Late deposit of TDS-Section 40A, Income Tax

[Mukund Honkan]

Company A is undertaking Turnkey contracts & offloading 100% work to its  JV partner ’Company B’ after keeping margin of 2%.

In the year end March 2011, job worth Rs. 10 crores executed by Company A & offloaded to Company B.

Company B accounted contracting income of Rs. 9.80 crs which  in turn is expense of Company A.

 Company A has  to deduct TDS @ 2% from Rs. 9.80 crs i.e. Rs.19.60 lacs but deposited the same on 5^th October 2011.

Since TDS is not deposited before 30^th Sept 11, entire expenses get disallowed and Company A is liable for Income tax on Gross Income of Rs. 10 crores which will be around Rs. 3 crores.

Can we know what is the way out so that Rs. 3 crores can be saved?

Regards,

 

Mukund M Honkan

Posts / Replies

[GOPALJI AGRAWAL]

Only terms of the contract will decide the fate. If Company A claims that it is entitled for 2% commission and all the expenses are incurred on behalf of company B, then there may be an escape.