TDS deduction on services instead of no income in books??????

[milan bamal]

'An LLP firm is constructing a warehouse in its own name. Currently, there is no income in the Profit & Loss account; only expenses related to goods, consultancy, and services are being recorded. As per the Income Tax provisions, TDS is required to be deducted on certain expenses. However, the firm has not deducted TDS on any of these service-related expenses so far, despite the applicability of the TDS threshold limits on some expenses. Is it mandatory to deduct TDS even though there is no income at present?'

[YAGAY andSUN]

Yes. The obligation to deduct tax at source (TDS) under the Income-tax Act, 1961 is independent of the existence of income or profitability in the hands of the payer.

TDS provisions (such as under sections 194C, 194J, 194H, etc.) are triggered at the time of credit or payment of specified sums to a resident, whichever is earlier, provided the prescribed monetary thresholds are exceeded. The law does not condition the requirement of TDS on the payer having taxable income, business receipts, or a profit position.

In the present case, even though the LLP is in the project/construction phase and has not yet commenced revenue-generating operations, it remains a "person responsible for paying" under the Act. Accordingly, any payments made towards contractual work, professional or technical services, consultancy, or other notified categories, if falling within the relevant sections and exceeding threshold limits, mandatorily attract TDS.

Non-deduction or short deduction of TDS may result in consequences including (i) disallowance of the corresponding expenditure under section 40(a)(ia) (to the extent applicable when business income is computed), (ii) levy of interest under section 201(1A), and (iii) potential penalties.

Therefore, the absence of current income or the capital nature of the project does not dispense with the statutory obligation to deduct and deposit TDS. The LLP should regularize compliance to mitigate exposure to interest and penal consequences.

AI Summary

TDS deduction obligation applies even without current income or profits, when specified service payments cross thresholds. Tax deduction at source under the Income-tax Act is not dependent on the payer's present profitability or existence of income in the profit and loss account. A person responsible for making payments for contractual work, professional or technical services, consultancy, or other specified categories must deduct TDS when the relevant sum is credited or paid, whichever is earlier, if the applicable threshold conditions are met. The obligation applies even where an LLP is in the project or construction stage and has not yet commenced revenue-generating operations.