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TDS

CA Navin Jain (MANAGER (FINANCE & ACCOUNTS)) (11768 Points)

06 November 2009

Sub:- TDSon payment on lease rent for car

A LTD HAS PAID LEASE RENT FOR CAR RS. 300000.00 PER MONTH TO B LTD.

B LTD. HAS MADE THE INVOICE RS. 300000( RS. 200000 (INSTALLMENT) + 25000 (VAT) +75000( FLEET MANAGEMENT)

NOW MY QUESTION IS WHETHER A LTD IS LIABLE TO DEDUCT TDS ON LEASE FOR CAR U/S 194C / U/S 194I OR NOT.

IF THERE IS ANY CIRCULAR OR NOTIFICATION REGARDING ABOVE MATTER THEN KINDLY NOTED ME.

KINDLY GIVE THE REPLY AS SOON AS POSSIBLE

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9 Replies

sivaram (Asst Mgr-Taxation) (6918 Points)
Replied 06 November 2009

rent definition does not include lease of car so tds under contract 194C not under 194I

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Sunil (Trader) (2611 Points)
Replied 06 November 2009

If you take the car on contract basis with the driver and maintenance and pay per km charge or even per day charge and possession of the car belongs to the owner then it is 194C (contract). If you take the car on lease and use it with your driver and you maintain it and you also have the possession of car with you, then you have to apply 194I. This also includes taking car on lease finance from a NBFC.

Ajeej Hussain (Audit Executive) (189 Points)
Replied 06 November 2009

Guys i have one doubt on single payment relating to TDS

If a person pays to his contractor an amount more than the threshold limit 20,000 ( say 36000) on a single day but received multiple bills from the contractor in such case can we take it as single payment and do that attract TDS

Sunil (Trader) (2611 Points)
Replied 06 November 2009

The condition is usually on crediting account or payment made, whichever occurs earlier. Therefore a single payment will be crossing all limits in any case.

sivaram (Asst Mgr-Taxation) (6918 Points)
Replied 06 November 2009

Mr Sunil definition of rent does not include lease of car. here lease means whether car is taken on pure lease or a just a lease agreement for plying cars .If it is a pure lease that is it will be my possession after some time there is no TDS.But lease agreement for plying cars say i need 10 cars daiily in such case it is covered under contract .Definitely lease of car is not covered under rent therefore no question of deducting TDS under 194 I

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Sunil (Trader) (2611 Points)
Replied 06 November 2009

Section 194I is applicable on lease of equipments and machinery. If you take a crane, forklift or any vehicle on lease (includes car) from private financer and the mode of finance is Lease, the car or equipment or machine is in name of leasing company and you are in possession of it and pay in a lease rent. depreciation is going to the OWNER. The risk is in hands of possessor till ownership is transferred to him. This does not come under section 194A or 194C.This is 194I. TDS is 2% and the lease rental limit per annumis fixed for this (incl. the interest component of installment) on condition of which TDS is done. For 194 C, the owner is supplying the equipment that remains in his possession and risk and he is running it for you. 194A is for Hypothecation Finance of the vehicle where part of EMI is principal and part of it is interest. However, Banks will only give on Hypothecation basis as they are exempt from TDS u/s 194A. Important in this is the ownership is in our name and we get the depreciation. In the other case the depreciation never comes to the user. Only the owner. If you take from NBFC on Hypothecation basis you have to deduct TDS u/s 194A unless they give a cert. u/s 197. Therefore they give under Lease Finance. When the rates were high for this many of them had certificate u/s 197 to get lower rate deducted. Now the rate is 2%.

Sivaram, the lease agreement for plying cars is 194C. Here the rate is 2% if aggregate exceeds 50,000.

sivaram (Asst Mgr-Taxation) (6918 Points)
Replied 06 November 2009

But Mr Sunil thanks for reply rent defintion in act includes lease of equipment and Machinery and car is classified as Motor cars but now how you can say it is covered under 194 I

Sunil (Trader) (2611 Points)
Replied 06 November 2009

The same way cranes and forklifts and trucks and JCB Excavators that are registered under MV Act are also under equipments. For a person in the business of plying cars as tourist taxis, rather than bank finance on cars, they have financers ready to buy cars in their own names, lease them and claim depreciation and after 3 or 5 years they transfer at wdv. They get the higher depreciation as they are in the business of leasing out the equipment or truck. If in business of running the commercial vehicle depreciation is still higher. For Motor Cars the condition is they have to be run on hire for higher depreciation. Therefore it is no longer attractive since 2006 when rates of depreciation was reduced.The condition is under MV Act it has to be a Commercial Vehicle with the yellow number plate. If we buy the car for our office we get 15% depreciation. The tourist car operator will deduct TDS U/s 194I and on his bills his customer deducts u/s 194C. However, the white number plate cars are not be done this way. Nowadays the few transactions of this nature are where a motor taxi or maxicab is purchased and given to the driver on rent / lease. The driver is responsible for running it. Very few car hiring companies take cars on lease these days. There is more advantage in running them for hire. However, trucks and cranes etc. are still done this way. Maybe the higher depreciation rate is still making it attractive for the lessor as for these vehicles they have to be put to use for business or profession. In Motor Cars and Maxicabs you have to run them on hire for 30% depreciation otherwise you get only 15%. Most of the transaction that end user does for Car Hiring are 194 C. We also are deducting u/s 194 C for cars taken on hire like 8 hr 80 km basis or even monthly basis on minimum of say 2000 kms. The advantage is if there is problem with the car the contractor has to just get another one.

Ajeej Hussain (Audit Executive) (189 Points)
Replied 03 December 2009

Thanks alot Mr.Sunil for your reply.

So i can consider it as Single payment eventhough there are two or more payments on same day with different bills of a same person and TDS is applicable to such instance.