Reimbursement of TDS

[Siraj Shaikh]

There is a labour contractor charging Rs. 12,000 per month for some service. The company has agreed to bear the TDS amount. The Bill submitted by the contractor is 12, 240 inclusive of TDS. Hence, the company deducts 244.80 from 12,240 and pays the net. IS IT OK from Income Tax Point of View.

[CS Swati D Rawat]

Yes, the treatment is correct

The tax borne by company becomes income of the contractor,thus tax deducted at 2% of 12240 is correct

Read section 195A if required.

[Narender Singh Negi]

Labour contractor services is chargable to TDS @2% u/s  194C and TDS will be deducted on credit or paid with ever is earlier. So it is OK as per income tax act but contractor income will be increased by Rs.240/- that will have to justify to the department in the case of scrutiny.  But at the time of deduction contractor have to provide PAN to the company against the deduction of Rs.244.80.

[Siraj Shaikh]

Thanks Swati and Narendra...

AI Summary

Tax reimbursement treated as contractor income, so withholding applies on payments inclusive of the reimbursed tax. Reimbursement of TDS by the payer is treated as income of the contractor, so withholding is to be calculated on the payment inclusive of the tax reimbursement; the contractor's assessable receipts increase by the tax borne and the contractor should provide PAN at the time of deduction.