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Tds to be deducted on which amount

Rahul Jain (Accountant) (316 Points)

01 December 2013

A partnership firm engaged in Developing Land gave certain civil work to a contractor being a Sole Proprietorship Firm. It gave work in April 2013 and along with that an Advance of Rs. 10 Lakhs without deducting TDS. Now in December the Developer plans to deduct TDS and Deposit the same?

On what value should it deduct TDS?

And Total Amount to contractor will be-

1) Rs. 10,00,000 paid to Contractor and Rs. 10,000 as TDS i.e Rs.10,10,000.

2) Rs. 10,00,000 paid to Contractor and Rs. 10,101 as TDS i.e Rs.10,10,101.

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6 Replies

Yuvraj Singh (CA FINAL ) (135 Points)
Replied 01 December 2013

Dear Rahul...well generally we deduct TDS at the time of payment or at the time of crediting the account of such person/entity, whichever is EARLIER, so this might create some problem. You should deduct tax and immediately deposit it to department with interest @ 1.5% p.m. (for late deposit of tax) and 1% p.m. (for non deduction of tax) [part of month-even 1 day delay would count to month, so do accordingly]

As regards amount is concerned, i'm a bit confused a little bit what would that be!!

Fenil Shah (Audit & Tax Executive) (402 Points)
Replied 01 December 2013

Well here two situations are possible:

The Partnership Firm is ready to bear the TDS; the TDS will be deducted on Rs. 10,10,101.
The Sole Proprietorship Firm is ready to pay back the TDS amount, in that case TDS will be deducted on Rs. 10,00,000 only.

CA S K MISHRA (Service) (4280 Points)
Replied 01 December 2013

TDS is deducted either at the time of payment or at the time of credit in the name of the contractor in the books of the account, which ever is earlier.Since, you have not deducted TDS at the time of making advance payment, you have not complied with the TDS provision of the Income Tax Act. Being the contractor is a Sole Propritorship firm, deduct TDS @ 1% on Rs.10 lakhs u/s 194-C & deposit the same immediately. Recover the amount either from the Security deposit of the contractor, if any or from the subsequent bill of the contractor.

Rahul Jain (Accountant) (316 Points)
Replied 01 December 2013

Dear Fenil,

If the firm had contract for execution of only one contract and it no longer has any contact with that contractor after making payment. what should the Partnership firm do-

Should it deposit TDS now after deducting since it cannot ask that sole proprietor firm to give back the TDS amount??