There is a general perception that the concept of deduction of tax at source is applicable only in the case of payments made in connection with business of the assessee. During the last few years, the scope of deduction of tax at source has been extended to a number of personal payments as well. Some of the said provisions are briefly discussed hereinafter.
Section 194IA: Tax @ 1% of the payment made, for acquisition of immovable property, has to be deducted at source, even if the said property is being acquired for personal use, by a person, not carrying on any business or profession.
Section 194IB: Tax @ 5% is to be deducted at source, from payments made to any person, by any individual or HUF, on account of rent for any premises. The said deduction is applicable, in case the rent is more than Rs 50,000 PM, even if the premises are for the personal residence of an assesse, who may not necessarily be carrying on any business or profession.
Section 194M: The said section brings into its ambit payments made by any individual or HUF:
- To any contractor for carrying out any work,
- Fees for professional services as well as
- Commission or brokerage.
The deduction @ 5% is applicable in case the payment is in excess of Rs 50 lakh in a financial year. Here again the payment for personal purposes would also be covered by the provision of TDS under this section.
Section 194A: This section provides for deduction at source from payment of interest by various entities. In the case of individuals the section is applicable in case the turnover of the business being carried out by the such individual is more than rupees one crore during the financial year immediately preceding the year in which interest is being paid. There can be a situation wherein the person who is carrying on business and having turnover exceeding the threshold amount makes any payment on account of interest on any personal loan. Such interest would also be covered by the provisions of TDS under this section although the same may not be a business expense for the individual as no specific exception on the lines of section 194C or section 194J has been provided herein.
Section 194I : This section provides for deduction of tax at source from rent paid wherein the aggregate of the amount paid during any financial year to any person is an excess of ₹ 240,000. Besides other entities the section is applicable to an individual carrying on business or profession wherein its turnover is an excess of rupees one crore or ₹ 50 lakhs respectively depending upon whether such person is carrying on business or profession as the case may be. Here again any payment made for premises taken on rent would be covered by the ambit of this particular section in spite of the fact that the same has neither been used for the purpose of business and profession nor the said rent has been claimed as an expense in the profit and loss account of the business carried out by such individual.
Section 194H: This section provides for deduction of tax from payment of commission of brokerage by an assessee. The section is applicable to an individual only if it’s gross turnover exceeds rupees one crore in the case of business and ₹ 50 lakhs in the case of profession. Here again section does not provide for any exemption for commission of brokerage paid on account of personal purposes even if the expense has not been claimed as a deduction in the profit and loss account prepared for the business of the assessee. In other words the section would become applicable on any commission or brokerage paid by such individual even if it is not a business expense. An example of such applicability can be commission paid by such individual for acquisition of any immovable property for personal use by the assessee.
Section 195: Provisions contained in this section with respect to withholding tax on payments made to a non-resident are also applicable to an individual even if the same do not pertain to his business or profession and irrespective of the fact whether the amount paid is being claimed as an expense or not.
The income tax act, 1961 contains very stringent provisions with respect to compliance of TDS provisions and may even result in prosecution of the person. It is imperative that the assessee should ensure due compliance in all respects.
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