Deduction, Collection and Recovery of Tax (TDS, TCS, Advance Tax, Recovery & Refunds)
An encyclopedic CA Final master compendium covering the entire tax collection and withholding machinery: general principles (Sections 390 & 391), comprehensive TDS tables under Section 393(1) (Salaries, EPF, Interest, Dividends, Online Gaming, Contractors, Rent, Professional Fees, Cash Withdrawals, Benefits/Perks u/s 194R, and Partner Remuneration u/s 194T), non-resident withholding u/s 394, comprehensive TCS on goods, LRS remittances, and motor vehicles u/s 398, lower deduction certificates u/s 395, quarterly compliance and penalties for default (Sections 398 & 401), Advance Tax estimation and interest (Sections 403 to 425), Tax Recovery Officer (TRO) powers, and Refunds with 0.5% interest under Section 437.
The Indian income-tax collection system operates on the statutory doctrine of "Pay As You Earn" (PAYE). Under this scheme, taxes are collected at the earliest possible stage—either when the income accrues or arises, or at the point of receipt—rather than waiting for the end of the assessment year. The tax withholding and recovery architecture is governed by Chapters XIX-B, XIX-C, and XVII of the Income-tax Act, consolidated and modernized under the Income-tax Act, 2025 and Finance Act, 2026.
Under the pre-2025 regime, tax deduction was fragmented across more than 35 disparate sections (Sections 192 through 194T). The Income-tax Act, 2025 systematically restructures this landscape into two core withholding anchors:
- Section 392: Comprehensive withholding code for Salaries, Perquisites, and Accumulated Recognized Provident Fund (EPF) balances.
- Section 393: The Unified Statutory Table covering all payments to residents, non-residents, and any person (interest, dividends, contracts, rent, professional fees, e-commerce, VDAs, partner remunerations).
Deduction or Collection at Source & Advance Payment [Section 390]
Section 390(1) establishes that notwithstanding the regular charge of income-tax under Section 4(1), tax on any income shall be deductible or collectible at source or payable by way of advance payment in accordance with the provisions of this Chapter.
Section 390(2) clarifies that the deduction, collection, or advance payment of tax shall be made without prejudice to any other mode of recovery. The payer is merely a collection agent of the State; the primary liability of the payee to be assessed on their total income remains intact.
Direct Payment by Assessee where No TDS is Deducted [Section 391]
Where tax is deductible at source under any provision of this Act, but the payer fails to deduct the whole or any part of the tax, or having deducted fails to remit it, the income-tax remains directly payable by the assessee (payee).
While Section 391 permits the Revenue to recover tax directly from the payee if tax was never deducted, Section 401(4) strictly bars the Revenue from making any direct demand upon the payee to the extent tax has already been deducted from their income by the payer. Once tax is withheld from the payment, the payee cannot be coerced to pay it again, even if the deductor subsequently defaults in remitting it to the Central Government. The Revenue's sole remedy in such cases lies against the defaulting deductor as an assessee-in-default.
Section 392(1) requires any person responsible for paying any income chargeable under the head ‘Salaries’ to deduct income-tax at the time of payment on the estimated total income of the employee at the average rate of income-tax computed on the basis of the rates in force for the tax year.
Average Rate = (Total Estimated Tax on Salary + Surcharge + 4% HEC) / Total Estimated Income. The resulting monthly deduction is adjusted for any excess or deficiency in previous months.
Unlike other commercial TDS provisions that trigger on "credit or payment, whichever is earlier", TDS on salary triggers strictly at the time of actual payment (Section 392(1)).
1. Default Concessional Regime vs. Normal Provisions Choice [Section 392(1) Proviso]
Under the Income-tax Act, the default regime for individuals is the concessional tax regime under Section 115BAC. Under CBDT Circular instructions:
- The employer must seek an intimation from each employee regarding their intended tax regime (Default Sec 115BAC vs. Opted Normal Regime).
- If the employee does not make an intimation, the employer must deduct TDS under the default regime of Section 115BAC.
- The employee is free to change their choice at the time of filing their Return of Income under Section 139(1).
2. Set-off of Losses & Consideration of Other Incomes [Section 392(2)]
The employee may declare any other income (interest, dividend, house property) and tax deducted thereon to the employer. Upon receiving such declaration:
| Type of Income / Loss | Treatment by Employer for TDS under Sec 392 | Statutory Condition / Ceiling |
|---|---|---|
| Income from House Property | Included in estimated gross total income | Added in full |
| Loss from House Property | Can be set off against Salary Income | Capped at ₹2,00,000 maximum for the tax year |
| Loss under Any Other Head (Business, Capital Loss, IFOS) | Strictly Prohibited from Set-off | Employer cannot consider any loss other than House Property loss |
| Other Incomes (Bank Interest, Dividends) | Can be included at employee's option | Credit given for TDS already deducted by other payers |
3. Accumulated Balance of Recognized Provident Fund (EPF) [Section 392(3)]
Where accumulated balance in a Recognized Provident Fund becomes taxable because the employee has not rendered continuous service of 5 years (and the termination is not due to ill-health, contraction of employer's business, etc.):
- Threshold Limit: Tax is deductible only if the payment is ₹50,000 or more.
- Rate of TDS: 10% of the taxable component.
- Non-furnishing of PAN: If PAN is not furnished, tax is deductible at the Maximum Marginal Rate (MMR), not the flat 20% under Section 396.
4. Multiple Employers & Relief under Section 89 [Section 392(4) & (5)]
- Multiple Employers [Section 392(5)]: Where an employee is employed by two or more employers during the tax year, or has changed jobs, they may furnish details of salary and TDS from the other employer(s) in Form 12B to one employer of their choice, who will aggregate both incomes and deduct TDS accordingly.
- Arrears of Salary [Section 392(4)]: The employer is statutorily authorized to grant relief under Section 89 upon receiving the required particulars in Form 10E from the employee.
Passive investment returns (interest and dividends) are strictly subject to withholding under the Table to Section 393(1), with statutory definitions rooted in Sections 2(59) and 2(60).
Interest means interest payable in any manner in respect of any moneys borrowed or debt incurred (including deposit, claim, or other obligation), and includes service fees or other charges in respect of the moneys borrowed.
Includes interest on any security of the Central Government or State Government, and interest on debentures or other securities for money issued by or on behalf of a local authority or a company or a corporation established by Central/State Act.
Master Statutory Withholding Chart: Passive Investment Incomes
| Table Sl. No. | Nature of Payment | Payer | Threshold Limit | Rate of TDS | Key Exemptions & Statutory Notes |
|---|---|---|---|---|---|
| Sl. 4(i) (Old Sec 194) |
Dividends (Equity or Preference shares) |
Principal Officer of Domestic Company | ₹5,000 per individual shareholder per tax year | 10% |
• No TDS if paid to resident individual by any mode other than cash and aggregate ≤ ₹5,000. • No TDS if paid to LIC, GIC, or subsidiaries. • No TDS on deemed dividend under Section 2(22)(e) paid to corporate shareholders if exempt. |
| Sl. 5(i) (Old Sec 193) |
Interest on Securities | Any Person responsible for paying |
• ₹10,000 for 8% Savings (Taxable) Bonds / 7.75% Savings Bonds. • ₹5,000 for debentures of widely-held company paid by account payee cheque. |
10% |
• No TDS on Central/State Government securities (except 8% / 7.75% Savings Bonds). • No TDS on Dematerialized listed debentures. • No TDS on securities held by LIC, GIC, or provident funds. |
| Sl. 5(ii) (Old Sec 194A) |
Interest other than Interest on Securities (Banks / PO / Co-op Banks) | Banking company, Co-operative bank, Post Office |
• ₹50,000 for Resident Senior Citizens (≥ 60 years). • ₹40,000 for any other resident person. |
10% |
• Core Banking Integration: Threshold applies bank-wide across all branches if Core Banking Solutions (CBS) is enabled. • Includes interest on Fixed Deposits and Recurring Deposits. • Savings account interest is strictly exempt from TDS. |
| Sl. 5(iii) (Old Sec 194A) |
Interest other than Interest on Securities (Other Payers) | Specified Person (Other than Banks/PO) | ₹5,000 in aggregate per tax year | 10% |
• Applies to interest paid by partnership firms to non-partners, corporate ICDs, NBFC loans, etc. • Firm-to-Partner Exemption: Interest paid by a firm to its partner is expressly exempt from TDS under Sl. 5(iii) (now covered under Sec 194T / Sl. 8(xxiv)). • Interest paid to banks, financial institutions, UTI, LIC is exempt. |
- Interest on Motor Accident Compensation (MACT): No TDS at the time of credit. TDS applies strictly at the time of actual payment if aggregate interest paid exceeds ₹50,000 in a tax year.
- Deposit in Name of Registrar General of High Court: Fixed deposits created pursuant to Court orders do not belong to the Court or Registrar. No TDS is deductible until the actual beneficiary is identified by final decree.
Winnings from betting, gambling, lotteries, and modern online gaming platforms are subjected to the highest flat withholding tax rate of 30% under Section 393.
Applies where winnings exceed ₹10,000 in a transaction. No basic exemption limit or deductions allowed.
TDS triggers on net winnings in user account. Zero threshold limit—taxable on every rupee of net winnings.
1. Winnings Wholly or Partly in Kind [Proviso to Sl. 8(i)]
Where winnings are wholly in kind (e.g., winning a luxury car or apartment), or partly in cash and partly in kind but the cash component is insufficient to satisfy the 30% tax liability:
The person responsible for paying must not release the prize until they ensure that the tax of 30% has been paid by the winner. The payer may either:
- Collect the 30% tax amount in cash/cheque from the winner and deposit it into the Government treasury; OR
- Verify the advance tax payment challan furnished by the winner proving that 30% tax on the market value of the prize has been duly deposited.
2. Online Gaming Mechanism [Sl. 8(ii) & Rule 133]
For online games, tax is deducted on the net winnings in the user account at:
- Time of Withdrawal: Tax is deducted @ 30% on the net winnings comprised in the withdrawal amount.
- End of Tax Year (31st March): Tax is deducted @ 30% on the remaining net winnings in the user account balance.
- Net Winnings Formula (Rule 133):
Net Winnings = (Total Withdrawals + Closing Balance) - (Total Deposits + Opening Balance) - No Threshold: Unlike lotteries (₹10,000 threshold), online gaming has no basic threshold; even a net winning of ₹100 attracts 30% TDS.
Payments made to resident contractors and sub-contractors for carrying out any "work" (including supply of labour for carrying out any work) are subject to tax deduction at source under Section 393(1) [Table: Sl. No. 6(i)] (replaces Section 194C of the 1961 Act).
Rate of TDS when payment is credited/paid to an Individual or HUF contractor.
Rate of TDS when payment is credited/paid to a Company, Partnership Firm, LLP, or AOP/BOI.
Single contract > ₹30,000 OR aggregate contracts in tax year > ₹1,00,000.
1. Comprehensive Statutory Definition of "Work" [Section 402(47)]
Under Section 402(47), "Work" expressly includes:
- Advertising: Client payments to advertising agencies (Circular 715). However, payment by advertising agency to media companies (TV/print) for broadcasting space is subject to Circular 5/2016.
- Broadcasting & Telecasting: Including production of programmes for such broadcasting or telecasting.
- Carriage of Goods or Passengers: By any mode of transport other than railways.
- Catering Services: Contractual provision of food and hospitality.
- Job Work / Contract Manufacturing: Manufacturing or supplying a product according to the requirements or specifications of a customer by using material purchased from such customer or its associate.
As clarified in Section 402(47) and landmark judicial rulings (Bharathi Cements Ltd.):
- Work (TDS u/s 393(1) Sl. 6(i)): Where the contractor manufactures goods using raw materials supplied/purchased from the customer or an associate of the customer. TDS applies on the invoice value of the contract (or excluding raw material cost if invoice is segregated).
- Sale of Goods (No TDS u/s 393(1) Sl. 6(i)): Where the manufacturer produces custom goods according to customer specifications but purchases the raw materials from unrelated third parties. This remains a contract of sale; Section 393(1) Sl. 6(i) does not apply (subject only to Sec 398 TCS / Sec 194Q purchase TDS if applicable).
2. Transporter Exemption [Section 393(4) Table]
No tax is deductible under Sl. 6(i) on any sum credited or paid to a contractor in the business of plying, hiring, or leasing goods carriages, provided:
- The contractor owns not more than 10 goods carriages at any time during the tax year; AND
- The contractor furnishes a written declaration to that effect along with their Permanent Account Number (PAN) to the payer.
3. Payments by Individuals & HUFs Not Liable for Tax Audit [Sl. 6(ii)]
Individuals and HUFs who are not covered under business/profession tax audit are exempt from deducting TDS under Sl. 6(i). However, under Section 393(1) [Table: Sl. No. 6(ii)] (replaces Section 194M):
- If an Individual or HUF pays any sum to a resident contractor, professional, or agent exceeding ₹50,00,000 in aggregate in a tax year for personal or business purposes;
- Tax must be deducted @ 2% on the entire amount;
- No TAN is required—compliance is executed via challan-cum-statement in Form 26QD using PAN.
The insurance and agency sectors are governed by specialized withholding thresholds under the Table to Section 393(1):
| Table Sl. No. | Transaction Nature | Payer | Threshold | Rate of TDS | Statutory Scope & Compliance Notes |
|---|---|---|---|---|---|
| Sl. 1(i) (Old Sec 194D) |
Insurance Commission (Soliciting or procuring insurance business, renewal/revival) |
Any Person (Insurance Companies) | ₹20,000 per tax year |
• 2% for Resident Non-Corporate Payee. • 10% for Domestic Company Payee. |
Threshold amended from ₹15,000 to ₹20,000 under Income-tax Act, 2025. Deducted on credit or payment, whichever is earlier. |
| Sl. 1(ii) (Old Sec 194H) |
Commission or Brokerage (Services in buying/selling, agency, excluding professional services) |
Specified Person (Corporate, Firm, or Ind/HUF under audit) | ₹20,000 per tax year | 2% (Amended from 5%) |
• Does not apply to underwriting commission or loan processing brokerage paid to banks. • Principal-to-Principal transactions (discount on SIM cards / start-up kits) are not commission. |
| Sl. 8(iii) (Old Sec 194DA) |
Life Insurance Policy (LIC) Payouts (Maturity proceeds not exempt u/s 10(10D) / Schedule III) |
Insurance Company | ₹1,00,000 in aggregate per tax year | 5% on the income component |
• Tax is deducted strictly on the net income (Total maturity amount received less aggregate insurance premiums paid by the policyholder). • No TDS if sum is exempt under Schedule III (Sl. 9). |
| Sl. 8(iv) (Old Sec 194E) |
Payments to Non-Resident Sportsmen / Entertainers | Any Person (Clubs, Associations) | Nil (Every rupee taxable) | 20% + Surcharge + 4% HEC | Applies to non-citizen, non-resident athletes, artists, sports associations participating in matches/games in India or contributing articles/advertisements. |
In Bharti Cellular Ltd. / Idea Cellular, the Supreme Court ruled that where telecom operators sell SIM cards and recharge vouchers to independent distributors at a discounted price on a principal-to-principal basis (where title and risk pass to the distributor), the margin earned by the distributor is not "commission or brokerage" under Section 402(7). Consequently, no TDS is deductible under Sl. 1(ii).
Real estate transactions represent the largest component of withholding tax compliance. The Income-tax Act, 2025 organizes real estate withholding into three dedicated serial numbers:
• 2% Plant & Machinery
• 10% Land, Building & Furniture
• Threshold: ₹2,40,000 pa
• 2% on rent paid
• Threshold: > ₹50,000 per month
• Deducted in last month of year
• 1% on Higher of Consideration or SDV
• Form 26QB Challan
• Excludes Rural Agri Land
1. Rent Paid by Specified Persons [Table Sl. 2(ii)]
- Applicability: Any person, other than an individual or HUF (or an individual/HUF liable for tax audit) paying rent exceeding ₹2,40,000 per annum.
- Separate Rates:
• 2% for use of any machinery, plant, or equipment.
• 10% for use of any land or building (including factory building) or land appurtenant thereto or furniture or fittings. - Municipal Taxes: TDS is deductible on the rent inclusive of municipal taxes if borne by the tenant, but exclusive of GST if GST is separately shown on the invoice (Circular 23/2017).
- Cold Storage Facility: Customers paying charges to cold storage owners are paying for the provision of a cooling preservation service, not rent of building. Covered under Sl. 6(i) (Contractor @ 1%/2%), NOT under Sl. 2(ii) (Circular 1/2008).
- Airport Landing & Parking Charges: Payment of landing and parking charges by commercial airlines to the Airports Authority of India is payment for the use of land/runway, falling under Sl. 2(ii) (Rent @ 10%) as settled by the Supreme Court in Japan Airlines Co. Ltd.
2. Rent Paid by Non-Audit Individuals & HUFs [Table Sl. 2(i)]
Where an individual or HUF (not subject to business tax audit) pays rent to a resident landlord exceeding ₹50,000 for a month or part of a month:
- Rate of TDS: 2% (amended under ITA 2025).
- Point of Deduction: Deducted once a year: either at the time of credit/payment for the last month of the tax year (March) or the last month of the tenancy (if vacated earlier).
- Ceiling Safeguard: Where the landlord does not furnish PAN, tax is deductible @ 20% under Section 396; however, the total TDS cannot exceed the rent payable for that last month.
- No TAN Requirement: The tenant uses PAN to file Form 26QC challan-cum-statement within 30 days from the end of the month of deduction.
3. Transfer of Immovable Property [Table Sl. 3(i)]
Any transferee (buyer) responsible for paying any sum to a resident transferor (seller) by way of consideration for transfer of any immovable property (other than agricultural land):
- Threshold: Aggregate consideration or Stamp Duty Value (SDV) ≥ ₹50,00,000.
- Rate of Tax: 1% on the higher of actual consideration or SDV of such property.
- Clubbing of Incidental Charges: Consideration statutorily includes all charges incidental to transfer (car parking, electricity/water amenity fees, club membership fees, maintenance advances).
- Multiple Buyers or Sellers: By virtue of the Finance Act amendment, where there are multiple buyers or multiple sellers for a single property, the ₹50,00,000 threshold applies to the aggregate consideration/SDV of the property, not on an individual co-owner basis.
- Compliance: Form 26QB challan-cum-statement within 30 days from end of the month; buyer does not require TAN.
4. JDA Monetary Consideration & Compulsory Acquisition [Sl. 3(ii) & 3(iii)]
- Joint Development Agreements [Sl. 3(ii)]: Any developer paying any monetary consideration (cash/cheque) to an individual or HUF landowner under a registered JDA referred to in Section 45(5A) must deduct tax @ 10% at the time of credit or payment.
- Compulsory Acquisition [Sl. 3(iii)]: Any authority paying compensation or enhanced compensation for compulsory acquisition of immovable property (other than agricultural land) must deduct tax @ 10% where aggregate payment in a tax year exceeds ₹5,00,000.
Payments made by specified persons to resident individuals, firms, or companies for professional or technical services, royalty, non-compete fees, or director remuneration are governed by Section 393(1) [Table: Sl. No. 6(iii)] (replaces Section 194J of the 1961 Act).
- Fees for Technical Services (FTS) (not being professional services).
- Payments to Call Centre operators.
- Royalty in the nature of consideration for transfer of all/any rights in respect of cinematographic film.
- Fees for Professional Services (legal, medical, engineering, accountancy, architecture, interior decoration, technical consultancy, IT).
- Any other Royalty & Non-Compete Fees u/s 28(va).
- Director Fees / Remuneration (other than salary).
1. Threshold Limits & Category-wise Aggregation
- Separate ₹30,000 Threshold: The statutory threshold limit of ₹30,000 per annum applies independently to each of the four distinct statutory categories:
(a) Fees for professional services,
(b) Fees for technical services,
(c) Royalty, and
(d) Non-compete fees under Section 28(va).
Example: If a company pays ₹25,000 as legal fees and ₹25,000 as technical fees to the same entity during a tax year, no TDS is deductible under either category since neither exceeds ₹30,000. - Zero Threshold for Director Remuneration: Payments of sitting fees, commission, or any other remuneration to a director (not being taxable as salary u/s 192/392) attract TDS @ 10% with NO threshold (even ₹1 is subject to TDS).
2. TPA Payments to Private Hospitals (Circular 8/2009 & Notification 88/2008)
Under CBDT Notification No. 88/2008 and Circular No. 8/2009, payments made by Third Party Administrators (TPAs) on behalf of health insurance companies to private hospitals for medical services rendered to policyholders fall strictly within the ambit of Fees for Professional Services. TPAs are statutorily required to deduct tax at source @ 10% under Sl. 6(iii) on the gross payment made to hospitals.
3. Broadcasting / Telecasting Rights vs. Content Production (Circular 22/2016)
Where a television channel pays a production house:
- Content produced to channel's specifications (Job Work): If the broadcaster retains the copyright, the transaction is a contract for "work" governed by Sl. 6(i) (Contractor @ 1%/2%).
- Acquisition of Broadcasting / Telecasting Rights of pre-existing content: Where the copyright already exists with the producer and only telecasting rights are acquired, the payment represents Royalty / Professional Service governed by Sl. 6(iii) @ 2% or 10%.
Distributions made by pooled investment vehicles and collective investment vehicles operate under specialized pass-through and withholding regimes:
| Entity Type | Governing Provision | Nature of Distributed Income | Rate of TDS | Threshold & Key Conditions |
|---|---|---|---|---|
| Mutual Funds / Unit Trust of India | Section 393(1) [Table: Sl. 4(i)] (Old Sec 194K) |
Income in respect of units of Mutual Fund or Administrator of Specified Undertaking | 10% | ₹5,000 per tax year. Capital gains component is exempt from TDS. |
| Business Trusts (REITs / InvITs) | Section 393(1) [Table: Sl. 8(xvi)] (Old Sec 194LBA) |
• Interest received from SPV • Dividend received from SPV (where SPV opted for Sec 115BAA) • Rental income of REIT |
• 10% for Resident Unit Holder. • 5% for Non-Resident Unit Holder on Interest. • Nil if SPV did not opt for Sec 115BAA. |
Pass-through character preserved u/s 115UA; withholding triggers on distribution. |
| Investment Funds (AIF Category I & II) | Section 393(1) [Table: Sl. 8(xvii)] (Old Sec 194LBB) |
Any income distributed other than business income exempt u/s 10(23FBA) |
• 10% for Resident Unit Holder. • Rates in force for Non-Resident. |
Pass-through income taxed in unit holder's hands u/s 115UB; TDS deducted at point of distribution or credit. |
| Securitisation Trusts | Section 393(1) [Table: Sl. 8(xviii)] (Old Sec 194LBC) |
Income from investor protection fund / securitised debt instruments |
• 25% for Resident Individual / HUF. • 30% for Other Resident Persons. |
Pass-through regime under Section 115TCA. |
1. TDS on Cash Withdrawals from Banks & Post Offices [Table Sl. 8(xxii) / Old Sec 194N]
To discourage large cash transactions and foster a digital economy, every banking company, co-operative society engaged in banking, or post office must deduct tax at source on aggregate cash withdrawals:
Applies where aggregate cash withdrawals from all accounts maintained by the person with the banking institution exceed ₹1 Crore in a tax year. TDS @ 2% is deducted strictly on the amount exceeding ₹1 Crore.
For payees who have not filed returns for all 3 preceding assessment years for which due date has expired:
• 2% on cash withdrawals exceeding ₹20 Lakhs up to ₹1 Crore.
• 5% on cash withdrawals exceeding ₹1 Crore.
No tax is deductible under Sl. 8(xxii) on cash withdrawals made by:
- The Government or Reserve Bank of India;
- Any banking company, co-operative bank, or post office;
- Business correspondents of banking companies or white-label ATM operators;
- Authorised dealers and money changers licensed by RBI (Notification 70/2019);
- Agricultural Produce Market Committee (APMC) commission agents/traders (Notification 70/2019).
2. TDS on E-Commerce Platforms [Table Sl. 8(v) / Old Sec 194-O]
Every e-commerce operator facilitating the sale of goods or provision of services through its digital or electronic facility must deduct tax at source @ 0.1% on the gross amount of such sales or services at the time of credit or payment.
- Deemed Credit: Any payment made directly by a purchaser of goods or recipient of services to an e-commerce participant is deemed to be an amount credited or paid by the operator to the participant.
- Individual / HUF Participant Exemption: No TDS is deductible if the e-commerce participant is an Individual or HUF whose gross sales/services through the platform do not exceed ₹5,00,000 during the tax year and they have furnished their PAN/Aadhaar.
- Interplay with Sec 194Q & Sec 206C(1H): Transactions subject to TDS under Sl. 8(v) (Sec 194-O) are expressly exempt from buyer TDS under Sec 194Q and seller TCS under Section 398(1) (Sec 206C(1H)). E-commerce withholding holds supreme statutory priority.
3. TDS on Business Benefits or Perquisites [Table Sl. 8(xxiii) / Old Sec 194R]
Any person responsible for providing to a resident any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession by such resident, must deduct tax at source @ 10% of the value or aggregate of value of such benefit/perquisite.
- Threshold: Value or aggregate of value of benefits exceeds ₹20,000 during the tax year.
- Non-applicability: Does not apply to an Individual or HUF whose business turnover does not exceed ₹1 Crore or profession turnover does not exceed ₹50 Lakhs in the preceding tax year.
- Benefit in Kind (CBDT Circular 12/2022 & 18/2022): Where the benefit is wholly in kind, or partly in cash and partly in kind but the cash is insufficient, the provider must ensure tax has been paid before releasing the benefit (by receiving cash/cheque from the recipient or verifying their advance tax challan).
- Social Media Influencers: If products (e.g. smartphones, cosmetics) are given to an influencer to review and are retained by them, it constitutes a perquisite subject to 10% TDS. If returned to the manufacturing company after review, it is not a perquisite.
- Dealer Conferences: Expenses on dealer conferences held for business education/training, product launches, or dealer feedback are exempt from 194R; however, leisure trips, family accompaniment, or overstay days attract 10% TDS.
4. TDS on Virtual Digital Assets (VDAs) [Table Sl. 8(vi) / Old Sec 194S]
Any person responsible for paying to a resident any sum by way of consideration for transfer of a Virtual Digital Asset (crypto, NFT) must deduct tax @ 1% of such sum.
- Thresholds:
• ₹50,000 per tax year where the payer is a Specified Person (Individual/HUF without business income or with turnover ≤ ₹1 Cr business / ₹50L profession).
• ₹10,000 for all other payers. - Crypto-for-Crypto Exchanges: Where a VDA is exchanged for another VDA, both parties are transferors and transferees. Both parties must deduct 1% TDS, or the crypto exchange facilitates withholding as clarified in CBDT Circular No. 13/2022.
1. TDS on Salary, Remuneration, Bonus & Interest to Partners [Table Sl. 8(xxiv) / Sec 194T]
Historically, payments made by a partnership firm (or LLP) to its partners were completely outside the scope of TDS. Under Section 393(1) [Table: Sl. No. 8(xxiv)] (Section 194T):
- Covered Payments: Any salary, remuneration, commission, bonus, or interest paid or credited to the account of a partner (including capital account or current account).
- Rate of TDS: 10% (or 2% for specified categories) on the entire sum.
- Statutory Threshold: Applies where the amount or aggregate of amounts of such payment/credit exceeds ₹20,000 during the tax year.
- Point of Deduction: At the time of credit of such sum to the account of the partner or at the time of payment in cash/cheque/draft, whichever is earlier.
2. Withholding on Payments to Non-Residents [Section 394]
Under Section 394 (replaces Section 195 of the 1961 Act), any person responsible for paying to a non-resident or a foreign company any interest or any other sum chargeable under the provisions of this Act (not being salary) must deduct tax at source at the rates in force or at the Double Taxation Avoidance Agreement (DTAA) rate, whichever is more beneficial to the assessee under Section 90(2).
- Chargeability Test (GE India Technology Centre): Deduction of tax is mandatory only if the payment contains an element of income chargeable to tax in India. If the sum is not chargeable to tax in India, no TDS is deductible.
- Lower / Nil Withholding Application: Either the payer or the non-resident payee may apply to the Assessing Officer for a determination of the chargeable proportion or a certificate of lower/nil withholding under Section 395.
- Compliance via Form 15CA & 15CB: Remittance information must be furnished electronically in Form 15CA (with Form 15CB certificate from an independent Chartered Accountant where remittance exceeds ₹5 Lakhs and is chargeable to tax).
3. Tax Deducted Deemed to be Income Received [Section 396]
Under Section 396, all sums deducted in accordance with the provisions of this Chapter shall, for the purpose of computing the income of an assessee, be deemed to be income received by the payee.
- Grossing Up Principle: If a contractor receives ₹98,000 net of 2% TDS (₹2,000), their gross taxable income is ₹1,00,000.
- Statutory Exceptions: Section 396 expressly excludes:
• Tax paid by an employer under Section 392(2)(a) on non-monetary perquisites provided to employees (exempt under Section 10(10CC) / Schedule III).
• Tax deducted on cash withdrawals under Section 393(3) [Table: Sl. No. 8(xxii) / Sec 194N] (since cash withdrawn is the assessee's own capital, not income).
4. Higher Rates of TDS for Non-Furnishing of PAN [Section 397(2)]
Under Section 397(2) (replaces Section 206AA), any person entitled to receive any sum or income on which tax is deductible must furnish their Permanent Account Number (PAN) to the deductor. In the event of failure to furnish PAN:
- Tax shall be deducted at the highest of the following three rates:
(i) At the rate specified in the relevant provision of this Act;
(ii) At the rate or rates in force; OR
(iii) At the rate of 20%. - Concessional 5% Cap for Specified Sections: For payments under Section 194-O (e-commerce) and Section 194Q (purchase of goods), the higher rate for non-furnishing of PAN is capped at 5% instead of 20%.
- Declaration Invalid: Any lower deduction certificate or Form 15G/15H declaration furnished without a valid PAN is statutorily invalid and void ab initio.
Tax Collection at Source (TCS) is an anti-tax evasion mechanism where the seller or lessor collects a specified percentage of tax from the buyer or lessee at the time of debiting the amount payable to the buyer's account or at the time of receipt of payment, whichever is earlier.
1. Master Statutory TCS Chart: Goods, Leases & Facilities
| Statutory Category | Nature of Goods / Right Conferred | Collector (Seller / Licensor) | TCS Rate | Statutory Exemptions & Conditions |
|---|---|---|---|---|
| Alcoholic Liquor | Sale of alcoholic liquor for human consumption | Seller (Distillery, Wholesaler, Govt) | 1% | No threshold. Collected at debit or receipt, whichever is earlier. |
| Tendu Leaves | Sale of tendu leaves | Seller (Forest Dept, Contractor) | 5% | Zero threshold. |
| Timber & Forest Produce | Timber obtained under a forest lease or any other mode; any other forest produce | Forest Dept / Seller | 2.5% | Does not apply if purchased for personal consumption. |
| Scrap | Sale of scrap resulting from manufacture or mechanical working | Seller | 1% |
• Section 402 Definition: Waste and scrap from manufacture or mechanical working of materials definitely not usable as such. • Scrap from trade/retail is not subject to TCS (Navine Fluorine). |
| Minerals | Sale of Coal, Lignite, or Iron Ore | Mine Owner / Seller | 1% | Form 27C Exemption: Buyer can submit declaration in Form 27C that minerals are for manufacturing or power generation, exempting them from TCS. |
| Parking Lot, Toll Plaza, Mining & Quarrying | Lease, licence, or contract for parking lot, toll plaza, or mining/quarrying | Lessor / Licensor (Govt, Municipal Corp) | 2% | Mining and quarrying does not include mineral oil, petroleum, or natural gas. |
| Motor Vehicles > ₹10 Lakhs | Sale of any motor vehicle of value exceeding ₹10 Lakhs | Automobile Dealer / Seller | 1% |
• Applies strictly to retail sales to consumers. • B2B sales from manufacturer to dealer are exempt from 1% vehicle TCS (Circular 19/2016). |
2. Overseas Tour Packages & Liberalised Remittance Scheme (LRS)
Authorized Dealers (AD Banks) remitting funds under RBI’s Liberalised Remittance Scheme (LRS) and sellers of overseas tour program packages must collect TCS as follows:
| Nature of Remittance / Transaction | Amount up to ₹7,00,000 | Amount Exceeding ₹7,00,000 |
|---|---|---|
| Overseas Tour Program Package | 5% (No exemption threshold) | 20% on amount exceeding ₹7 Lakhs |
| LRS: Remittance out of Loan from Financial Institution for Education (u/s 80E) | NIL | 0.5% on excess over ₹7 Lakhs |
| LRS: Other Education or Medical Treatment | NIL | 5% on excess over ₹7 Lakhs |
| LRS: Any Other Purpose (Gifts, investments, overseas assets) | NIL | 20% on excess over ₹7 Lakhs |
3. TCS on Sale of Goods Exceeding ₹50 Lakhs [Section 398(1) / Sec 206C(1H)]
Every seller whose total turnover from business in the immediately preceding tax year exceeds ₹10 Crore must collect TCS from a buyer:
- Threshold: Sale consideration received for goods exceeds ₹50,00,000 in the tax year.
- Rate of TCS: 0.1% on the receipt of consideration exceeding ₹50 Lakhs (1% if buyer fails to furnish PAN).
- Receipt Basis: Unlike TDS on invoice credit, Section 398(1) TCS on goods triggers strictly on actual receipt of sale consideration.
- Priority Order: Section 194-O (E-commerce) > Section 194Q (Buyer TDS) > Section 398(1) (Seller TCS). If the buyer is liable to deduct TDS under Sec 194Q, seller TCS does NOT apply!
To prevent excessive cash flow blockage where the payee's ultimate tax liability is lower than the statutory withholding rate, the Income-tax Act provides statutory mechanisms for lower or zero withholding:
Assessing Officer Certificate for Lower/Nil Deduction [Section 395(1)]
The payee (resident or non-resident) may submit an electronic application in Form 13 to their Assessing Officer. If the AO is satisfied that the total income of the recipient justifies deduction of tax at any lower rates or nil deduction, the AO issues a certificate specifying the lower rate or nil rate.
• Validity: Valid only for the specific financial year and specific deductor(s) mentioned in the certificate.
• Eligible Sections: Dividends, Interest, Contractors, Insurance commission, Commission/brokerage, Rent, Professional fees, and Non-resident payments.
Self-Declarations in Form 15G & Form 15H [Section 395(3)]
- Tax on estimated total income of the year is NIL.
- Dual Condition: Aggregate amount of dividend/interest income does not exceed the Basic Exemption Limit.
- Tax on estimated total income of the year is NIL.
- Single Condition: Eligible even if interest/dividend exceeds basic exemption limit, provided final tax payable is nil (after 87A rebate).
Specified Senior Citizens (Age ≥ 75 Years) Relief [Section 395(4) / Form 121]
A resident senior citizen aged 75 years or more is completely relieved from the requirement of filing a Return of Income under Section 139 if:
- They have only pension income and interest income from the same specified banking company;
- They furnish a declaration in Form No. 121 to the specified bank;
- The bank computes their total income after Chapter VIII deductions and Section 87A rebate, and deducts the final tax liability.
Withholding tax administration mandates strict adherence to statutory deposit timelines, quarterly reporting, and certificate generation under Section 397:
1. Timelines for Remittance of TDS / TCS to Government Account
| Deductor Category | Period of Deduction | Mandatory Remittance Due Date | Challan Form |
|---|---|---|---|
| Government Deductors (without challan - book entry) | Any month | Same day of deduction | Book Transfer Entry |
| All Other Deductors (Non-Govt / Corporate / Firms) | April to February | 7th of the following month (e.g. April TDS by 7th May) | ITNS 281 Challan |
| All Deductors (for Month of March) | March (End of Tax Year) | 30th April of next tax year | ITNS 281 Challan |
| Property Transfer / Rent by Ind/HUF (Sec 393(1) Sl. 3(i), 2(i), 6(ii)) | Any month | 30 days from end of the month of deduction | Form 26QB / 26QC / 26QD |
2. Quarterly Statements of TDS & TCS
| Quarter Ended | TDS Return Due Date (Forms 24Q, 26Q, 27Q) | TCS Return Due Date (Form 27EQ) |
|---|---|---|
| Q1: 30th June | 31st July | 15th July |
| Q2: 30th September | 31st October | 15th October |
| Q3: 31st December | 31st January | 15th January |
| Q4: 31st March | 31st May | 15th May |
3. Tax Deduction Account Number (TAN)
Under Section 397(1), every person deducting or collecting tax at source must apply for and obtain a Tax Deduction and Collection Account Number (TAN) in Form 49B within one month of deduction. TAN must be quoted on all challans, certificates, quarterly statements, and communications.
Exception: No TAN is required for individuals/HUFs deducting tax on property transfers (Form 26QB), rent > ₹50k pm (Form 26QC), or contracts > ₹50L (Form 26QD).
Failure to comply with withholding mandates triggers severe civil, financial, and statutory liabilities:
From the date on which tax was statutorily deductible to the date on which tax is actually deducted.
From the date on which tax was actually deducted to the date on which such tax is actually paid to the Government.
1. Deemed Assessee-in-Default & Safe Harbor Proviso [Section 401(1)]
Where a person responsible for deducting tax fails to deduct the whole or part of the tax, or fails to pay after deduction, they are deemed to be an assessee-in-default in respect of such tax.
The deductor shall NOT be deemed an assessee-in-default for failure to deduct tax if the resident payee:
- Has furnished their Return of Income under Section 139;
- Has taken into account such sum for computing income in the return;
- Has paid the tax due on the income declared by them in such return; AND
- Furnishes a certificate to this effect from a Chartered Accountant in Form No. 26A.
Interest Liability: Even if deemed default is avoided under Form 26A, the deductor must still pay interest @ 1% per month from the date tax was deductible until the date the payee files their Return of Income.
2. Disallowance of Expenditure under Section 35 [Old Sec 40(a)]
| Statutory Provision | Payment Nature | Disallowance Quantum | Conditions for Re-allowance |
|---|---|---|---|
| Section 35(b) (Old Sec 40(a)(i)) |
Interest, royalty, FTS, or other sum payable to a Non-Resident | 100% Disallowance of expenditure in current tax year | Allowed as deduction in the subsequent tax year in which tax is deducted and remitted. |
| Section 35(a) (Old Sec 40(a)(ia)) |
Any sum payable to a Resident (contract, rent, interest, professional fee) | 30% Disallowance of expenditure in current tax year | The 30% disallowed sum is allowed as a deduction in the subsequent tax year in which tax is deposited. |
3. Late Filing Fee under Section 439 & Penalties
- Fee for Late Filing [Section 439 / Old Sec 234E]: Any person failing to file a quarterly TDS/TCS statement by the due date must pay a mandatory fee of ₹200 per day for every day the failure continues, capped at the total amount of TDS/TCS.
- Penalty for Failure to Furnish Statement [Section 427 / Old Sec 271H]: Assessing Officer may levy penalty between ₹10,000 and ₹1,00,000. Relief is available if statement is filed within 1 year along with tax, interest, and Section 439 fees.
- Prosecution [Section 446 / Old Sec 276B]: Rigorous imprisonment between 3 months and 7 years with fine for failure to pay deducted tax to Government credit.
Automated Summary Processing of TDS/TCS Statements [Section 399]
Every statement of tax deduction or collection is processed through the computerized CPC-TDS (TRACES) system:
- Arithmetical errors and incorrect claims are automatically adjusted.
- Interest u/s 401(1) and fees u/s 439 are automatically computed and charged.
- An Intimation is generated specifying the net sum payable or refundable to the deductor.
- Limitation: No intimation shall be sent after the expiry of one year from the end of the financial year in which the statement is filed.
Power of CBDT to Issue Guidelines for Removal of Difficulties [Section 400]
If any difficulty arises in giving effect to the provisions of TDS or TCS, the Board may, with the approval of the Central Government, issue guidelines for the purpose of removing the difficulty. Every guideline issued by the Board shall be binding on the income-tax authorities and on the person responsible for deducting or collecting tax.
Bar against Direct Demand on Assessee [Section 401(4)]
Where tax is deductible at source under any provision of this Act, the assessee (payee) shall not be called upon to pay the tax himself to the extent tax has been deducted from that income. The tax credit must be granted based on the tax deduction, and the Revenue cannot demand payment from the payee on account of non-remittance by the payer.
Under the "Pay As You Earn" scheme, every taxpayer is liable to estimate their current income and pay income-tax in advance during the financial year itself.
Advance tax is mandatory if net tax payable on current income is ₹10,000 or more.
Resident individuals aged ≥ 60 years having no income under PGBP are completely exempt.
Mandatory quarterly schedule: 15 June, 15 Sept, 15 Dec, and 15 March.
1. Instalments of Advance Tax & Due Dates [Section 408]
| Due Date of Instalment | All Assessees (Other than Presumptive Taxpayers) | Presumptive Taxpayers (Sec 44AD / 44ADA / Sec 58(2)) |
|---|---|---|
| On or before 15th June | Not less than 15% of advance tax liability | NIL |
| On or before 15th September | Not less than 45% of advance tax liability | NIL |
| On or before 15th December | Not less than 75% of advance tax liability | NIL |
| On or before 15th March | 100% of advance tax liability | 100% of advance tax liability (Single Instalment) |
Note: Any payment of advance tax made on or before 31st March shall be treated as advance tax paid during the financial year.
2. Mandatory Interest for Default in Advance Tax [Sections 424 & 425]
- Triggers if no advance tax paid, OR advance tax paid is less than 90% of Assessed Tax.
- Interest Rate: 1% per month or part of a month.
- Period: From 1st April of Assessment Year to the date of regular assessment or determination u/s 143(1).
- Base: Assessed Tax less Advance Tax paid.
- 15th June: Shortfall below 15% (Safe harbor: buffer of 12%). Int: Shortfall × 1% × 3 months.
- 15th Sept: Shortfall below 45% (Safe harbor: buffer of 36%). Int: Shortfall × 1% × 3 months.
- 15th Dec: Shortfall below 75%. Int: Shortfall × 1% × 3 months.
- 15th March: Shortfall below 100%. Int: Shortfall × 1% × 1 month.
No interest under Section 425 shall be leviable in respect of any shortfall in installment if the shortfall is on account of under-estimation or failure to estimate:
- The amount of Capital Gains;
- Income by way of winnings from lotteries, crossword puzzles, or races;
- Income by way of dividends; OR
- Income under the head PGBP arising for the first time;
Condition: Provided the assessee pays the full tax payable in respect of such income as part of the remaining instalments of advance tax (or where no instalment is due, on or before 31st March).
Notice of Demand & Time for Payment [Section 411]
When any tax, interest, penalty, or fine is due in consequence of any order passed under this Act, the Assessing Officer serves a Notice of Demand (Form 156) specifying the sum so payable.
- Standard Payment Window: Must be paid within 30 days of the service of notice.
- Accelerated Recovery: The AO may, with prior approval of the Joint/Additional Commissioner, reduce this period if there is reason to believe that a 30-day window would be detrimental to revenue.
- Assessee-in-Default: If the demand is not paid within the allowed time, the assessee is deemed to be an assessee-in-default.
Penalty on Demand in Default [Section 412]
When an assessee is in default or is deemed to be in default in making a payment of tax, the Assessing Officer may direct that the assessee shall pay by way of penalty an amount not exceeding the amount of tax in arrears.
Tax Recovery Officer (TRO) Powers & Recovery Certificate [Sections 413 & 414]
The TRO draws up a statement (Tax Recovery Certificate in Form 57) specifying the amount of arrears and executes recovery through four statutory modes under Schedule II:
Attachment and public auction of bank accounts, shares, factory land, buildings, and vehicles.
Arrest and detention in civil prison upon show-cause notice; appointment of receiver for managing business/rentals.
Stay of Proceedings & Foreign Tax Recovery [Sections 415 & 418]
Section 415: The TRO may grant time for payment or stay proceedings, and amend/cancel the recovery certificate upon modification of demand in appeal.
Section 418: Provides for reciprocal recovery of tax arrears from assessees residing or holding assets in foreign countries under Double Taxation Avoidance Agreements (DTAAs).
Tax Clearance Certificate for Leaving India [Section 420]
Mandatory for individuals not domiciled in India or individuals involved in serious financial irregularities/direct tax investigations before leaving the country.
Where the amount of tax paid by an assessee (by way of advance tax, TDS, TCS, or self-assessment tax) exceeds the amount with which they are properly chargeable under this Act, the assessee is entitled to a statutory refund of the excess.
Simple interest @ 0.5% for every month or part of a month comprised in the period of delay.
Where refund granted under summary assessment u/s 143(1) exceeds regular assessed refund.
1. Computation of Refund Interest Period [Section 437 / Old 244A]
| Circumstance of Refund | Commencement Date of Interest | Termination Date of Interest |
|---|---|---|
| Return filed ON or BEFORE Due Date u/s 139(1) | 1st April of the Assessment Year | Date on which the refund is granted |
| Return filed AFTER Due Date u/s 139(1) (Belated Return) | Date of furnishing the Return of Income | Date on which the refund is granted |
| Refund of Self-Assessment Tax / Appeal Order | Date of payment of tax or date of appeal order | Date on which refund is granted |
No interest shall be payable under Section 437 if the amount of refund is less than 10% of the tax determined under summary processing or regular assessment.
2. Set-off of Refunds against Outstanding Tax Demand [Section 422 / Old Sec 245]
Where a refund is found to be due to any person, the Assessing Officer or other income-tax authority may, in lieu of payment of the refund, set off the amount against any sum remaining payable by the person under this Act.
Statutory Condition: Set-off can only be executed after giving prior written intimation to the assessee specifying the demand and proposed adjustment.
The following 17 practical illustrations are drawn verbatim from the ICAI CA Final Study Material under the Income-tax Act, 2025 and Finance Act, 2026, illustrating the real-world application of withholding thresholds, rates, carrier exemptions, and interest calculations.
Problem Statement:
LL Limited paid leave travel facility to its employees and considered an exemption in respect of Leave Travel Concession (LTC) under Schedule III (Table: Sl. No. 8), based on the self-declaration furnished by the employees, who have exercised option to opt out of the default tax regime. The Assessing Officer held that the company as an employer ought to have verified the genuineness of the claim of exemption by obtaining from them, the proof of actual expenditure incurred by availing LTC. Accordingly, the Assessing Officer treated the assessee company as an assessee in default. Decide the correctness of action.
Section 392 casts liability on the employer to deduct tax at source from salary paid to its employees. The employer has paid LTC to its employees, which is eligible for exemption under Schedule III (Table: Sl. No. 8) read with Rule 278.
As per Rule 278, the exemption shall be allowed subject to the condition of fulfillment of the prescribed conditions. Under CBDT Circulars and the Supreme Court ruling in CIT v. ITI Ltd., the employer is under a statutory obligation to collect evidence and proof of actual expenditure incurred by the employees before granting exemption for LTC while deducting tax under Section 392.
Conclusion: The action of the Assessing Officer in treating LL Limited as an assessee-in-default under Section 401 for failure to verify the documentary proof of actual travel expenditure is correct in law.
Problem Statement:
Mr. Sharma, an employee of M/s. ABC Ltd., since 10-04-2022, resigned on 31-03-2027 and withdrew ₹60,000, being the balance in his RPF account. Discuss with reasons whether the provisions of Chapter XIX-B are attracted, and if so, what is the net amount receivable by the payee, Mr. Sharma?
Continuous Service Condition: Under Para 8 of Part A of Schedule XI, accumulated balance in an RPF is exempt only if the employee has rendered continuous service of at least 5 years with the employer. Here, Mr. Sharma served from 10-04-2022 to 31-03-2027 (less than 5 years). Hence, the accumulated balance is taxable.
TDS Liability under Section 392(3): Tax is deductible @ 10% where the accumulated balance payable is ₹50,000 or more.
- Gross withdrawal amount: ₹60,000 (Exceeds ₹50,000 threshold).
- TDS @ 10% under Section 392(3): ₹60,000 × 10% = ₹6,000.
- Net Amount Receivable by Mr. Sharma: ₹60,000 − ₹6,000 = ₹54,000.
Problem Statement:
Mr. X, a salaried individual, pays rent of ₹55,000 per month to Mr. Y from June, 2026. Is he required to deduct tax at source? If so, when is he required to deduct tax? Also, compute the amount of tax to be deducted at source.
• Would your answer change if Mr. X vacated the premises on 31st August, 2026?
• Also, what would be your answer if Mr. Y does not provide his PAN to Mr. X?
Applicability under Section 393(1) [Table: Sl. No. 2(i)]: An individual not liable for tax audit paying rent exceeding ₹50,000 per month must deduct TDS @ 2%.
- Standard Case (Tenancy from June 2026 to March 2027 = 10 months):
Total rent for 10 months = ₹55,000 × 10 = ₹5,50,000.
TDS Amount: ₹5,50,000 × 2% = ₹11,000.
Time of Deduction: Deducted in the last month of the tax year, i.e., March 2027. - If premises vacated on 31st August, 2026 (Tenancy: June to August = 3 months):
Total rent = ₹55,000 × 3 = ₹1,65,000.
TDS Amount: ₹1,65,000 × 2% = ₹3,300.
Time of Deduction: Deducted in the last month of tenancy, i.e., August 2026. - If Landlord (Mr. Y) Does Not Furnish PAN:
Under Section 397(2), tax is deductible at the higher rate of 20%.
Computed TDS @ 20% on ₹5,50,000 = ₹1,10,000.
Statutory Cap [Section 397(2)(e)]: The amount of TDS cannot exceed the rent payable for the last month (₹55,000).
Therefore, the tax deduction is strictly restricted to ₹55,000.
Problem Statement:
Mr. X sold his house property in Bangalore as well as his rural agricultural land for a consideration of ₹60 lakh and ₹15 lakh, respectively, to Mr. Y on 1.8.2026. He had purchased the house property and the land in the year 2025 for ₹40 lakh and ₹10 lakh, respectively. The stamp duty value on the date of transfer, i.e., 1.8.2026, is ₹85 lakh and ₹20 lakh for the house property and rural agricultural land, respectively. Examine the tax implications in the hands of Mr. X and Mr. Y and the TDS implications, if any, in the hands of Mr. Y, assuming both are resident Indians.
1. Tax Implications in hands of Seller (Mr. X):
- House Property: Since SDV (₹85L) exceeds 110% of consideration (₹60L × 110% = ₹66L), deemed consideration u/s 78 is ₹85,00,000. Short-term Capital Gain = ₹85,00,000 − ₹40,00,000 = ₹45,00,000.
- Rural Agricultural Land: Not a capital asset u/s 2(24). Capital gain is exempt.
2. Tax Implications in hands of Buyer (Mr. Y):
- House Property: Difference between SDV (₹85L) and consideration (₹60L) = ₹25,00,000. Since it exceeds ₹50,000 and 10% of consideration, ₹25,00,000 is taxable as IFOS u/s 56(2)(x) / Section 59.
- Rural Agricultural Land: Rural agricultural land is excluded from the definition of property u/s 56(2)(x). No IFOS tax.
3. TDS Implications in hands of Buyer (Mr. Y) under Section 393(1) [Table: Sl. No. 3(i)]:
- Rural Agricultural Land: Expressly exempt from TDS under Sl. 3(i). No TDS.
- House Property: Consideration/SDV exceeds ₹50 Lakhs. Tax @ 1% is deductible on the higher of consideration (₹60L) or SDV (₹85L).
TDS Amount: ₹85,00,000 × 1% = ₹85,000.
Problem Statement:
Examine the TDS implications in the cases mentioned hereunder:
(i) On 1.10.2026, Mr. Harish, aged 45 years, deposited ₹12,00,000 in a 1-year term deposit @ 9% p.a. with SBI.
(ii) On 1.10.2026, Mr. Rajesh, aged 65 years, deposited ₹8,00,000 in a 1-year term deposit @ 9% p.a. with SBI.
(iii) ABC & Co. a partnership firm paid interest of ₹18,000 to partner Mr. Ram on his capital.
- Mr. Harish (Age 45 - Regular Individual):
Interest for FY 2026-27 (6 months: Oct to March) = ₹12,00,000 × 9% × 6/12 = ₹54,000.
Threshold for non-senior citizens under Sl. 5(ii) is ₹40,000. Since interest exceeds ₹40,000:
TDS @ 10%: ₹54,000 × 10% = ₹5,400. - Mr. Rajesh (Age 65 - Resident Senior Citizen):
Interest for FY 2026-27 (6 months) = ₹8,00,000 × 9% × 6/12 = ₹36,000.
Threshold for resident senior citizens under Sl. 5(ii) is ₹50,000.
Since aggregate interest (₹36,000) does not exceed ₹50,000, NO TDS is deductible. - ABC & Co. Payment to Partner Mr. Ram:
Under Section 393(1) [Table: Sl. No. 8(xxiv) / Sec 194T], interest paid by a firm to a partner attracts 10% TDS only if it exceeds ₹20,000.
Since interest is ₹18,000 (does not exceed ₹20,000), NO TDS is deductible.
Problem Statement:
Maya Bank credited ₹73,50,000 towards interest on deposits in a separate account for macro-monitoring purposes by using Core-branch Banking Solutions (CBS) software. No tax was deducted at source in respect of interest on deposits so credited even where the interest in respect of some depositors exceeded the limit of ₹50,000. The Assessing Officer disallowed 30% of interest expenditure where interest credited exceeded ₹50,000 and levied penalty. Decide the correctness of the AO's action.
Section 393(11) (Deemed Credit Principle): The credit of any income or sum to any account, whether called "suspense account" or "interest payable account" or by any other name, in the books of account of the payer, is statutorily deemed to be credit to the payee's account.
CBDT Circular No. 3/2010 clarifies that in CBS software environments, interest accrued on time deposits is credited branch-wide to customer accounts or monitoring accounts. Where the interest credited to any individual depositor exceeds the statutory limit (₹40,000 / ₹50,000), the bank is statutorily bound to deduct TDS.
Conclusion: Since Maya Bank failed to deduct TDS on interest exceeding ₹50,000, the Assessing Officer is fully justified in disallowing 30% of such interest expenditure under Section 35(a) (Old Sec 40(a)(ia)) and treating the bank as an assessee-in-default.
Problem Statement:
ABC Ltd. makes the following payments to Mr. X, a contractor, for contract work during T.Y. 2026-27:
• ₹20,000 on 1.5.2026
• ₹25,000 on 1.8.2026
• ₹28,000 on 1.12.2026
On 1.3.2027, a payment of ₹30,000 is due to Mr. X on account of contract work. Discuss whether ABC Ltd. is liable to deduct tax at source from payments made to Mr. X.
Under Section 393(1) [Table: Sl. No. 6(i)], tax is deductible @ 1% (since Mr. X is an Individual) if:
(a) A single contract payment exceeds ₹30,000; OR
(b) Aggregate contract payments during the tax year exceed ₹1,00,000.
| Date of Payment | Amount | Cumulative Payments | TDS Liability & Action |
|---|---|---|---|
| 1.5.2026 | ₹20,000 | ₹20,000 | No TDS (Neither single > ₹30k nor aggregate > ₹100k) |
| 1.8.2026 | ₹25,000 | ₹45,000 | No TDS |
| 1.12.2026 | ₹28,000 | ₹73,000 | No TDS |
| 1.3.2027 | ₹30,000 | ₹1,03,000 |
Aggregate exceeds ₹1,00,000!
TDS @ 1% on entire aggregate ₹1,03,000 = ₹1,030. ABC Ltd. must deduct ₹1,030 from the current payment of ₹30,000. |
Problem Statement:
Bharathi Cements Ltd. purchased jute bags from Raj Kumar & Co. The latter has to supply the jute bags with the logo and address of the assessee printed on it. From 01.09.2026 to 20.03.2027, the value of jute bags supplied is ₹8,00,000, for which invoice has been raised on 20.03.2027. While effecting payment, is the assessee bound to deduct tax at source, assuming printing component involved is ₹1,10,000? Assessee did not sell any material to Raj Kumar & Co. and the latter manufactured the bags using raw materials purchased from outsiders.
Definition of "Work" under Section 402(47): Work does NOT include manufacturing or supplying a product according to the requirement or specification of a customer by using raw materials purchased from a person other than such customer.
Here, Raj Kumar & Co. purchased raw materials from third-party outsiders, not from Bharathi Cements Ltd. The printing of logo and address is purely incidental to the primary transaction of sale of jute bags.
Conclusion: The transaction is a contract for sale of goods, not a contract for work. Bharathi Cements Ltd. is NOT liable to deduct TDS under Section 393(1) [Table: Sl. No. 6(i)].
Problem Statement:
Alap Ltd. made the following payments on various dates in T.Y. 2026-27 to Vilambit Ltd. towards work done under different contracts:
• Contract 1 (5.5.2026): ₹20,000
• Contract 2 (6.6.2026): ₹15,000
• Contract 3 (8.8.2026): ₹25,000
• Contract 4 (10.12.2026): ₹25,000
• Contract 5 (29.1.2027): ₹17,000
Alap Ltd. claims it is not liable for TDS under Sl. 6(i). Examine correctness of the claim.
What would be the position if the value of Contract 5 is ₹14,000 only and there was no further contract?
- Original Scenario (Contract 5 = ₹17,000):
Aggregate payments = ₹20,000 + ₹15,000 + ₹25,000 + ₹25,000 + ₹17,000 = ₹1,02,000.
Since aggregate payments exceed ₹1,00,000, Alap Ltd. is liable to deduct TDS @ 2% (Vilambit Ltd. is a company) on the entire aggregate amount of ₹1,02,000.
TDS Amount: ₹1,02,000 × 2% = ₹2,040 (deducted from Contract 5 payment).
Hence, Alap Ltd.'s claim of non-liability is incorrect. - Alternative Scenario (Contract 5 = ₹14,000):
Aggregate payments = ₹20,000 + ₹15,000 + ₹25,000 + ₹25,000 + ₹14,000 = ₹99,000.
• No single payment exceeds ₹30,000.
• Total aggregate payments (₹99,000) do NOT exceed ₹1,00,000.
Conclusion: In this alternative scenario, Alap Ltd. is NOT liable to deduct any tax at source under Section 393(1) [Table: Sl. No. 6(i)].
Problem Statement:
Moon TV, a television channel, made payment of ₹50 lakhs to a production house for the production of a programme for telecasting as per specifications given by the channel. The copyright of the programme is also transferred to Moon TV. Would such payment be liable for tax deduction at source under Section 393(1) [Table: Sl. No. 6(i)]? Discuss.
Also, examine whether TDS under Sl. 6(i) would be attracted if the payment was made by Moon TV for the acquisition of telecasting rights of content already produced by the production house.
- Programme Produced as per Channel's Specifications with Copyright Transfer:
As per Section 402(47) read with CBDT Circular No. 22/2016, where content is produced according to the specifications provided by the broadcaster and the copyright also gets transferred to the broadcaster, the contract falls within the statutory definition of "Work".
Applicable Section: Section 393(1) [Table: Sl. No. 6(i)] (Contractor).
Rate of TDS: 2% (since production house is a company/firm).
TDS Amount: ₹50,00,000 × 2% = ₹1,00,000. - Acquisition of Telecasting Rights of Pre-existing Content:
Where the content has already been produced by the production house and the television channel merely acquires the broadcasting/telecasting rights, the contract is NOT a contract for work.
Such payment constitutes Royalty under Section 393(1) [Table: Sl. No. 6(iii)] (replaces Section 194J) and is subject to TDS @ 2% (royalty for cinematographic film rights). Sl. 6(i) does NOT apply.
Problem Statement:
Examine whether TDS provisions would be attracted in the following cases, and if so, specify the section and rate of TDS:
1. Mr. Ganesh, an individual carrying on retail business with turnover of ₹2.5 crores in T.Y. 2025-26:
(a) Contract payment for repair of residential house: ₹5 lakhs.
(b) Payment of commission to Mr. Vallish for business purposes: ₹80,000 in November 2026.
2. Mr. Rajesh, a wholesale trader whose turnover was ₹95 lakhs in T.Y. 2025-26, made contract payment for reconstruction of residential house of ₹55 lakhs.
- Mr. Ganesh (Business Turnover ₹2.5 Cr > ₹1 Cr - Specified Person):
(a) Residential House Repair (₹5 Lakhs): Although Mr. Ganesh is subject to tax audit, contract payments made by an individual exclusively for personal purposes (repair of own residence) are exempt from Sl. 6(i). Such personal payments fall under Sl. 6(ii) only if they exceed ₹50 Lakhs. Since payment is ₹5 Lakhs (≤ ₹50L), NO TDS is deductible.
(b) Business Commission to Mr. Vallish (₹80,000): Mr. Ganesh is a specified person and commission is for business purposes exceeding ₹20,000. TDS @ 2% is deductible under Section 393(1) [Table: Sl. No. 1(ii)].
TDS Amount: ₹80,000 × 2% = ₹1,600. - Mr. Rajesh (Turnover ₹95 Lakhs ≤ ₹1 Cr - Non-Audit Individual):
Mr. Rajesh is not a specified person under Section 402(37). Hence, Sl. 6(i) does not apply.
However, under Section 393(1) [Table: Sl. No. 6(ii)] (Old Sec 194M), an individual paying any sum to a resident contractor exceeding ₹50,00,000 during the year must deduct TDS @ 2%.
Since payment is ₹55,00,000 (exceeds ₹50L):
TDS @ 2%: ₹55,00,000 × 2% = ₹1,10,000.
Problem Statement:
East Bengal Club, a renowned football club, has engaged Raghu, a resident in India, as its coach at a remuneration of ₹6 lakhs per annum. The club wants to know from you whether it is liable to deduct tax at source from such remuneration.
Notified Professions under Section 402(28): Under CBDT Notification No. 88/2008, the Central Board of Direct Taxes has notified sports persons, umpires and referees, coaches and trainers, team physicians and physiotherapists, event managers, commentators, anchors, and sports columnists as authorized professions for the purposes of withholding tax on professional services.
Under Section 393(1) [Table: Sl. No. 6(iii)], any person paying fees for professional services to a resident exceeding ₹30,000 must deduct tax @ 10%.
- Annual coaching fee paid to Raghu: ₹6,00,000 (Exceeds ₹30,000 threshold).
- TDS @ 10%: ₹6,00,000 × 10% = ₹60,000.
Problem Statement:
Examine the applicability of TDS under Section 393(1) [Table: Sl. No. 8(iii)] in the following cases:
(i) Mr. X, a resident, is due to receive ₹4.50 lakhs on 30.6.2026 towards maturity proceeds of an LIC policy taken on 1.7.2023 (Sum assured ₹4 lakhs, annual premium ₹1,25,000). He has not claimed any deduction for premiums.
(ii) Mr. Y, a resident, is due to receive ₹3.95 lakhs on 31.12.2026 on an LIC policy taken on 1.1.2012 (Sum assured ₹3.50 lakhs, annual premium ₹26,100).
(iii) Mr. Z, a resident, is due to receive ₹95,000 on 1.8.2026 towards maturity of an LIC policy taken on 31.7.2018 (Sum assured ₹90,000, annual premium ₹20,000).
- Mr. X: Policy issued on 1.7.2023. Annual premium (₹1,25,000) exceeds 10% of sum assured (₹40,000). Hence, maturity proceeds are not exempt under Schedule III (Sl. 9) / Section 10(10D).
Total premiums paid over 3 years = ₹1,25,000 × 3 = ₹3,75,000.
Income Component: ₹4,50,000 − ₹3,75,000 = ₹75,000.
Since aggregate maturity proceeds (₹4,50,000) exceed ₹1,00,000, TDS is deductible @ 5% on the income component:
TDS Amount: ₹75,000 × 5% = ₹3,750. - Mr. Y: Policy issued on 1.1.2012 (prior to 1.4.2012). Annual premium (₹26,100) is well within 20% of sum assured (₹70,000). The maturity proceeds are completely exempt under Schedule III.
TDS Liability: NIL. - Mr. Z: Annual premium (₹20,000) exceeds 10% of sum assured (₹9,000). Maturity is taxable.
However, under Section 393(1) [Table: Sl. No. 8(iii)], TDS applies only if the aggregate maturity proceeds equal or exceed ₹1,00,000.
Since gross maturity is ₹95,000 (less than ₹1,00,000 threshold), NO TDS is deductible.
Problem Statement:
Mr. Sharma, a resident Indian aged 77 years, gets pension of ₹82,000 per month from UP State Government credited to his SBI savings account. He also earns interest @ 8% on fixed deposits of ₹40 lakhs with SBI (out of which ₹2 lakh represents a 5-year tax-saving deposit). Savings account interest is ₹9,500.
(I) Compute total income and tax liability of Mr. Sharma for T.Y. 2026-27 under the normal provisions (opted out of default regime).
(II) What is the tax deductible by SBI? Is Mr. Sharma required to file his Return of Income?
(I) Computation of Total Income & Tax Liability of Mr. Sharma (A.Y. 2027-28):
| Particulars | Amount (₹) |
|---|---|
| Gross Pension (₹82,000 × 12) | 9,84,000 |
| Less: Standard Deduction u/s 16(ia) / Section 33 | (50,000) |
| Income under the head 'Salaries' | 9,34,000 |
| Interest on Fixed Deposits (₹40,00,000 × 8%) | 3,20,000 |
| Interest on Savings Account | 9,500 |
| Gross Total Income | 12,63,500 |
| Less: Deduction under Section 80C (5-year term deposit - capped) | (1,50,000) |
| Less: Deduction under Section 80TTB (Interest for Senior Citizen - max) | (50,000) |
| Total Income (Rounded off) | 10,63,500 |
| Tax on ₹10,63,500 (Senior Citizen Slabs: Nil up to ₹3L, 5% next ₹2L, 20% next ₹5L, 30% balance ₹63,500) | 1,29,050 |
| Add: Health and Education Cess @ 4% | 5,162 |
| Total Tax Liability (Rounded off u/s 288B) | ₹1,34,210 |
(II) Bank Obligation & Return Exemption:
Since Mr. Sharma is aged 77 years (≥ 75 years) and receives pension and interest only from the specified bank (SBI), upon furnishing declaration in Form 121:
• SBI will deduct tax of ₹1,34,210 under Section 395(4).
• Mr. Sharma is completely exempt from the requirement of filing a Return of Income for T.Y. 2026-27 under Section 139(1).
Problem Statement:
Mr. Govind won the first prize in a lottery ticket, and the prize was a Maruti car worth ₹5 lakhs. What is the procedure to be adopted before handing over the Maruti car to Mr. Govind?
Section 393(3) [Table: Sl. No. 1] mandates tax deduction at source @ 30% on winnings from lotteries exceeding ₹10,000.
Proviso for Prizes Wholly in Kind: Where the winning is wholly in kind, the person responsible for paying the prize shall not release the winning until they ensure that the tax has been paid in respect of such winning.
- The market value of the Maruti car is ₹5,00,000.
- Tax payable @ 30%: ₹5,00,000 × 30% = ₹1,50,000.
- Procedure: The lottery distributor/organizer must either collect ₹1,50,000 in cash or demand draft from Mr. Govind and deposit it into the Government treasury, OR obtain from Mr. Govind an advance tax payment challan verifying that ₹1,50,000 has been remitted to the Central Government under the appropriate tax challan. Only thereafter can the car be released.
Problem Statement:
An amount of ₹60,000 was paid to Mr. X on 1.7.2026 towards fees for professional services without deduction of tax at source. Subsequently, another payment of ₹50,000 was due to Mr. X on 28.2.2027, from which tax @ 10% (amounting to ₹11,000) on the entire aggregate amount of ₹1,10,000 was deducted. However, this tax of ₹11,000 was deposited only on 22.6.2027. Compute the interest chargeable under Section 401(1) (replaces Section 201(1A)).
Interest under Section 401(1) is bifurcated into two separate statutory periods:
| Default Head | Applicable Period | Tax Base | Rate & Calculation | Interest (₹) |
|---|---|---|---|---|
| 1. Default in Deduction [Sec 401(1)(i)] | From 1.7.2026 to 28.2.2027 (8 calendar months: Jul, Aug, Sep, Oct, Nov, Dec, Jan, Feb) | ₹6,000 (10% of ₹60k) | 1% per month × 8 months | 480 |
| 2. Default in Payment [Sec 401(1)(ii)] | From 28.2.2027 to 22.6.2027 (5 calendar months: Feb, Mar, Apr, May, Jun - part of month counts as full) | ₹11,000 (Full TDS) | 1.5% per month × 5 months | 825 |
| Total Statutory Interest Chargeable: | ₹1,305 | |||
Problem Statement:
The Assessing Officer issued a notice of demand under Section 411 to Mr. X on 1.10.2028 for payment of ₹15 lakhs towards tax liability for T.Y. 2026-27, requiring payment within 30 days.
(a) Is he required to issue fresh notice of demand, and for what amount, in the following two independent cases:
(i) If tax demand is reduced to ₹12 lakhs by CIT(A)?
(ii) If tax demand is increased to ₹20 lakhs by ITAT?
(b) How would interest liability under Section 411(3) / 220(2) be calculated if demand is reduced to ₹12 lakhs?
- (a)(i) Demand Reduced to ₹12 Lakhs by CIT(A):
Under the Taxation Laws (Continuation and Validation of Recovery Proceedings) Act, where a tax demand is reduced in appeal, the Assessing Officer is NOT required to issue a fresh notice of demand.
The AO merely issues an intimation of reduction to the assessee and TRO. Recovery proceedings continue for the reduced amount of ₹12 lakhs without invalidating the original notice. - (a)(ii) Demand Increased to ₹20 Lakhs by ITAT:
Where the demand is enhanced in appeal, the original notice of demand remains valid for the original ₹15 lakhs.
The Assessing Officer is statutorily required to issue a fresh notice of demand ONLY for the enhanced amount of ₹5 lakhs (₹20L − ₹15L). - (b) Computation of Interest on Reduced Demand:
Interest @ 1% per month under Section 411(3) will be calculated strictly on the reduced demand of ₹12 lakhs, starting from the expiry of 30 days from the date of service of the original notice of demand (i.e., from 1.11.2028).
The following 13 complex practical questions from the ICAI Study Material test the critical intersections of withholding rates, non-PAN penalties, advance tax interest, and landmark judicial pronouncements under the Income-tax Act, 2025.
Question:
Mr. Madhusudan is regular in deducting tax at source and depositing the same. In respect of the quarter ended 31st December, 2026, a sum of ₹80,000 was deducted at source from contractors. The statement of tax deducted at source under Section 397 was filed on 23rd March, 2027 for the quarter ended 31.12.2026.
(i) Is there any delay on the part of Mr. Madhusudan in filing the statement of TDS?
(ii) If yes, how much fee/amount can be levied on Mr. Madhusudan under Section 439 and penalty under Section 427?
(iii) Is there any remedy available to him to seek waiver of penalty?
- (i) Delay in Filing Statement:
Under Section 397, the quarterly statement of TDS for the quarter ended 31st December (Q3) was due on or before 31st January, 2027.
Since Mr. Madhusudan filed the statement on 23rd March, 2027, there is a delay of 51 days (February: 28 days + March: 23 days). - (ii) Quantum of Fee under Section 439 & Penalty under Section 427:
• Late Filing Fee u/s 439 (Old 234E): Mandatory fee of ₹200 per day of delay.
Fee = 51 days × ₹200/day = ₹10,200.
Ceiling: Fee cannot exceed total TDS amount (₹80,000). Hence, ₹10,200 is fully leviable.
• Penalty u/s 427 (Old 271H): Levied between ₹10,000 and ₹1,00,000.
However, under Section 427(2), no penalty shall be levied if the assessee proves that the statement was filed within 1 year from the due date along with payment of TDS, interest, and late filing fee u/s 439.
Since Mr. Madhusudan filed within 1 year and had already deposited the tax, NO PENALTY is leviable under Section 427 upon paying the ₹10,200 fee. - (iii) Remedy Available:
If penalty is proposed under Section 427, Mr. Madhusudan can establish "reasonable cause" under Section 428 (Old Sec 273B) before the Assessing Officer to seek complete waiver.
Question:
Smt. Vijaya, proprietor of Lakshmi Enterprises, made a turnover of ₹210 lakhs during T.Y. 2025-26. Her turnover for the year ended 31.3.2027 was ₹240 lakhs. Her total tax liability for T.Y. 2026-27 is ₹4,00,000. She paid advance tax of ₹50,000 on 15.6.2026, ₹1,20,000 on 15.9.2026, ₹1,00,000 on 15.12.2026, and ₹1,30,000 on 15.3.2027.
Compute the interest, if any, payable under Section 425 (Old 234C) for deferment of advance tax instalments.
Since turnover exceeds ₹2 Crore, Smt. Vijaya is not eligible for presumptive taxation u/s 44AD. She is liable to pay advance tax in 4 quarterly instalments under Section 408.
Total Tax Liability = ₹4,00,000.
| Due Date | Specified % | Minimum Amount Due (₹) | Buffer (Safe Harbor) | Actual Tax Paid (Cumulative) (₹) | Shortfall (₹) | Interest u/s 425 (₹) |
|---|---|---|---|---|---|---|
| 15.06.2026 | 15% | 60,000 | 12% = 48,000 | 50,000 | NIL (Paid > 12% buffer) | 0 |
| 15.09.2026 | 45% | 1,80,000 | 36% = 1,44,000 | 1,70,000 (50k + 120k) | NIL (Paid > 36% buffer) | 0 |
| 15.12.2026 | 75% | 3,00,000 | No buffer (75%) | 2,70,000 (170k + 100k) | 30,000 | 30,000 × 1% × 3 mos = 900 |
| 15.03.2027 | 100% | 4,00,000 | No buffer (100%) | 4,00,000 (270k + 130k) | NIL | 0 |
| Total Interest under Section 425: | ₹900 | |||||
Question:
What is the rate at which tax is either to be deducted or collected under the provisions of the Act if the payee/buyer does not furnish their PAN to the deductor/collector in the following independent cases:
(i) Partnership firm selling timber in September 2026 under a forest lease.
(ii) ABC Ltd. paying contract charges of ₹1,50,000 to an Individual contractor.
(iii) E-commerce operator paying ₹6,00,000 to an Individual participant.
(iv) Purchase of goods exceeding ₹50 lakhs under Section 194Q.
Under Section 397(2) (replaces Section 206AA) and Section 398(7) (replaces Section 206CC), where PAN is not furnished:
- Sale of Timber under Forest Lease (TCS u/s 398 / 394):
Normal rate is 2.5%. Under Section 398(7), non-furnishing of PAN triggers TCS at twice the rate or 5%, whichever is higher.
Twice the rate = 5%. Hence, TCS is collectible @ 5%. - ABC Ltd. Payment to Contractor (TDS u/s 393(1) Sl. 6(i)):
Normal rate for Individual payee is 1%. Under Section 397(2), tax is deductible at the higher of specified rate (1%) or 20%.
Hence, TDS is deductible @ 20%. - E-Commerce Operator Payment (TDS u/s 393(1) Sl. 8(v) / Sec 194-O):
Normal rate is 0.1%. Proviso to Section 397(2) expressly caps the non-PAN higher rate for Section 194-O at 5% instead of 20%.
Hence, TDS is deductible @ 5%. - Purchase of Goods exceeding ₹50 Lakhs (TDS u/s 194Q):
Normal rate is 0.1%. Proviso to Section 397(2) expressly caps the higher rate for Section 194Q at 5% instead of 20%.
Hence, TDS is deductible @ 5%.
Question:
Examine the liability for tax deduction at source in the following cases for T.Y. 2026-27:
(i) X Ltd. pays ₹22,000 as commission to an agent for purchases made.
(ii) ABC Ltd. pays ₹45,000 to Mr. R, an individual transporter owning 6 goods trucks who furnishes PAN and declaration.
(iii) Y Ltd. pays ₹2,80,000 to M/s K & Co., an event management firm, for organizing a sports tournament.
(iv) Z Ltd. pays ₹2,60,000 as rent for office premises to Mr. P.
- Purchase Commission of ₹22,000:
Under Section 393(1) [Table: Sl. No. 1(ii)], commission paid exceeds the updated threshold of ₹20,000.
TDS @ 2%: ₹22,000 × 2% = ₹440. - Transporter Payment of ₹45,000:
Under Section 393(4) Table, no TDS is deductible from a goods transport contractor if they own 10 or fewer carriages and furnish PAN with a declaration.
Since Mr. R owns 6 trucks and furnished PAN and declaration, NO TDS is deductible. - Event Management Fee of ₹2,80,000:
Event management in relation to sports activities is a notified profession under CBDT Notification 88/2008.
Under Section 393(1) [Table: Sl. No. 6(iii)], fees for professional services exceeding ₹30,000 attract TDS @ 10%.
TDS @ 10%: ₹2,80,000 × 10% = ₹28,000. - Office Rent of ₹2,60,000:
Under Section 393(1) [Table: Sl. No. 2(ii)], rent of building paid by a corporate entity exceeding ₹2,40,000 per annum attracts TDS @ 10%.
TDS @ 10%: ₹2,60,000 × 10% = ₹26,000.
Question:
"Come Air Ltd." has paid a sum of ₹12 lakhs during the year ended 31-3-2027 to the Airports Authority of India (AAI) for landing and parking charges of its commercial aircraft. The company deducted tax @ 2% under Section 393(1) [Table: Sl. No. 6(i)] (Contractor). The Assessing Officer contends that landing and parking charges represent "Rent" of runway/land subject to 10% TDS under Section 393(1) [Table: Sl. No. 2(ii)]. Examine the correctness of the AO's contention.
Supreme Court Precedent in Japan Airlines Co. Ltd. v. CIT (377 ITR 372):
The Supreme Court settled this controversy by analyzing the nature of landing and parking charges:
- The wheels of the aircraft touching the runway upon landing and remaining on the tarmac constitutes "use of land".
- The facility of runway and tarmac provided by the Airports Authority of India constitutes an agreement or arrangement for the use of land within the statutory definition of "Rent" under Section 402(29).
- It is not merely a contract for services or work under Sl. 6(i).
Conclusion: The contention of the Assessing Officer is fully correct. Landing and parking charges are liable for TDS @ 10% as Rent under Section 393(1) [Table: Sl. No. 2(ii)]. Come Air Ltd. is an assessee-in-default for the 8% shortfall.
Question:
Mr. Harish, Vice President of ABC Bank, sold his house property in Chennai (Consideration: ₹85 lakhs; SDV: ₹95 lakhs) and rural agricultural land (Consideration: ₹15 lakhs; SDV: ₹22 lakhs) to Mr. Suresh on 15.11.2026. Both are resident Indians.
Examine:
(a) Tax implications in the hands of Mr. Harish and Mr. Suresh.
(b) TDS obligations of Mr. Suresh under Section 393(1) [Table: Sl. No. 3(i)].
- Tax Implications for Seller (Mr. Harish):
• House Property: Since SDV (₹95L) exceeds 110% of consideration (₹85L × 110% = ₹93.5L), full value of consideration u/s 78 is ₹95,00,000 for computing capital gains.
• Rural Agricultural Land: Not a capital asset u/s 2(24). Capital gains are completely exempt. - Tax Implications for Buyer (Mr. Suresh):
• House Property: Difference between SDV (₹95L) and consideration (₹85L) = ₹10,00,000. Since it exceeds ₹50,000 and 10% of consideration, ₹10,00,000 is taxable as IFOS under Section 56(2)(x) / Sec 59.
• Rural Land: Excluded from Section 56(2)(x) property definition. No tax. - TDS Liability of Buyer (Mr. Suresh) under Section 393(1) [Table: Sl. No. 3(i)]:
• Rural Land: Expressly exempt from TDS under Sl. 3(i).
• House Property: Tax is deductible @ 1% on the HIGHER of consideration or SDV.
Higher value = SDV of ₹95,00,000.
TDS Amount: ₹95,00,000 × 1% = ₹95,000 (remitted via Form 26QB).
Question:
Siddharth Hospitals Pvt. Ltd. has recently been accorded recognition by several insurance companies for providing cashless treatment. The TPAs making payments to Siddharth Hospitals Pvt. Ltd. on behalf of insurance companies deduct tax at source @ 10% under Section 393(1) [Table: Sl. No. 6(iii)]. The hospital contends that professional services are rendered by individual doctors, not by the private hospital company, and therefore TPA payments to the hospital company cannot be subjected to professional TDS. Decide the validity of this contention.
CBDT Circular No. 8/2009 & Judicial Affirmation:
The CBDT clarified that payments made by TPAs on behalf of insurance companies to hospitals for medical treatment under health insurance policies fall within the scope of fees for professional services under Section 393(1) [Table: Sl. No. 6(iii)] (replaces Section 194J).
- The statutory provision applies to payments made to any resident person (which includes a private hospital company).
- There is no statutory requirement that the recipient of professional fees must be an individual or natural person. A corporate entity employing doctors to provide medical services is equally subject to withholding.
Conclusion: The contention of Siddharth Hospitals Pvt. Ltd. is incorrect in law. The TPAs are statutorily bound to deduct TDS @ 10% on all payments made to the hospital.
Question:
Mr. X, a resident individual aged 52 years, provides the following estimates of his income for T.Y. 2026-27:
• Salary Income (Net of Standard Deduction): ₹14,00,000 (TDS deducted by employer: ₹1,50,000)
• Rent from house property: ₹3,60,000 (Municipal taxes paid: ₹20,000; Standard deduction 30%)
• Winnings from Lottery (Gross): ₹1,00,000 (TDS deducted @ 30%: ₹30,000)
• Deposit in PPF: ₹1,50,000 (Opted out of default regime u/s 202(4))
Compute advance tax payable by Mr. X and indicate the installment due dates and amounts.
1. Computation of Estimated Total Income for T.Y. 2026-27:
| Head of Income | Amount (₹) |
|---|---|
| Salary Income | 14,00,000 |
| House Property: Net Annual Value (₹3,60,000 − ₹20,000) = ₹3,40,000 less 30% std deduction | 2,38,000 |
| Winnings from Lottery (Taxable @ 30% flat u/s 115BB) | 1,00,000 |
| Gross Total Income | 17,38,000 |
| Less: Deduction under Section 80C (PPF) | (1,50,000) |
| Estimated Total Income | 15,88,000 |
2. Computation of Advance Tax Liability:
- Tax on Lottery Winnings (₹1,00,000 × 30%): ₹30,000
- Tax on Balance Income (₹14,88,000 at normal old regime slabs): ₹2,58,900
- Total Tax: ₹2,88,900 + 4% HEC (₹11,556) = ₹3,00,456
- Less: Estimated TDS Credits (Salary TDS: ₹1,50,000 + Lottery TDS: ₹30,000) = (₹1,80,000)
- Net Advance Tax Liability: ₹3,00,456 − ₹1,80,000 = ₹1,20,456 (Rounded to ₹1,20,500)
3. Advance Tax Instalment Schedule:
| Due Date | Cumulative % | Cumulative Amount Due (₹) | Amount Payable in Instalment (₹) |
|---|---|---|---|
| 15th June 2026 | 15% | 18,075 | 18,075 |
| 15th September 2026 | 45% | 54,225 | 36,150 |
| 15th December 2026 | 75% | 90,375 | 36,150 |
| 15th March 2027 | 100% | 1,20,500 | 30,125 |
Question:
Examine the applicability of TDS provisions in the following independent transactions:
(i) Partnership firm paid interest of ₹28,000 to partner Mr. B on his capital account.
(ii) State Government paid compensation of ₹4,80,000 on compulsory acquisition of urban industrial land to Mr. C.
(iii) Lottery organizer paid commission of ₹35,000 to a lottery ticket distributor.
(iv) Bank credited interest of ₹38,000 on recurring deposit to a 40-year-old resident.
- Interest of ₹28,000 to Partner:
Under Section 393(1) [Table: Sl. No. 8(xxiv) / Sec 194T], interest paid by a firm to a partner exceeding ₹20,000 is subject to TDS @ 10%.
TDS Amount: ₹28,000 × 10% = ₹2,800. - Compulsory Acquisition Compensation of ₹4,80,000:
Under Section 393(1) [Table: Sl. No. 3(iii)], compensation for compulsory acquisition is subject to TDS only if aggregate payment in the tax year exceeds ₹5,00,000.
Since payment is ₹4,80,000 (≤ ₹5,00,000), NO TDS is deductible. - Lottery Ticket Commission of ₹35,000:
Under Section 393(1) [Table: Sl. No. 8(vii) / Old Sec 194G], commission to stocking/distribution agents of lottery tickets exceeding ₹15,000 is subject to TDS @ 2% (amended from 5%).
TDS Amount: ₹35,000 × 2% = ₹700. - Bank Recurring Deposit Interest of ₹38,000:
Under Section 393(1) [Table: Sl. No. 5(ii)], interest on time deposits (including recurring deposits) paid by banks to non-senior citizens attracts TDS only if it exceeds ₹40,000.
Since interest is ₹38,000 (≤ ₹40,000), NO TDS is deductible.
Question:
Examine the obligation of the bank to deduct TDS on cash withdrawals in the following cases under Section 393(1) [Table: Sl. No. 8(xxii) / Sec 194N]:
(i) PQR Ltd. withdrew cash of ₹1.35 Crores during T.Y. 2026-27 from its current account with HDFC Bank. The company regularly files its Returns of Income.
(ii) Mr. Roy, who has not filed his Return of Income for the last 3 preceding tax years (due date expired), withdrew cash of ₹45 lakhs on 10.10.2026 and another ₹70 lakhs on 20.01.2027 from his savings account with SBI.
- PQR Ltd. (Regular Return Filer):
For regular filers, TDS @ 2% applies strictly on the cash withdrawal amount exceeding ₹1 Crore.
Total withdrawal = ₹1,35,00,000.
Amount exceeding ₹1 Crore = ₹35,00,000.
TDS @ 2%: ₹35,00,000 × 2% = ₹70,000. - Mr. Roy (Defaulting Non-Filer):
For non-filers of preceding 3 years, dual rates apply:
• 2% on withdrawals between ₹20 Lakhs and ₹1 Crore.
• 5% on withdrawals exceeding ₹1 Crore.
Total withdrawals = ₹45,00,000 + ₹70,00,000 = ₹1,15,00,000.
• TDS on first tranche (₹20L to ₹1Cr = ₹80,00,000) @ 2% = ₹1,60,000.
• TDS on excess over ₹1 Crore (₹15,00,000) @ 5% = ₹75,000.
Total TDS under Section 194N: ₹1,60,000 + ₹75,000 = ₹2,35,000.
Question:
Flipkart (e-commerce operator) facilitated sales of electronic goods of ₹18 lakhs for ABC Ltd. (resident corporate seller) during T.Y. 2026-27. Flipkart credited the net proceeds to ABC Ltd. after deducting its platform commission of ₹1,80,000. In the same year, Flipkart facilitated sales of ₹4,20,000 for Mr. Raman (resident individual seller who furnished PAN).
Determine the TDS liability under Section 393(1) [Table: Sl. No. 8(v) / Sec 194-O].
- ABC Ltd. (Corporate Participant):
Under Section 393(1) [Table: Sl. No. 8(v)], the e-commerce operator must deduct TDS @ 0.1% on the GROSS amount of sales facilitated.
Gross sales = ₹18,00,000 (TDS is on gross value, before deducting ₹1,80,000 commission).
TDS Amount: ₹18,00,000 × 0.1% = ₹1,800. - Mr. Raman (Individual Participant):
Under the statutory exemption proviso to Sl. 8(v), no TDS is deductible if the e-commerce participant is an Individual or HUF whose gross sales through the platform do not exceed ₹5,00,000 during the tax year and they have furnished PAN/Aadhaar.
Since Mr. Raman's sales are ₹4,20,000 (≤ ₹5,00,000) and PAN is furnished, NO TDS is deductible.
Question:
Sun Pharma Ltd. provided the following incentives/benefits during T.Y. 2026-27:
(i) Organized a 3-day dealer conference in Goa for 50 top distributors to launch a new pharmaceutical product (Total cost ₹25 lakhs).
(ii) Gifted a gold coin worth ₹65,000 to Dr. A, a medical practitioner, for referring patients.
(iii) Gave a smartphone worth ₹45,000 to a tech influencer for review; the influencer retained the phone after posting the video.
Examine the TDS liability under Section 393(1) [Table: Sl. No. 8(xxiii) / Sec 194R].
- (i) Dealer Conference in Goa:
Under CBDT Circular No. 12/2022, expenditure on dealer conferences held for business education, training, or product launch is NOT a benefit/perquisite under Section 194R, provided there are no family members accompanying and no leisure extension days.
Hence, NO TDS is deductible on the ₹25 lakhs conference expenditure. - (ii) Gold Coin to Medical Practitioner (Dr. A):
Under Section 37(1) read with Section 194R, freebies given to medical practitioners violate MCI regulations and constitute taxable benefits.
Since value (₹65,000) exceeds ₹20,000 threshold, TDS @ 10% is mandatory.
Sun Pharma must ensure payment of ₹6,500 (10% of ₹65,000) before releasing the gold coin. - (iii) Smartphone to Influencer:
Under Circular 18/2022, where a product given to an influencer for review is retained by the influencer, it constitutes a perquisite under Section 194R.
Since value (₹45,000) exceeds ₹20,000, TDS @ 10% is deductible.
TDS Amount: ₹45,000 × 10% = ₹4,500.
Question:
Mr. Raj is employed with Infotech Ltd. at an annual basic salary of ₹18,00,000. He has a self-occupied house property on which he paid housing loan interest of ₹1,95,000 during T.Y. 2026-27. He also made a deposit of ₹1,50,000 in PPF.
Case A: Mr. Raj has NOT given any declaration regarding regime choice (Default Concessional Regime u/s 115BAC applies).
Case B: Mr. Raj has exercised option under Section 202(4) to shift out of default regime into normal provisions.
Compute the amount of tax deductible at source by Infotech Ltd. under Section 392 in both cases.
| Particulars | Case A: Default Regime (Sec 115BAC) (₹) | Case B: Opted Normal Regime (₹) |
|---|---|---|
| Gross Salary | 18,00,000 | 18,00,000 |
| Less: Standard Deduction u/s 16(ia) / Sec 33 | (75,000) | (50,000) |
| Income under 'Salaries' | 17,25,000 | 17,50,000 |
| Loss from House Property (Housing loan interest): | NIL (Disallowed u/s 115BAC) | (1,95,000) (Allowed u/s 392(2)) |
| Gross Total Income | 17,25,000 | 15,55,000 |
| Less: Chapter VIII Deductions (PPF u/s 80C) | NIL (Disallowed u/s 115BAC) | (1,50,000) |
| Estimated Total Income | 17,25,000 | 14,05,000 |
| Tax on Estimated Total Income |
0–3L: Nil 3–7L: 5% = 20,000 7–10L: 10% = 30,000 10–12L: 15% = 30,000 12–15L: 20% = 60,000 >15L: 30% of 2.25L = 67,500 Sub-total: ₹2,07,500 |
0–2.5L: Nil 2.5–5L: 5% = 12,500 5–10L: 20% = 1,00,000 >10L: 30% of 4.05L = 1,21,500 Sub-total: ₹2,34,000 |
| Add: Health and Education Cess @ 4% | 8,300 | 9,360 |
| Total Tax to be Deducted under Sec 392 | ₹2,15,800 | ₹2,43,360 |
| Monthly TDS to be Deducted | ₹17,983 per month | ₹20,280 per month |