Tds
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
07 January 2014
WHAT IS THE REASON/LOGIC BEHIND THE NON APPLICABILITY OF TDS IN CASE OF 1ST YEAR AUDIT?
Ganeshbabu K
(Expert)
09 January 2014
tds applicable if total amount credited to auditor account is more than 30000 in a single year
.
.
there is no exemption for 1st yearaudit
.
.
once total payments exceeds 30000 tds 194J has to be made mandatorily other wise expence will be disallowed
.
.
there is no exemption for 1st yearaudit
.
.
once total payments exceeds 30000 tds 194J has to be made mandatorily other wise expence will be disallowed
Querist : Anonymous
Querist :
Anonymous
(Querist)
09 January 2014
No, you've not got the question.
I am asking for the overall TDS Criteria , not particularly for professional fees.
my question is, why Tds is not applicable in the year inwhich assesee goes for the First time audit( when turnover exceeds one crore)
I am asking for the overall TDS Criteria , not particularly for professional fees.
my question is, why Tds is not applicable in the year inwhich assesee goes for the First time audit( when turnover exceeds one crore)
27 July 2025
Got it! So your question is more about **why TDS provisions generally do not apply in the very first year when an assessee undergoes audit for the first time, especially when turnover crosses Rs. 1 crore**.
Here’s the key understanding:
---
### Why TDS is often considered non-applicable or not deducted in the *first audit year* (particularly in certain contexts):
1. **No explicit exemption in law**:
Actually, **there is no explicit provision in the Income Tax Act that exempts TDS in the first audit year**. TDS rules apply based on the nature of payment, thresholds, and applicable sections.
2. **Practical reasons related to compliance**:
* Often, *newly audited entities* (like startups or newly registered companies) may be unaware or not fully compliant with TDS requirements initially.
* Many payments or transactions in the first year may not meet threshold limits.
* TDS compliance and tracking systems are more rigorously enforced after audit triggers and turnover disclosures.
3. **Audit requirements trigger retrospective compliance**:
* The audit ensures that all deductions and taxes (including TDS) are properly accounted for.
* Often, non-deduction of TDS in the first year is corrected during audit or in subsequent years by the taxpayer.
4. **TDS and audit are different compliance frameworks**:
* TDS is a withholding tax system; it applies to specific payments.
* Audit under Section 44AB is to check compliance broadly.
* The audit report may flag missing TDS deductions, but the act of audit itself doesn’t grant any exemption or non-applicability of TDS.
---
### So in short:
* There is **no legal “exemption” or “non-applicability” of TDS in the first audit year.**
* If TDS thresholds are crossed, TDS must be deducted regardless of whether it’s the first year audit or not.
* The perception that TDS is not applicable in first audit year likely arises due to practical delays or lack of awareness.
---
**If you are specifically referring to some particular rule or exemption mentioned in any guidance or circular, please share that for precise clarification!**
---
Would you like me to check if there are any latest rulings or circulars on this topic?
Here’s the key understanding:
---
### Why TDS is often considered non-applicable or not deducted in the *first audit year* (particularly in certain contexts):
1. **No explicit exemption in law**:
Actually, **there is no explicit provision in the Income Tax Act that exempts TDS in the first audit year**. TDS rules apply based on the nature of payment, thresholds, and applicable sections.
2. **Practical reasons related to compliance**:
* Often, *newly audited entities* (like startups or newly registered companies) may be unaware or not fully compliant with TDS requirements initially.
* Many payments or transactions in the first year may not meet threshold limits.
* TDS compliance and tracking systems are more rigorously enforced after audit triggers and turnover disclosures.
3. **Audit requirements trigger retrospective compliance**:
* The audit ensures that all deductions and taxes (including TDS) are properly accounted for.
* Often, non-deduction of TDS in the first year is corrected during audit or in subsequent years by the taxpayer.
4. **TDS and audit are different compliance frameworks**:
* TDS is a withholding tax system; it applies to specific payments.
* Audit under Section 44AB is to check compliance broadly.
* The audit report may flag missing TDS deductions, but the act of audit itself doesn’t grant any exemption or non-applicability of TDS.
---
### So in short:
* There is **no legal “exemption” or “non-applicability” of TDS in the first audit year.**
* If TDS thresholds are crossed, TDS must be deducted regardless of whether it’s the first year audit or not.
* The perception that TDS is not applicable in first audit year likely arises due to practical delays or lack of awareness.
---
**If you are specifically referring to some particular rule or exemption mentioned in any guidance or circular, please share that for precise clarification!**
---
Would you like me to check if there are any latest rulings or circulars on this topic?
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