Ad-Free CAclubindia and Daily Updates on your mobile. Subscribe Now!

Tds - pre-incorporation exp

mohit pathak (Learner) (396 Points)

08 April 2017

Hi!

Need some advice on the following issue:-

There are four people involved: - X, X's mother and ABC Pvt Ltd (where X is a director) and the website developer

The website developer started developing the website of ABC Pvt Ltd in April 2016 and took some advance from X's mother say 1,00,000 and during the year X's mother paid the website developer around 5 lac. (No TDS deducted as she doesn't fall under tax audit)

ABC company was incorporated in October 2016.

Now in April 2017, the website developer wants to raise an invoice of Rs 7,00,000.

Qus are:-

1) In whose name invoice should be made (ABCPvt Ltd / X's mother)?

2) What are the implication if the invoice is issued in the name of ABC Pvt Ltd.

3) Can she sell it to the company? (what are the taxes applicable?)

Reply
Follow
Share

3 Replies

Dixit (CA Final) (2405 Points)
Replied 08 April 2017

1. Invoice should be made on the name of ABC Pvt Ltd. 2. If invoice issued on the name of ABC Pvt Ltd. then at the time of payment company should deduct TDS.

Upgrade to CAclubindia Pro. Subscribe Now!

S.K.Batra (D.G.M - Finance) (49 Points)
Replied 08 April 2017

To keep the transaction cleaner, it would be better to get invoice of full value ie Rs 7 Lacs in name of ABC Pvt Limited and TDS should be deducted on full value by ABC Pvt Limited. ABC should also pay Rs 7 Lacs (Net of taxes) and website developer should refund the money paid by Mother of Mr X back to her. This should be done by account payee cheque or through online bank transfer and not by cash. For future reference you should also get the PAN No of the person who is refunding the money back and get a formal letter signed from him confirming this arrangement, so that if on a later date, there is any concern raised by the tax office about source of amount credited in X,s mother account, you can show the letter signed by website developer.

Sumeet (CA) (537 Points)
Replied 08 April 2017

1.The invoice should be issued on the name of ABC Pvt. Ltd. as Website Development is for said Company. X's mother only made payments on behalf of her Son who is Director of ABC Pvt Ltd.

2.Payments for Website Development attracts TDS provisions of Income Tax Act, hence TDS is required to be deducted u/s 194J by ABC Pvt Ltd while making the payments.

3.X's Mother can sell the website to the company if invoice is issued on her name by website developer, however it will attract Section 188 of Companies Act,2013 which govern Related Party Transactions.Mother of Director is covered under the definition of relative given under section 188.Hence all the provisions of section 188 must be complied with before making such transaction.