Insights On Disallowance Of Expenses In Case Of No TDS Deduction
Explore the different intricacies of disallowance of expenses in GST no TDS deduction method. Read with us to know more.
MCQ SELF CHALLENGE # 0058 ON DISALLOWANCE OF EXPENSES IN CASE OF NO TDS DEDUCTION
Disallowance of expenses in case of no TDS deduction
Dear Professional Seniors & Friends,
Warm Greetings!
The best chartered accountant firm in India is here with the first post of WMCQ on concept-based practical professional knowledge of allowance of expenses in case of no 105 deductions a unique manner to be self-answered by participants. The detailed answers to these MCQs shall be posted the next day for the self-assessment of the participants.
MCQ 58.1: An Indian company has to pay professional fees to a UK firm. The UK firm has rendered services partly in India and partly in the UK, The total fees payable is 1,00,000 out of which Rs 25,000 was taxable in India, but the Indian company failed to deduct TDS.
A) Indian Co. needs to deduct TDS on Rs 25,000, falling which the full amount of Rs 1.00.000 will be disallowed.
B) Indian Co. needs to deduct TDS on Rs 1,00,000, failing which the full amount of Rs 1,00,000 will be disallowed.
C) Indian co. needs to deduct TDS on Rs 25000, failing which the amount of Rs 25,000 will be disallowed.
D) Indian co. needs to deduct TDS on Rs 1,00,000, failing which amount of Rs 25,000 will be disallowed.
MCQ 58.2: What if in the above question, an Indian company is paying professional fees to an Indian Firm of Rs 1,00,000 and fails to deduct TDS
on the same.
A) Indian Co. needs to deduct TDS on Rs 30,000, failing which the full amount of Rs 1,00,000 will be disallowed.
B) Indian Co. needs to deduct TDS on Rs 1,00,000, failing which the full amount of Rs 1,00,000 will be disallowed.
C) Indian co. needs to deduct TDS on Rs 30,000, failing which amount of Rs 30,000 will be disallowed.
D) Indian co. needs to deduct TDS on Rs 1,00,000, failing which amount of Rs 30,000 will be disallowed.
Answer MCQ Self Challenge # 0058
This post of MCQ is on provisions relating to the disallowance of expenses where TDS is not deducted.
Answer to MCQ 58.1: C) Indian Co. needs to deduct TDS on Rs 25000, failing which the amount of Rs 25,000 will be disallowed.
Practical Analysis for MCQ 58.1:-
1. As per Section 195 of ITA, TDS is required to be deducted in case of payments to a non-resident on the sum that is chargeable to income tax.
2. So in our question, TDS is required to be deducted on Rs 25,000(sum chargeable to income tax)
3. As per Section 40(a)(1) of the Income Tax Act, deduction of expenses paid outside India or to a nonresident will not be allowed if the sum is chargeable to income tax and upon which tax has not been deducted by the deductor.
4. Now doubts have been raised about the interpretation of the term "other sum chargeable for the purpose of disallowance under Section 40(a)(1).
5. CBDT vide circular No. 3/2015 dtd 12/02/2015 clarifies that to make disallowance of "other sum chargeable" under section 40(a)(1) of the act, the appropriate portion of the sum which is chargeable to tax under the Act shall form the basis of such disallowance and not the entire amount payable shall be disallowed.
Based on the above analysis, the correct answer is MCQ 58.1: C) Indian Co. needs to deduct TDS on Rs 25000, failing which the amount of Rs 25,000 will be disallowed.
Answer to MCQ 58.2: D) Indian Co. needs to deduct TDS on Rs 1,00,000, failing which amount of Rs 30,000 will be disallowed.
Practical Analysis for MCQ 58.2:-
1. As per Section 40(a)(a) of the Income Tax Act, deduction of expenses paid to a resident will not be allowed if the sum is chargeable to income tax and upon which tax has not been deducted by the deductor.
2. Disallowance will be 30% of the sum in case of the amount payable to the resident.
Based on the above analysis, the correct answer is MCQ 58.2: D) Indian Co. needs to deduct TDS on Rs 1,00,000 failing which amount of Rs 30,000 will be disallowed.
(Disclaimer: The objective of the MCQ post is just to discuss the concept, it may happen, by change of facts, the answer may be different. Please do not treat this as a professional opinion: you can definitely have your own opinion.)
Sincere Regards!
CA Sanjay Kumar Agrawal
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