Tds on compensation

474 views 2 replies

anil lamboria

101 Points Joined October 2012

There was a contract (Main Contract) between local public authority and the ABC Company for setup of CETP plant (effluent treatment plant) and its operation and maintenance. Now the ABC Company has out sourced the work to PQR LTD and XYZ LTD to carry on work on his behalf on contract basis (Secoundry Contract). ABC Company is working as SPV only.

1. Now this main contract was put to the end due to certain reasons.

2. On cancellation of the contract the ABC Company was given Rs. 200 for cost incurred till date for Contract and a amount of Rs. 50/- as compensation on account of work disruption towards administrative cost and losses during the period of work suspension.

Now on distrubution of compensation received by ABC Company to PQR LTD and XYZ LTD will attract and income tax Liability (Such as TDS)??

Replies (2)

Tribhuvan Aditya Singh

Student as well as Self-employed

3710 Points Joined September 2007

contract cancellation charges will not qualify for tds deduction. therefore i dont think that its distribution to sub-contractors should attract any tds provision.

Kaushik Joshi

Practising Chartered Accountant

1527 Points Joined January 2009

Dear Anil Lamboria,
The amount of compensation received by the company is as per the terms of contract(I presume). hence if you are planning to pay the said amount to the sub contractors, I recommend you deduct tax and pay. Deduction of tax won't bring any issue but non deduction will bring possible disposable issues. issues like whether the sub contractors were eligible for compensation, rate, etc.