Late deposit of TDS-Section 40A

[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

AI Summary

Company A faces tax liability for late TDS deposit on Rs. 10 crore contract; explores 2% commission strategy. Company A, involved in turnkey contracts, offloaded work worth Rs. 10 crores to its JV partner, Company B, retaining a 2% margin. Company B recorded Rs. 9.80 crores as income, which is an expense for Company A. Company A was required to deduct TDS of Rs. 19.60 lakhs but deposited it late, on October 5, 2011. Due to the delay, the expenses were disallowed, making Company A liable for tax on Rs. 10 crores, approximately Rs. 3 crores. A potential solution suggested involves contract terms, where Company A claims a 2% commission and expenses are on behalf of Company B.