TDS PROVISIONS RELATING TO PAYMENTS MADE OUTSIDE INDIA [Section 40(a)(i)]

   

   
Section 40(a)(i) specifically deals with three categories of payments on which if Tax Deduction at Source is not made then the expenses so claimed as deductible while calculating Total Income gets disallowed under this enabling section. Such payments being:- 

  1. Interest

  2. Royalty and 

  3. Fees for Technical Services payable to a Non Resident

In summary if following conditions are satisfied then expenditure incurred w.r.t above three payments gets disallowed in computation of Taxable income:
 

Condition

Description

I

The amount paid is interest, other than interest on loan issued for public subscription before April 1st’ 1938, royalty, fees for technical services or other sum.

II

The aforesaid sum is chargeable to tax under the Act in the hands of the recipient.

III

The aforesaid sum is paid in the following situations:

  • Outside India: To a Resident/ Non-resident.

  • In India: To a Non-Resident/ Foreign Company.

IV

No Tax Deduction at Source (TDS) at applicable rates has been made on the aforesaid expenditure before payment to the recipient.

Conclusion on satisfaction of above conditions:

  • The resultant expenditure becomes non deductible from the Business/ Profession income of the assessee as already stated above.
     

  • However such expenditure shall be allowed in the PY in which such tax liable to be deducted at source is paid to the credit of Central Govt.
     

  • If such Tax deducted at source is deducted and paid afterwards to the credit of Central Govt. then deduction can be claimed in the year of such payment.
     

  • Following are the Sections which cover broad TDS compliances:
     

    • Sec 193 or 194A: TDS on Interest.
       

    • Sec 194H: Commission or Brokerage.
       

    • Sec 194J: Fees for Technical/ Professional Services.
       

    • Sec 194C: Payment to Contractors/ Sub Contractors.

TO LEARN MORE ABOUT TDS COMPLIANCE SEE OUR T.D.S MODULE