Applicability of rate in TDS

[BHASKER MURALI]

We have paid amount of Rs:90,000/- towards hire Charges upto 30-9-2009 but we have not deducted TDS U/s.194I, and in the month of October, 2009 we have paid an amount of Rs:50,000/-. So, whether we have to deduct TDs @ 2% on whole or 10% on payment made before 30-9-2009 and 2% after september,2009. Please advice

[Surender Gupta]

The provisions of section 194C have been amended with effect from 1.10.2009 as well as the provisions of section 194I have also been amended with effect from 1.10.2009. Therefore, you need to deduct TDS for the transaction prior to 1.10.2009 at the old rate and transactions on or after 1.10.2009 at the new rate.

[DEV KUMAR KOTHARI]

View of Shri Surendra Gupta is correct and based on play safe basis. However, in case when payments of Rs.90000/- till 30th Sept. (to one and the same party)were made,as per contract /MOU etc. for hiring then prevailing it was not likly that payment shall exceed Rs.120000/- in the year, then tax was not deductible from rent/ hire u/s 194 I. However, it should be established beyond doubt that it was not likely that payment shall exceed Rs.1,20,000/- in the year. (In case of contract limit of Rs.20K per contract and 50K per year will apply) you can explore possibility whether S.194C can be more appropriately applied in given facts.

AI Summary

TDS rate change: apply pre amendment withholding to payments before the effective date and new rates thereafter.
Withholding obligation depends on payment date: apply the pre amendment TDS rate to payments made before 1 October 2009 and the post amendment rate to payments made on or after that date. If earlier payments to the same payee were not likely to exceed the statutory exemption threshold for rent/hire in the year, TDS on those earlier payments would not have been required, provided that factual likelihood is established and documented; consideration may be given to whether contractor withholding rules better fit the facts.