Examine and compute the liability for deduction of tax at source, if any, in cases stated hereunder, for the financial year ended 31st March, 2025,…

CA Final · Direct Tax Laws and International Taxation · MTP · September 2025
Examine and compute the liability for deduction of tax at source, if any, in cases stated hereunder, for the financial year ended 31st March, 2025, in accordance with the provisions of the Income-tax Act, 1961: (i) Mr. Kunal, an employee of Vertex Engineering Pvt. Ltd. (an Indian domestic manufacturing company), availed a loan of 11 lakhs from his employer to fund his son's higher education in Germany. Out of the total loan, an amount of 9,15,000 was remitted directly to a German university on 1st October 2024 towards tuition fees. He also remitted to his son an amount of 6,98,000 for pursuing higher studies in Germany towards his out-of-pocket expenses on 20.02.2025. Both the remittances were made through the same authorized dealer under the Liberalized Remittance Scheme of RBI. (ii) Mr. Rajat Kapoor, engaged in the manufacturing of textile goods, had a turnover of 18 crores in the financial year 2023-24 and is accordingly covered under section 44AB for mandatory audit. In January 2025, he purchased a residential house for 7.5 crores from Mr. Sameer for personal use. Stamp duty value of the property is 4.5 crores. He also paid commission 13% of the purchase value to Mr. Neeraj for facilitating the transaction. The property is not used for any business purpose. (iii) M/s Lucky Draw Pvt. Ltd., a company engaged in the business of marketing and distribution of lottery tickets across various states in India, appointed Mr. Rakesh, a resident individual, as an agent for promoting and selling lottery tickets. On 1st November 2024, the company paid a commission of 1,20,000 to Mr. Rakesh for the tickets sold during the second quarter of the financial year 2024-25. (iv) Mr. Vivek received a contract from Alpha Garments Ltd. to stitch 12,000 T-shirts according to specific requirements. To execute this order, he purchased cloth worth 45 lakhs from TrendTex Pvt. Ltd. on 24th January 2025. Upon completion, he raised a single consolidated invoice as follows: Sale of 12,000 T-shirts @600 each = 72,00,000 Note: TrendTex Pvt. Ltd. is a closely connected entity to Alpha Garments Ltd., as defined under section 40A(2)(b) of the Income-tax Act.

Suggested Answer and Working Notes:

(i) Tax would be collectible at source under section 206C(1G) by the authorised dealer, who received an amount, under the Liberalised Remittance Scheme of the RBI, for overseas remittance from Mr. Kunal at the rate of 5% of the sum exceeding 7lakhs. Tax of 10,750 (5% of 2,15,000, being the sum exceeding 7lakhs) would be collectible by the authorised dealer on 1.10.2024 on remittance of 9,15,000 for education of his son out of the loan from his employer. The concessional rate of TCS of 0.5% would not be applicable, since the amount of remittance is not out of a loan obtained from any financial institution as referred under section 80E. Tax of 34,900 (5% of 6,98,000) would be collectible by the authorised dealer on 20.2.2025 on remittances of 6,98,000 for education of his son for out of pocket expenses. (ii) Section 194-IA is attracted where the consideration for transfer of immovable property or the stamp duty value of such property, is 50,00,000 or more. As per section 194-IA, Mr. Rajat Kapoor paying - 7.5 crores to Mr. Sameer, as consideration for transfer of house property, is required to deducted tax at source @1% of consideration or the stamp duty value, whichever is higher. The tax deduction under section 194-IA would be - 7,50,000, being 1% of 7.5 crores, since SDV is lower than the consideration. Since Mr. Rajat Kapoor's turnover for the P.Y. 2023-24 exceeded 1crore and payment of commission i.e.,97,50,000 (13% of 7.5 crores) exceeds - 15,000, Mr. Rajat Kapoor is required to deduct tax under section 194H @2% (with effect from 1st October 2024, the rate of TDS under section 194H has been reduced from 5% to 2%) from commission payment to Mr. Neeraj. The tax deduction under section 194H would be - 1,95,000, being 2% of 97.50 lakhs (iii) As per section 194G of the Income-tax Act, 1961, any person paying to a resident any income by way of commission, remuneration, or prize (by whatever name called) on the sale of lottery tickets shall deduct tax at source at the time of credit or payment, whichever is earlier, if the amount exceeds - 15,000 in a financial year. With effect from 1st October 2024, the rate of TDS under section 194G has been reduced from 5% to 2%. In the given case, M/s Lucky Draw Pvt. Ltd. has paid a commission of 1,20,000 to Mr. Rakesh, a resident agent, on 1st November 2024 for selling lottery tickets. Since the amount exceeds the threshold limit of 15,000, tax is deductible at source under section 194G. Accordingly, tax to be deducted = 1,20,000 × 2% = 2,400 Hence, M/s Lucky Draw Pvt. Ltd. is required to deduct - 2,400 as TDS under section 194G. (iv) Tax is required to be deducted under section 194C by Alpha Garments Ltd. on payment for stitching of T-shirts to Mr. Vivek, since the supply of t-shirts is as per the specification of Alpha Garments Ltd. and the cloth is purchased from TrendTex Pvt. Ltd., which is an associate of Alpha Garments Ltd. specified under section 40A (2) (b), andSince a consolidated invoice has been raised, tax would be deducted on the entire amount, including the cost of purchases. Tax rate would be deducted@1% under section 194C since the contractor is an individual. Therefore, tax to be deducted = 72,00,000 x 1% = 72,000

Topics: Deduction, Collection and Recovery of Tax

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