TDS Deduction
This query is : Resolved
20 August 2009
Guys..
Probably this is very odd question for you all..
what is the logic behind deduction of TDS??
A) are we deducting it because "its revenue of other party"???
or
B) Are we deducting it because "we are booking it as expenses"???
Regards,
Nazir
Probably this is very odd question for you all..
what is the logic behind deduction of TDS??
A) are we deducting it because "its revenue of other party"???
or
B) Are we deducting it because "we are booking it as expenses"???
Regards,
Nazir
20 August 2009
Simple logic is that many tax payers get away with tax or go to abroad and it is very diff to trace them and get them taxed.
Second reason Tax if collected at one point would be better to track.
Third say a MNC company have 10000 employee if company deduct TDS then it is easy for govt to get ampunt from company but if employee will pay tax which are 10000 in number.... may be very difficult.
let me know of any query. Ncie query
Second reason Tax if collected at one point would be better to track.
Third say a MNC company have 10000 employee if company deduct TDS then it is easy for govt to get ampunt from company but if employee will pay tax which are 10000 in number.... may be very difficult.
let me know of any query. Ncie query
20 August 2009
Thanks Prakash,
This query was because one case happen with me. our company have a investor who have funded to our co. initially they were conducted "Due Deligence Audit" of our co. and they paid audit fees to the auditor after deducting appropriate TDS on that, the fee was Rs 20 lac, now our investors want us to "reimburse" them the charges paid by them to auditor, here do we need to deduct TDS from their payment???
from my above question -
A) its not going to be revenue of our investors they are simply transfering expenses to us, and tds is already deducted on that amount.
B) if we need to deduct TDS just because we are booking expenses it doesnt make any logic.
Please try to answer asap, it will be great if you can help me with any supportings.
Nazir
This query was because one case happen with me. our company have a investor who have funded to our co. initially they were conducted "Due Deligence Audit" of our co. and they paid audit fees to the auditor after deducting appropriate TDS on that, the fee was Rs 20 lac, now our investors want us to "reimburse" them the charges paid by them to auditor, here do we need to deduct TDS from their payment???
from my above question -
A) its not going to be revenue of our investors they are simply transfering expenses to us, and tds is already deducted on that amount.
B) if we need to deduct TDS just because we are booking expenses it doesnt make any logic.
Please try to answer asap, it will be great if you can help me with any supportings.
Nazir
27 July 2025
Hey Nazir, good question — it’s a common practical confusion!
### The logic behind TDS deduction:
**TDS is deducted primarily because the payment is *income* in the hands of the payee (recipient), not just because you (payer) are booking it as an expense.**
---
### Let me explain your scenario with the investor reimbursing audit fees:
* The investor paid the auditor and deducted TDS on audit fees — that’s correct because the investor made a payment for professional services.
* Now, the investor is asking *you* (the company) to reimburse that audit fee amount.
---
### Do you need to deduct TDS when reimbursing the investor?
* **No, you do not need to deduct TDS again** on the reimbursement payment to the investor because:
* You are simply **reimbursing an expense** — it is not income in the investor’s hands from you.
* The audit fee was originally paid by the investor to the auditor and TDS was deducted by the investor at source.
* Your payment to the investor is just a **refund/reimbursement of their expenses**, not a fresh income or payment for services.
---
### Summary:
* TDS is deducted **because the payment represents income to the payee** (the person receiving the money).
* If the payment is just a **reimbursement of expenses already incurred and taxed**, TDS is *not* applicable again.
* So in your case, **no TDS needs to be deducted on reimbursing the investor**.
---
### Supporting references:
* The CBDT circulars and Income Tax rules generally clarify that **reimbursements which are not income or payments for services/goods do not attract TDS**.
* Also, TDS on audit fees would apply only when you are paying the auditor directly for professional services rendered to you.
---
If you want, I can help draft a formal note or reply to your investors explaining this with relevant section citations. Would you like that?
### The logic behind TDS deduction:
**TDS is deducted primarily because the payment is *income* in the hands of the payee (recipient), not just because you (payer) are booking it as an expense.**
---
### Let me explain your scenario with the investor reimbursing audit fees:
* The investor paid the auditor and deducted TDS on audit fees — that’s correct because the investor made a payment for professional services.
* Now, the investor is asking *you* (the company) to reimburse that audit fee amount.
---
### Do you need to deduct TDS when reimbursing the investor?
* **No, you do not need to deduct TDS again** on the reimbursement payment to the investor because:
* You are simply **reimbursing an expense** — it is not income in the investor’s hands from you.
* The audit fee was originally paid by the investor to the auditor and TDS was deducted by the investor at source.
* Your payment to the investor is just a **refund/reimbursement of their expenses**, not a fresh income or payment for services.
---
### Summary:
* TDS is deducted **because the payment represents income to the payee** (the person receiving the money).
* If the payment is just a **reimbursement of expenses already incurred and taxed**, TDS is *not* applicable again.
* So in your case, **no TDS needs to be deducted on reimbursing the investor**.
---
### Supporting references:
* The CBDT circulars and Income Tax rules generally clarify that **reimbursements which are not income or payments for services/goods do not attract TDS**.
* Also, TDS on audit fees would apply only when you are paying the auditor directly for professional services rendered to you.
---
If you want, I can help draft a formal note or reply to your investors explaining this with relevant section citations. Would you like that?
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