Taxation of Payment to a Resident

Payment to a Resident

Applicability of Section 40(a)(ia) - Conditions

•                   The amount is paid/payable to a person resident in India.

•                   All types of payment on which tax is deductible u/s 192 to 194LBA are covered under the purview of Section 40(a)(ia).

When Disallowance is Applicable

•                   Case 1: Tax has not been deducted at source in the current year; or

•                   Case 2: Tax has been deducted at source during the current year but has not been deposited with the government till the last date of submission of return u/s 139(1).

Amount of Disallowance

30% of the expenditure shall be disallowed in the current year if either of the above two cases gets attracted.

Reversal of Disallowance

The amount which is disallowed in the current year shall be allowed as deduction in the year in which tax deducted at source is deposited with the government by the payer.

Examples

•                   XYZ Ltd has paid interest of Rs 50 lakhs to a resident in India on 01.03.2019. Tax was deducted to source on 15.03.2019 but the same was deposited with the government on 30.09.2019. In this case, Rs 50 lakhs would be allowed to be deducted in PY 2018-19.

•                   If in the above example, TDS was deducted on 20.03.2019 and was deposited with the government on 01.10.2019, Rs 35 lakhs would be allowed to be deducted in PY 2018-19 and Rs 15 lakhs would be allowed to be deducted in PY 2018-19.

•                   If in the above example, TDS was deducted on 01.05.2018 and was deposited with the government on 01.06.2019, Rs 35 lakhs would be allowed to be deducted in PY 2017-18 and Rs 15 lakhs would be allowed to be deducted in PY 2019-20.

•                   If in the above example, TDS was deducted on 01.05.2018 and was deposited with the government on 01.06.2018, Rs 15 lakhs would be disallowed in PY 2017-18 even if the amount has been deposited before the due date of filing of return of income. The amount of Rs 15 lakhs shall be allowed as deduction during PY 2018- 19.

Disallowance Not to be Done in Certain Situations

Where tax has not been deducted at source, but the resident recipient has:

Ø  paid the applicable tax after correctly computing his income; and

Ø  filed his return of income within the time limit prescribed u/s 139(1),

the payer would not be treated as an assessee in default if he furnishes a certificate from a Chartered Accountant certifying the above position and disallowance provisions would not be applicable in such cases. (On the lines of Section 201(1))

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