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

Section - 40(a)(ia ): Non-compliance of provisions of TDS where payment is made to Resident Tax is deductible but not deducted From A.Y. 2015-16 , 30% of any sum payable to a resident shall be disallowed on which tax is deductible at source under Chapter XVIIB (i.e. Section 192 to Section 206AA) and such tax has not been deducted or, after such deduction, has not been paid on or before the due date specified in section 139(1) . Up to A.Y. 2014-15 , 100% of such expenditure was not deductible. Tax deducted but not deposited before the due date of submission of return From A.Y. 2015-16, where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in Section 139(1) , 30% of such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. Up to A.Y. 2014-15 , 100% of such expenditure was not deductible. [ Para no. 14 of Circular no. 01/2015 dated 21/01/2015 ] where the assessee fails to deduct the whole or part of the tax under chapter XVII-B on any sum but is not deemed to be an assessee in default under first proviso to section 201(1) then, for the purpose of section 40(a)(ia) , it shall be deemed that assessee has deducted and paid the tax on such sum on the date of furnishing the 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 - (i) has furnished his return of income u/s 139 ; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such ROI. Therefore, 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. Other Relevant Point If Loan is taken to finance the purchase capital asset, interest liability can be capitalised. if there is a TDS default u/s 194A for such interest, deprecation on the interest component (which is part of Actual Cost ) cannot be denied by invoking the provisions of section 40(a)(ia). Clarifications on various provisions relating to tax deduction at source regarding changes introduced through Finance Act, 1995. [ Circular No. 5/2002 , dated 30-7-2002 ]