Section 40(a)(i) - Non-compliance of provisions of TDS where payment is made to Non-Resident - Income Tax - Ready Reckoner - Income Tax

Section 40(a)(i) : Non-compliance of provisions of TDS where payment is made to Non-Resident Disallowance under section 40(a)(i) shall be attracted if: The amount paid or payable is interest, royalty, fees for technical services or any other sum (other than salary) chargeable under Income Tax Act and the sums must be taxable in the hands of the recipient under the Income tax Act. The aforesaid sum is paid/ payable outside India to a non-resident or a foreign company, and in India to a non-resident or a foreign company and tax is deductible at source on the aforesaid payments under chapter XVII-B . And any of the following defaults takes place Default A: Tax at source has not been deducted or Default B: Tax at source has been deducted but has not been paid on or before the due date specified in section 139(1) Provided that where tax has been deducted in the subsequent year or tax has been deducted in the previous year but paid after the due date specified in section 139(1) then such sum shall be allowed as deduction in the previous year in which such tax has been paid. Note: clarified that if TDS not deducted on payment to non-residents, only that portion will be disallowed, which is chargeable to Income tax and not the whole payment. First proviso to section 201(1) Where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to section 201(1) , then, for the purposes of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the payee. When Recipient has paid tax The amended first proviso to section 201(1) provides as under: Any person, including the Principal Officer of a company, who fails to deduct the whole or any part of the tax in accordance with provisions of the Chapter on the sum paid to a payee or on the sum credited to the account of a payee shall not be deemed to be an assessee in default in respect of such tax if such payee - the recipient has furnished his return of income u/s 139 ; the recipient has taken into account such sum for computing income in such return of income; and the recipient has paid the tax due on the income declared by him in such ROI. if the payee satisfies all the above 3 conditions and the deductor furnishes a certificate to this effect from a chartered accountant in such form No. 26A, then the deductor will be allowed the deduction of the expenses mentioned in section 40(a)(i) by assuming that the deductor has deducted and paid the tax on such sum on the date of furnishing ROI by the payee aforesaid.