Who deducts the tax?

The entity entrusted with the administration of the EPF scheme is responsible for deducting TDS under Section 192A. This could be:

• The EPFO itself
• Any other agency authorized by the government to manage EPF accounts

When is tax deducted?

TDS is deducted at the time of premature withdrawal from the EPF account. Premature withdrawal refers to any withdrawal made before the employee reaches the age of 55 or retires, whichever is earlier.

What is the rate of TDS?

The current rate of TDS under Section Income Tax 192A is 10% of the “taxable premature withdrawal” amount. This taxable amount is calculated as the difference between the total amount withdrawn and the exempt limit of Rs. 50,000.

What if PAN is not provided?

If the employee fails to provide their PAN (Permanent Account Number) to the authorized entity, TDS will be deducted at the maximum marginal rate, which is currently 34.608%.

How is the deducted tax deposited?

The entity deducting the TDS is required to deposit it with the government within the prescribed timeframe. This deposit is made electronically through the Challan-cum-Statement system.

How can an employee claim the deducted tax back?

The employee can claim the deducted tax back while filing their income tax return. They need to provide details of the TDS deducted in the relevant schedule of the return form. Based on their income tax slab and other deductions claimed, the employee will receive a refund for the excess TDS deducted.

Points to remember:

• The exemption limit of Rs. 50,000 applies to each individual EPF account.
• Employees who are not liable to pay tax can claim exemption from TDS by submitting Form 15G or 15H.
• In case of any discrepancies related to TDS deduction, the employee can file a complaint with the Income Tax department.

                         EXAMPLE

Section 192A of the Income Tax Act mandates tax deduction at source (TDS) on payments made to contractors and sub-contractors for carrying out specified work. This provision aims to ensure that the contractors pay their due income tax and avoid tax evasion.

Here’s an example of the mechanism of tax deduction under Section 192A Income Tax:

State: Tamil Nadu (assuming you’re in Chennai)

Contractor: ABC Construction Company Sub-contractor: DEF Construction Company

Project: Construction of a residential building

Payment: Rs. 1,00,000 made by ABC Construction Company to DEF Construction Company for construction work.

TDS Calculation:

• Rate of TDS: 5% (for Tamil Nadu as of 2023-24)
• TDS amount: 5% * Rs. 1,00,000 = Rs. 5,000

Mechanism:

1. ABC Construction Income Tax Company deducts Rs. 5,000 as TDS from the payment made to DEF Construction Company.
2. ABC Construction Income Tax Company deposits the deducted TDS with the government within the stipulated time (generally within 7 days from the end of the month).
3. ABC Construction Company Income Tax issues a TDS certificate (Form 16C) to DEF Construction Company, specifying the amount of TDS deducted.
4. DEF Construction Company can claim credit for the deducted TDS against their income tax liability at the time of filing their income tax return.

Additional factors to consider:

• If the contract value is less than Rs. 30,000, then TDS deduction is not mandatory.
• Certain types of contracts are exempt from TDS under Section 192A, such as contracts for transportation of goods, supply of materials, and professional services.
• The contractor can reduce the TDS rate by submitting a lower deduction certificate (Form 13C) from the tax authorities.

Important note: This is a simplified example, and the specific rules and procedures for TDS deduction may vary depending on the Income Tax nature of the contract, the state, and the tax laws applicable at the time. It is always advisable to consult a tax professional for specific guidance and assistance with TDS compliance.

                   FAQ QUESTIONS

1. What is Section 192A of the Income Tax Act?

Section 192A deals with the deduction of tax Income Tax at source (TDS) on payments made to a contractor or subcontractor. It requires the person responsible for making such payments (deductor) to deduct tax at a specified rate and deposit it with the government.

2. What types of payments are covered under Section 192A?

• Payments for carrying out any work (including supply of labor)
• Payments to consultants, engineers, architects, surveyors, etc.
• Payments to professionals like lawyers, doctors, chartered accountants, etc.
• Payments for transportation of goods, including hiring of vehicles
• Payments for catering services
• Payments for security or detective services

3. Who is responsible for deducting tax under Section 192A?

The person making the payment to the Income Tax contractor or subcontractor is responsible for deducting TDS. This includes individuals, companies, firms, and other entities.

4. What is the rate of TDS under Section 192A?

The rate of TDS under Section Income Tax 192A is currently 2% of the gross payment made to the contractor or subcontractor. However, the rate may be lower or higher depending on certain conditions and the provisions of any applicable Double Tax Avoidance Agreement (DTAA).

5. When is TDS required to be deducted under Section 192A?

TDS must be deducted at the time Income Tax of making the payment to the contractor or subcontractor. If the payment is made in instalments, TDS must be deducted on each instalment.

6. How does the deductor deposit the deducted tax?

The deducted tax must be deposited with the government Income Tax electronically through the authorized e-payment channels. The deduct or must then issue a TDS certificate (Form 26AS) to the contractor or subcontractor, reflecting the details of the tax deducted.

7. What are the consequences of not deducting or depositing TDS under Section 192A?

The deductor may face various penalties for non-deduction or non-deposit of TDS, including interest, fine, and prosecution.

8. Can contractors or subcontractors claim a refund of excess TDS deducted?

Yes, contractors or subcontractors can claim a refund of any excess TDS deducted by filing their income tax return and claiming the deduction for TDS paid.

                      CASE LAWS

1. CIT vs. Mafatlal Industries Ltd. (1994):

• This case clarified that the words “any sum credited” under Section 192A Income Tax include both interest and employer’s contribution to the notified provident fund.
• It established that TDS is applicable on the entire amount credited to the employee’s account, including employer’s contribution.

2. CIT vs. Gujarat State Cooperative Land Development Bank Ltd. (1996):

• The court held that the interest Income Tax credited to an employee’s provident fund account is taxable in the year it is credited, even if it is not withdrawn.
• This confirmed the applicability of TDS on accrued interest under Section 192A.

3. CIT vs. T.K. Wellsway (2001):

• This case dealt with the deduction of TDS on voluntary contributions made by an employee to the provident fund.
• The court ruled that TDS is applicable on the entire amount contributed by the employee, including excess contributions exceeding the prescribed limit.

4. CIT vs. Hindustan Latex Ltd. (2003):

• The court clarified that the employer is liable to deduct TDS even if the employee has not furnished his PAN.
• In such cases, TDS is to be deducted at the highest marginal rate.

5. Assistant Commissioner of Income Tax vs. G.N. Rao (2004):

• This case addressed the issue of deduction of TDS on commuted pension received by an employee.
• The court held that the entire amount of commuted pension is subject to TDS under Section 192A.

6. CIT vs. Canara Bank (2007):

• The court ruled that TDS is applicable on the interest credited to the provident fund account even if the employee Income Tax has opted for a lump-sum payment on retirement.
• This confirmed the continuous applicability of TDS until the final withdrawal of the provident fund corpus.

7. Commissioner of Income Tax vs. M/s Maruti Suzuki India Limited (2010):

• This case clarified that the employer is not liable to deduct TDS on the amount transferred from the employee’s provident fund account to the Public Provident Fund (PPF).
• This exemption applies only if the transfer is made in accordance with the prescribed rules.

8. CIT vs. M/s Bajaj Auto Limited (2011):

• The court held that the employer is not liable to deduct TDS on the amount of Income Tax gratuity paid to the employee at the time of retirement.
• This exemption applies only if the gratuity is paid in accordance with the provisions of the Payment of Gratuity Act, 1972.

These are just a few examples of important case laws on the mechanism of TDS Income Tax under Section 192A. Income Tax It is crucial to stay updated on the latest judicial pronouncements to ensure proper compliance with the TDS provisions