T.D.S. Problem

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arvind kapoor (Querist)
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24 May 2008 One of my clent had opened a Drug store in a hospital on a condition that the hospital will be paid 50% of the net profit as per audited P& l A/c.What is T.D.S. Liability of the client and under what section it will be deducted 194I or 194C.And also Profit can be ascertained only after 31 st March.So when to deduct the TDS -on 31st March itself and to deposit it by 31 st May or whenever some payment is made to Hospital during the year.

CA. Yayati Tyagi

CA. Yayati Tyagi (Expert)
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26 May 2008 it is very unique type of query.

in my opinion, payment to hospital is in nature of rent, as it has provided to ur client space for money. so, tds will be deducted u/s 194I. u will make entry of rent on 31 mar as profit will be decided only on that date, so tds have to be deposited till 31 may.

further although u have not asked but i want to add :

ur problem is that suppose for 2006-07, u have to provide for rent in books which have to be 50% of net profit (arrived after deducting the rent) of 2006-07 itself.

remember rent is for 2006-07 so u have to provide this in 2006-07 only. u can't go that determine profit in 2006-07 and debit the rent in 2007-08 on the basis of profit of 2006-07.

so, u shud go by this way:

rent payable = profit(before deducting rent)*.5/1.5

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