TDS on Courier Services

Dear Manoj,

Payment to Contractors – Sub-Contractors – Same Rate of TDS   

Further, the rate of deduction in respect of payment to contractors  in case contractor is an Individual or HUF has been reduced from 2 per cent to 1 per cent. However, rate of deduction in respect of payment to sub-contractors if the sub-contractor is a person other than Individual or HUF has been increased from 1 per cent to 2 per cent. The net effect of this is that rate of deduction both for contractor and sub-contractor including for advertising, if it happens to be an Individual or HUF shall be 1 per cent and if it happens to be a person other than Individual or HUF, i.e., a firm or a company etc., the rate shall be 2 per cent including for advertising contract. This amendment will avoid the controversy of making distinction between a contractor or a sub-contractor. Further, no tax at source is to be deducted in respect of payment to transport operator in case the transport operator furnishes permanent account number (PAN). The TDS rate in case PAN is not given will continue to be 2 per cent on payment to contractor and 1 per cent on payment to sub-contractor. The above amendments shall be effective from October 1, 2009.

Tax to be deducted at 20 per cent – Failure to submit PAN

Another amendments has been proposed by the Finance (No.2) Bill, 2009, to achieve transparency and increased computerisation, whereby the rate at which tax is to be deducted will be twenty per cent or the rate in force which is higher in case Permanent Account Number (PAN) is not furnished by the person whose tax at source is to be deducted. A difficult obligation is being put on the deductor to ensure that PAN furnished by the deductee is correct. If the same is invalid or does not belong to the deductee, the tax rate applicable shall be 20 per cent. In the absence of any mechanism available at the end of the deductor to verify the correctness of the PAN furnished, it will be difficult for the deductor to ensure that PAN furnished is the correct PAN of the deductee, despite proposal of mandatory quoting of PAN in all correspondence, bills and vouchers exchanged between deductor and deductee.

This provision however shall be effective only from April 1, 2010.

regards,

ratan