Deduction of tax at source or TDS is a distinguishing mode of tax recovery

TDS—At a glance

Deduction of tax at source or TDS is a distinguishing mode of tax recovery even much before the assessment of the person concerned, that is, the deductee.

The statutory mandate which may be drawn from a number of relevant provisions may be generalised thus—the payer of a number of specified sums like salary, interest, rent, compensation and fees, etc. is mandatorily required to deduct tax at the specified rate at the time of or before making the payment whether in cash or through cheque. The amount so deducted is deemed to be tax paid by or on behalf of the deductee/payee in respect of the income component of the sum. Moreover, if the deductor is under a mandatory duty to pay the deducted amount to the credit of the Central Government, of course, within the prescribed time, the deductee is given credit for the amount so deducted in the sense that on the final determination of his tax liability, the amount so deducted shall be adjusted against the amount of tax liability—see, sections 190, 191, 198, 199, 200 and 202.

Any failure to deduct tax at source or to pay deducted amount within the prescribed time exposes the defaulter-deductor to a number of penal consequences provided by the Act—see, sections 201, 40(a)(i), 271C, 271CA, 276B and 276BB.

 TDS on fees for professional or technical services—Section 194J

Section 194J, inserted by the Finance Act, 1995, with effect from 1st July, 1995, brings within the purview of TDS, fees or other amount in lieu of professional or technical services. A bare perusal of section 194J reveals that the mandatory duty to deduct tax at source has been imposed on any person, not being an individual or a Hindu undivided family on or before making payment to a resident any sum by way of—

(a) fees for professional services, or

(b) fess for technical services, or

(c) royalty, or

(d) any sum referred to in section 28(via).

Ten per cent of the amount is required to be deducted by the payer. However, by virtue of clause (B) of first proviso, no TDS is required to be made if the amount of such sum or aggregate amounts of such sums paid/payable during the relevant financial year does not exceed thirty thousand rupees.

Further, by virtue of second proviso, inserted by the Finance Act, 2002, with effect from 1st June, 2002, an individual or Hindu undivided family is required to deduct tax at source on or before making payment of fees for professional services or technical services, if the payer-individual or Hindu undivided family’s total sales, gross receipts or turnover from the business or profession exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such sum is to be paid or made payable. However, in view of third proviso, inserted by the Finance Act, 2003, with effect from 1st June, 2003, an individual or a Hindu undivided family, covered by the (aforestated) second proviso is not required to deduct tax at source if the sum by way of fee for professional services is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family.

Refer Case:

Dedicated Health Care Services TPA (India) (P) Ltd. vs. Asstt. CIT (2010)(Bom)41,