proposed change in proviso to section 40 (a)(ia)
This query is : Resolved
05 March 2010
pls explain to me the effect of change in section 40(a)(ia)& its proviso.pls mention the old law also.
CMA Ramesh Krishnan
(Expert)
05 March 2010
Applicability of Sec 40(a) (ia) to year end provisions :
TDS is even required to be made on year end provisions but whereas the time limit for remittances of such TDS made is varied.
Section 40(a) (ia) of the Income Tax Act, 1961:
v Section 40(a)(ia) of the Income Tax Act 1961 says that expenditure covered under the below mentioned TDS sections paid to resident and debited Profit & Loss Account will not be allowed as deduction while computing the income under the head “Profit and Gains of Business or Profession†if
a) Tax has not been deducted at source,
b) Tax deducted at source and the same is not remitted, or
c) If expenditure is debited and Tax deducted at source during the previous year, tax is not remitted with in the time limits mentioned in section 200 such expenditure will be allowed as deduction in the year of remittance of the tax.
v The following payments are covered under Section 40(a)(ia):
a) Interest U/s 194A
b) Commission or brokerage U/s 194H
c) Professional or Technical Fee U/s 194J and
d) Contractors & Sub Contractors U/s 194C
v The provisions of the above mentioned TDS sections requires that Tax has to be deducted at source when amount is paid or credited to the account of the Payee which ever is earlier. When the amount is credited to suspense account or any account by what ever name it is called, then it is treated as amount is credited to the account of the payee and tax has to be deducted at source. Hence Tax has to be deducted at source even on provisions made in the books of accounts to which TDS provisions are applicable.
Method of accounting generally followed by the client for provisions made for expenses:
1) At the yearend it is the common practice of a company or other individual to provide provisions for various expenses like Telephone, Electricity, Travel Claims, Conveyance reimbursements, Commission on sales to employees. Commission on sales to C&F Agent, Lunch Expenses, Rent of Office premises and guesthouse, AMC charges payable……..
2) Entries for Provision for expenses are passed at the yearend based on previous month expenditure or on some other relevant basis.
3) The above provisions are reversed 1st day of the subsequent year.
4) The assessee generally books expenditure only at the time of payment of the expenditure.
TDS is even required to be made on year end provisions but whereas the time limit for remittances of such TDS made is varied.
Section 40(a) (ia) of the Income Tax Act, 1961:
v Section 40(a)(ia) of the Income Tax Act 1961 says that expenditure covered under the below mentioned TDS sections paid to resident and debited Profit & Loss Account will not be allowed as deduction while computing the income under the head “Profit and Gains of Business or Profession†if
a) Tax has not been deducted at source,
b) Tax deducted at source and the same is not remitted, or
c) If expenditure is debited and Tax deducted at source during the previous year, tax is not remitted with in the time limits mentioned in section 200 such expenditure will be allowed as deduction in the year of remittance of the tax.
v The following payments are covered under Section 40(a)(ia):
a) Interest U/s 194A
b) Commission or brokerage U/s 194H
c) Professional or Technical Fee U/s 194J and
d) Contractors & Sub Contractors U/s 194C
v The provisions of the above mentioned TDS sections requires that Tax has to be deducted at source when amount is paid or credited to the account of the Payee which ever is earlier. When the amount is credited to suspense account or any account by what ever name it is called, then it is treated as amount is credited to the account of the payee and tax has to be deducted at source. Hence Tax has to be deducted at source even on provisions made in the books of accounts to which TDS provisions are applicable.
Method of accounting generally followed by the client for provisions made for expenses:
1) At the yearend it is the common practice of a company or other individual to provide provisions for various expenses like Telephone, Electricity, Travel Claims, Conveyance reimbursements, Commission on sales to employees. Commission on sales to C&F Agent, Lunch Expenses, Rent of Office premises and guesthouse, AMC charges payable……..
2) Entries for Provision for expenses are passed at the yearend based on previous month expenditure or on some other relevant basis.
3) The above provisions are reversed 1st day of the subsequent year.
4) The assessee generally books expenditure only at the time of payment of the expenditure.
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