Mukesh Patel.in
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TDS Becomes Less Taxing!

TDS Rates Rationalized

No Messy Computation Of Cess & Surcharge

 October 1, 2009, has also brought some welcome provisions of rationalization of TDS rates and reducing multiple classifications (see Box).

TDS BECOMES LESS TAXING – Effective October 1, 2009

Section

Nature of Payment

Old

TDS Rate

New

TDS Rate

194C Payment to Contractor – Indl./HUF

2%

1%

194C Payment to Contractor – Firm/Co.  

2%

2%

194C    Transport Contractor

2%

*Nil

194I Rent of Plant/Machinery/Equipment

10%

2%

194I Rent of Land/Building/Furniture – Indl./HUF  

15% 

10%

194I Rent of Land/Building/Furniture – Firm/Co.  

20%

10%

Note: * Transport Contractors will enjoy ‘Nil’ TDS subject to quoting of PAN.

  •  In order to ease computation, surcharge and cess on TDS was also removed   with immediate effect on all payments (except salary) made to resident taxpayers, on the passing of the Finance Act in early August, 2009.  

          The Finance Act, 2009 gave you a good reason to smile. Since early August, 2009, immediate upon the passing of the Act, you were spared from remembering complex Tax Deduction at Source (TDS) rates such as 2.266% or 16.995% any longer. TDS rates became simple and TDS computations easy, with the imaginative proposal to abolish surcharge and cess on TDS on all payments (except salary) made to resident taxpayers. Convergence of specified rates also took effect, with the alignment of the same rate of TDS for both corporate and non-corporate taxpayers, interest u/s. 194A requiring a noteworthy mention.

 Rationalization of TDS Rates effective October, 1

 

         October 1, 2009, has also brought some welcome provisions of rationalization of TDS rates and reducing multiple classifications (see Box). Significant relief has been granted in respect of TDS from rent on land, building, furniture, plant, machinery and equipment. While the rate of TDS in respect of contract payments to firms and companies will continue, relief has been allowed in case of contractors who are individuals and HUFs.

          Effective October 1, Transport Contractors will be exempt from the purview of TDS u/s. 194C, if they quote their Permanent Account Number (PAN) while presenting their invoices for payment.

 Interest on Income-tax Refund

             Many readers have inquired regarding rules for grant of interest by the Income-tax Department on refunds issued to taxpayers. As per Section 244A of the Income-tax Act, a taxpayer is entitled to interest @ 0.5% for every month or part of the month, (6% per annum) from the first day of April of the assessment year to the date on which the refund is granted, where the refund arises on account of TDS or advance-tax payment.

              In other cases, such interest is calculated from the date of payment of tax or penalty to the date on which refund is granted. It needs to be borne in mind that as per the proviso to Section 244A, no interest is payable if the amount of refund is less than 10% of the tax payable by the taxpayer.

 Case Study: For the Assessment Year 2007-08, a taxpayer has filed his income-tax return claiming a refund of Rs.30,000. The intimation under Section 143(1)(a) is passed by the Assessing Officer on 17-01-2009, but the refund order is issued on 02-08-2009. The Assessing Officer has computed interest of Rs.3,300 @ 0.5% p.m. for a period of 22 months only i.e. from April, 2007 to January, 2009 (being the date of intimation).

However, since the refund order is issued in August, 2009, the taxpayer is actually entitled to interest of Rs.4,350, @ 0.5% for a period of 29 months i.e. April, 2007 to August, 2009, being the date on which refund is granted. It also needs to be noted that for the purpose of computing the interest, even part of a month is to be treated as a full month.

In the above case, the taxpayer must file an application for rectification, requesting for the grant of differential interest of Rs.1,050 (4,350 – 3,300) due but not allowed.

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