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TDS

CA Amit Goyal (Employed) (32 Points)

19 April 2010

thr is school running in my prmises...School is registered as Trust.....My Co. is paying the salary of the teachers of school..shud we deduct TDS on such payments..or we shud disclose as financial aid....

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9 Replies

Dhruv (Chartered Accountant) (308 Points)
Replied 19 April 2010

Except for Individuals and HUFs, not liable to tax audit, everyone is liable to deduct TDS on payments. So deduct TDS on salary payments. And the teachers are working under an employee employer relationship, can't be classified as financial aid.

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Amir (Learner) (4016 Points)
Replied 19 April 2010

Dear Friends,

Interesting one............!

Dhruv Bhai u r bang on if employer-employee relationship exist then TDS should be deducted...

But I think in the present case employer-employee retaionship is between the teachers & the trust...so TDS shall not be required to be deducted by the Company & can be shown as Financial Aid.

But I want to ask one thing whether this salary will be allowed under Income Tax???

Dhruv (Chartered Accountant) (308 Points)
Replied 19 April 2010

Oh! ..damn I didn't read the question carefully, if your company is paying teacher's salary then in that case you can easily classify it as charity/donation/financial aid within the restrictions of the Companies Act ( there is a section which restricts how much charity/donation can be given by a company) .

Since the teachers are not on your payroll, no employee employer relationship exists, you don't need to deduct TDS, since your payment is not of salary nature.

Better would be to give that money to the trust and let the trust pay the salary and claim it as an expense in it's book, that's a cleaner mechanism.

Dhruv (Chartered Accountant) (308 Points)
Replied 19 April 2010

@ Amir - They shouldn't claim this as an expense, that would be completely wrong, since it contravenes section 37, the expenditure is not being used to earn revenue. 80G apply karega and us hisaab se the company should take deduction.

It's almost like you're giving donation and that trust is using that donation to pay it's employees. Nature of transaction toh one and the same thing hai! If Mr.Amit's company is claiming it as salary, it's wrong.

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@*CS Siddharth Bumb. * (B.Com, CA Final, CS ) (5270 Points)
Replied 21 April 2010

THANK YOU FOR SUCH TYPE OF QUESTION AND ANSWER

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CA Amit Goyal (Employed) (32 Points)
Replied 21 April 2010

@ amir and Dhruv: there is implied understanding between school n Co. that Co. will pay the salary of teachers to school n thn school will pay the teachers.because school is for the children of employee ..School is also charging nominal fees frm student...can't it be a contractual agreement...bcoz if Co. show this as donation n claim deduction u/s 80G it won't get as school don't have the certificate...so hw this will b treated......

Dhruv (Chartered Accountant) (308 Points)
Replied 21 April 2010

See, if the school is into teaching the children of the employees of the company, then it accounts to staff welfare expenses. The company can claim staff welfare expenses, as revenue expenditure on the amount it pays as teacher's salary.

But make sure to accurately go through the perquisites rules, paying education fees for staff's children is a perk and hence is taxable as one.

The school must register the amount as donation and the amount forms a part of the income for Income Tax purposes.