 Points)
Replied 29 November 2007

Sorry sir ,But TDS is applicable on only revenue expenditure not capital expenditure. So all expenditure not disallow . I am confusing on deprication only. Please healp me --------

Suresh Agrawal (service) (102 Points)
Replied 29 November 2007

Mr Dhirendra, TDS is applicable based on the nature of "payment" and not depending on whether its revenue or capital expense. For example payment to contractor u/s 194C for construction of a building or installation of a new m/c will be subject to TDS even though it will be accounted for as capital expenditure. Therefore in this case depreciation will be disallowed if TDS not deducted on capital asset payment.

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(Guest)

CAN MR SURESH AGRAWAL PROVIDE THE BASIS FOR DETERMINING AS TO WHY DEPRECIATION IS NOT ALLOWED ON CAPITAL EXPENDITURE IF TDS IS NOT PAID FOR THE SAME. PLEASE PROVIDE WITH CASE LAWS, IF ANY.

abhishek (Article) (26 Points)
Replied 31 October 2008

Well!!! section 40 a ia talks on amount not deductible, in case of expenditure of capital nature, there is no expense that is claimed as expenditure, yes the asset capitalised is written of over a period f timein the form of depreciation.

Depreciation is an allowance and it is not an amount that is claimed as a deduction, it is just an allownce that is claimed over the useful life of the asset.

section 40 a(ia) talks abt payments made, which cannot be deducted for computing the income chargeable to tax. Depreciation is not an amount paid, it is an allowance that is claimed. So depreciation shall be claimed in any case.

However the assessee shall be "Assessee in default" for non deduction f TDS & s liable for interest & penalty may be levied.

CA. Rashi Goyal (Chartered Accountant) (512 Points)
Replied 29 December 2008

Hi,

Can anyone provide me the case law in support for deduction of TDS on capital expenditure such as installation charges, contractor payment for construction.

anil kumar (Chartered Accountant) (52 Points)
Replied 13 July 2009

whether there is any case law regarding the TDS on capital expenditure for installation charges, and also if the installation is charged with the service tax , is it mantatory to charge tds

deepak K Gujrati (CA-practice) (966 Points)
Replied 14 July 2009

Why case law is required.! Section 194 C clearly states that payment for any contract exceeding Rs 20,000/- attacts TDS application and TDS has to be deducted. So for as diallowability is concerned, it will be disallowed only when one claims it as an expenditure. Suppose it is not capitalised as it was a repair work and any payment is made without deduction of TDS, it will be disallowd.

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anil kumar (Chartered Accountant) (52 Points)
Replied 14 July 2009

Hi sir

But as the expenditure is in the nature of captial, if the TDS is not deducted, there is no implication on tax, so whether the TDS deduction is not mandatory on capital expenditure, whether disallowance of depreciation is possible in this case, on a capitalised asset on which the TDS is not deducted ?

CA. Rashi Goyal (Chartered Accountant) (512 Points)
Replied 14 July 2009

I fully agree that TDS deduction does not differentiate between capital & revenue payments. If any payment is made on which TDS is required to be deducted, TDS should be deducted irrespective of its nature. But the query is what is consequenses, if TDS is not deducted payments which are capitalised. That is why a case law is required to have a look at the consequenses.

Abhishek Mohta (ACON) (508 Points)
Replied 15 July 2009

The following is the consequenses of non-deduction of TDS by an assessee:

Sec 201 (1) Where any person, including the principal officer of a company,

(a) who is required to deduct any sum in accordance with the provisions of this Act; or

(b) referred to in sub-section (1A) of section 192, being an employer,

does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax:

Provided that no penalty shall be charged under section 221 from such person, unless the Assessing Officer is satisfied that such person, without good and sufficient reasons, has failed to deduct and pay such tax.]

[(1A) Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct [the whole or any part of the tax] or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest at [one per cent for every month or part of a month] on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid [and such interest shall be paid before furnishing the quarterly statement for each quarter in accordance with the provisions of sub-section (3) of section 200].]

(2) Where the tax has not been paid as aforesaid after it is deducted, [the amount of the tax together with the amount of simple interest thereon referred to in sub-section (1A)] shall be a charge upon all the assets of the person, or the company, as the case may be, referred to in sub-section (1).

Sec 40(ia) states that any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work on which tax is deductible at source and such tax has not been deducted or after deduction has not been paid, such amounts shall not be deducted in computing the income chargeable under the head Profits and Gains of Business or Profession.

In both the sections there is no mentioning of Depreciation being disallowed due to non-dedction of TDS on the expenses capitalised. Thus disallowance of Depreciatin will not come into picture.

Rima Nanda (CA WIP) (21 Points)
Replied 12 August 2011

So,finally will any one tell me that deducting TDS on capital nature is mandatory or not? and what will be the consequences of not deducting TDS on capital payment as any ways we will not claim that as an expense???