Wednesday, April 7, 2010

TDS Rate Applicability : Frequently Asked Questions

What is the date when the Finance Bill became Finance Act 2009 ?

•19-08-2009
In which cases surcharge on TDS rates is NOT applicable ?


•On all payment to residents
•On all payment to non-corporate non-residents
•On all payments to foreign corporate if total payment is less than 1 Crore
In which cases surcharge on TDS rates is applicable ?

•On all payments to foreign corporate if total payment is more than 1 Crore
In which cases Education Cess, Secondary and Higher Education Cess is NOT applicable ?

•On all payments to residents except salaries payment
In which cases Education Cess, Secondary and Higher Education Cess is applicable ?

•On salaries
•On all payment to non-residents and foreign companies
What is the effective date for above changes in applicability of surcharge and education cess?


•These changes are applicable on the passing of Finance Bill . This date is 19-08-2009. However there are different views on applicability date. One view is that since these changes are for the full financial year, one can take benefit of Section 294 of the income tax Act and start applying this rate from the date of presentation of finance bill.(in my view its applicable from 01.04.2009 , same view is given in The Chartered Accountant Journal released by ICAI)



There has been change in TDS Rates for 94C- Contractual Payments and 94I- rental payments. What is the effective date for the same ?

•These changes are applicable from 01-10-2009.
Apart from the above , is there any other change in the TDS Rates ?

•Yes. The maximum rate of TDS is normalised to 10% in most cases. Please refer to the TDS Rate Chart for FY 2009-10



What about penal rate of 20% where valid PAN is not given ?

•This provision is applicable from 01-04-2010. Till such time even if valid PAN is not given , normal rate will be applied.
What is your source of above information.

•Applicability of surcharge is mentioned in Clause (5), (6), (7) and (8) in Chapter II of the Finance ( No 2) Act , 2009.
•Applicability of Education Cess : Clause (11). Applicability of Secondary and Higher Education Cess : Clause (12).
What are the changes about section 194C about Job work (work according to specification)
•the detailed reply to this question is available hereTDS ON JOB WORK U/S 194C AMENDED FROM 01.10.2009

LATE DEPOSIT TDS -PAY INTEREST 1.5 % PM

The Finance Bill proposes to create a separate class of default in respect of tax deducted but not paid to levy interest at a higher rate of 1.5 per cent per month, i.e. 18 per cent p.a. as against 1 per cent p.m., i.e. 12 per cent p.a., applicable in case the tax is deducted late after the due date. The rationale behind this amendment is that the tax once deducted belongs to the government and the person withholding the same needs to be penalized by charging higher


It may further be noted that the benefit of the proposed amendment under the Section 40a(ia) of making the payment before the due date of filing the return shall be available only in those cases where tax has been deducted during the previous year but paid after the end of the previous year and before the due date of filing the return. Accordingly, all such persons in terms of the Section 201(1A) need to pay a higher rate of interest, i.e. 18 per cent, from the date of deduction of tax till the date it is actually paid before furnishing the statement under the Section 200(3) of the Act.In case any person claims that tax has been deducted after the end of the previous year and hence a higher interest rate of 18 per cent is not applicable, such a person will not be eligible for the benefit of the proposed amendment to the Section 40a(ia), as this benefit is available only when the tax has been deducted during the previous year itself.

So pay your TDS deduction on time ,otherwise you have to bear heavy interest cost.
Summary of New provision

Interest up to 30.06.2010
• For late deduction of Tax deduction at source-(rate 1 % per month or part thereof)
• For late deposit of TDS after deduction (rate 1 % per month or part thereof)
Interest from 01.07.2010
• For late deduction of Tax deduction at source-(period date from tax deductible to date of actual deduction )(rate 1 % per month or part thereof)
• For late deposit of TDS after deduction (period :date from tax deducted and date of actual deposit)(rate 1.5 % per month or part thereof)
Separate Rounding of month for both clause ? :From plain reading every one under stand that only rate is increased by 0.5 % per month but one point you should not that now two default period has been bifurcated in two sets and each period has been upper rounded off to a month.Means even a default of one day means loss of interest for one month .

This amendment is proposed to take effect from 1st July, 2010.

TDS Rates