TDS on salary

First proviso to section 201(1)provides that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on tahe sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such resident—

(i) has furnished his return of income under section 139;

(ii) has taken into account such sum for computing income in such return of income; and

(iii) has paid the tax due on the income declared by him in such return of income,

and the person furnishes a certificate (I.e. Form 26) to this effect from an accountant in such form as may be prescribed.

If all the following conditions are complied, then the assessee shall not be considered as an assessee in default.

I understand the conditions. coming to the sec 40(a)(III) didn't refering sec 201 for issuing 26A. that's means 30% of salary will be disallowed even if issue form 26A.

And also the payer should have paid interest u/s 201(1A) for non deduction/short deduction of tax the payment details of which should be specified in the Form. . 

In view of the second proviso to section 40(a)(ia) read with proviso to section 201(1) of the Income Tax Act no disallowance of expense u/s 40(a)(ia) can be made unless the assessee has been treated as assessee in default under S.201(1) of the Act for its failure to deduct tax at source from the payment made on account of interest.

In simple words, if the amount paid by payer have been included by the payee in his return of income for relevant Asst. year, filed the return of income u/s 139 and has paid the tax due on the income declared in such return, to the extent the recipient (i.e. payee) from the assessee have so included the sum in his return of income and filed the same, no disallowance u/s.40(a)(ia) of the Act can be made by the AO in view of the second proviso to section 40(a)(ia) read with first proviso to section 201(1) of the Act.

This has been provided in the second proviso to section 40(a)(ia) inserted in the statute by the Finance Act, 2012 with effect from 1.4.2013. Therefore, on furnishing of certificate in form 26A as prescribed under proviso to section 201(1) read with rule 31ACB of the I.T. Rules no disalowance u/s 40(a)(ia) can be made.

I understand the concept but the second proviso is not applicable to sec 40(a)( III) it tells about salary part. so in my case also is salary tds. whether sec 201 applicable to salary tds u/s 192, read with 40(a)(III). simply whether form 26A is eligible to issue for salary tds?

Is it salary paid outside India or to a non-resident?

Salary paid to resident india in india

Can u pls elaborate. Section 40(a)(iii) is disallowance of Salary Payment made outside India or to a non resident and if tax at source has not been deducted thereon. 

But in your case 40(a)(iii) not applicable since you have paid salary to a resident employee within India

Exactly.. unless the payment of salary is not made to non-resident, section 40(a)(iii) shall not come into picture.

Okay. I need to deduct tds on salary which to be paid to resident in India. but client wants to avoid the making the tds payment due to financial problems arised from current situation. I read about sec 201 to avoid making the tds payment by issuing form 26A. I think sec 40 is not telling about salary cases to refer sec 201 for issuing 26A. can I issue form 26A in my case. if I can, plz refer me with section and sub sec.

Section 40(a)(ia) provides that 30% of any sum payable to a resident , on which tax is deductible at source under Chapter XVII-B shall be disallowed if

a) Such tax has not been deducted or

b) Such tax after deduction has not been paid before the due date specified in Section 139(1) 

Section 40(a)(ia) clearly mentions Tax deductible under Chapter XVII-B of the Act.Section 192 is the first Section Under the Chapter XVII- B . SO even though 40(a)(ia) doesnt specifically talk about Disallowance for payment of Salary but the Section is very clear that it applies to Salary also. 

And thus Second provison to Section 40(a)(ia) shall also apply. Thus there shall be no disallowance if the assessee submits Form 26A. 

 

 

Thanks you so much for clarification

This is what i think by seeing the Sections. I hope it has given you clarity and you agree with the reply.