Tds on capitalised expenses

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This discussion clarifies whether Tax Deducted at Source (TDS) under Section 194C is required when contract expenses are capitalised by the deductor, meaning they aren't immediately expensed in the profit and loss account. The consensus is that TDS must still be deducted, as the payment still constitutes income for the deductee. While TDS is mandatory, disallowance under Section 40 is not applicable because Section 40 specifically pertains to expenses, not capitalised items.

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(Querist)
05 September 2024 If contract expenses are capitalised by deductor /payer ( ie.not debited to prof loss of deductor,) does deductor have to deduct 194c?

My view yes because it's it's still income of deductee/payee.

Also 194c plainly says deduct .
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Dhirajlal Rambhia

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Dhirajlal Rambhia (Expert)
05 September 2024 Yes, need to deduct TDS in all such cases.
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Kunjan

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Kunjan (Querist)
05 September 2024 yes, deduct but no need to disallow u/s. 40 as 40 is only for exepnses .ty
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Dhirajlal Rambhia

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Dhirajlal Rambhia (Expert)
05 September 2024 You are welcome.
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