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Scope of withholding tax provisions as per the Income tax Act, 1961, and various circulars, in respect of payments to

persons residents in India

Category Definition Illustrative list of expenditure Illustrative list of expenditure excluded


covered (including as per CBDT (including as per CBDT Circulars)
Circulars)
Salary (Section 192) All payments made to employee including stock Salaries, Perquisites etc Payments liable to FBT (for details refer
options and employee discounts FBT chart)
Interest other than As per section 194A, any person paying interest - interest paid to group company - interest credited / paid to specified
interest on securities other than interest on securities shall be liable to for loans / deposits taken banking companies, financial
(Section 194A) deduct TDS. corporation established by or under a
Central, State or Provincial Act, LIC,
and such other entities.
Contractual As per section 194C, any person paying any sum Payment for: Payment to:
payments (Section to a resident for carrying out any 'work' (including - transport, service contracts - airlines / travel agents for tickets
194C) supply of labour for carrying out any work) in
- broadcasting, telecasting, - banks for services like discounting of
pursuance of contract is liable to deduct tax under
this section. - labour contracts bills, opening letters of credit etc.
The expression work shall also include - - courier services - contractor engaged in the business of
a) advertising, b) broadcasting and telecasting - routine / normal maintenance plying, hiring, leasing of goods
c) carriage of goods and passengers by any mode contracts carriages and owning not more that
of transport other than by railways; d) catering two carriages at any time during the
- supply of printed material
year.
- electrical contracts
- any person for hiring / renting of
- reimbursement of actual equipment
expenses, if forming part of the
bill amount
- recruitment agencies.

- advertisement (note 3)
- Clearing & Forwarding agents
Category Definition Illustrative list of expenditure Illustrative list of expenditure excluded
covered (including as per CBDT (including as per CBDT Circulars)
Circulars)
Commission / Commission or brokerage includes any payment Payment for: Payment for:
brokerage (Section received or receivable, directly or indirectly, by a - advertisement (note 3) - professional services, except services
194H) person acting on behalf of another person for in the nature of advertising
services rendered (not being professional services) Commission to:
or for any services in the course of buying or - real estate agent - insurance commission
selling of goods or in relation to any transaction
relating to any asset, valuable article or thing, not
being securities
Rent (Section 194I) As per section 194-I, “rent” means any payment, Rent paid for: Payment of refundable deposit
by whatever name called, under any lease, - land
sublease, tenancy or any other agreement or
- building
arrangement for the use of (either separately or
together) any, land; or building (including factory - machinery, plant or equipment
building); or land appurtenant to a building - furniture, fittings
(including factory building); or machinery; or - hotel (note 4)
plant; or equipment; or furniture; or fittings,
whether or not any or all of the above are owned - business centre agreement
by the payee . - composite rent ( ie rent on
premises and rent on amenities)
Payment of non-refundable deposit,
which can be adjusted against future
rent
Professional Services/ (A) "Professional services" means services Fees paid to: Payment for:
Technical Services rendered by a person in the course of carrying on - lawyers - construction, assembly, mining or
(Section 194J) legal, medical, engineering or architectural like project
profession or the profession of accountancy or - CAs / accountants
technical consultancy or interior decoration or - engineers - routine / normal maintenance
advertising. contracts
- architects
(B)"Fees for technical services" means any - transfer of the right to manufacture,
- technical consultants
consideration for the rendering any managerial, produce, or process any article or
- interior decorators thing which is chargeable as capital
technical or consultancy services (including the
provision of services of technical or other - managerial consultants gain
personnel) but does not include consideration for - recruitment agencies - transfer of a right to carry on a
any construction, assembly, mining or like project business, which is chargeable under
undertaken by the recipient or consideration which - reimbursement of actual
expenses, if forming part of the the head capital gain
would be income of the recipient chargeable under
the head "Salaries bill amount.
Category Definition Illustrative list of expenditure Illustrative list of expenditure excluded
covered (including as per CBDT (including as per CBDT Circulars)
Circulars)
(C)" Royalty" means consideration (including any - for copyrights, know-how,
lum sum consideration but excluding any design .( Inserted)
consideration which would be the income of the
recipient chargeable under the head' Capital gain') - non-compete fee and exclusive
for: rights
(i) the transfer of all or any right
(including the granting of a license)
in respect of a patent, invention,
model, design, secret formula or
process or trade mark or similar
property;
(ii) the imparting of any information
concerning the working of, or use of,
a patent, invention, model, design,
secret formula or process or trade
mark or similar property;
(iii) the use of any patent, invention,
model, design, secret formula or
process or trade mark or similar
property;
(iv) the imparting of any information
concerning technical, industrial,
commercial or scientific knowledge,
experience or skill;
(iva) the use or right to use any industrial,
commercial or scientific equipment.
(v) the transfer of all rights (including
the granting of a licence) in respect
of any copyright, literary, artistic or
scientific work including films or
video tapes for use in connection
with television or tapes for use in
connection with radio broadcasting,
but not including consideration for
the sale, distribution or exhibition of
cinematographic films; or
Category Definition Illustrative list of expenditure Illustrative list of expenditure excluded
covered (including as per CBDT (including as per CBDT Circulars)
Circulars)

(vi) the rendering of any services in


connection with the activities
referred to in sub-clauses (i) to (v)
above.

( D) " any sum referred in clause (va) of section 28


of the Income-tax Act" means any sum whether
paid or payable, in cash or kind, under an
agreement for:
(a) not carrying out any activity in relation to
any business ; or
(b) not sharing any know-how, patent,
copyright, trade mark, licence, franchise
or any other business or commercial right
of similar nature or information or
technique likely to assist in the
manufacture or processing of goods or
provisions for services.
However, any sum chargeable under the head
capital gains would not be covered in the above
definition.
Notes:
1. The list of items covered under each section is only an illustrative list. In case of any doubt, we could have a call to discuss TDS implications.
2. Special rates of TDS apply on payments to non-residents taking into account the provisions of the Act and the applicable tax treaty.
3. Payments for advertisement are subject to withholding tax implications as based on the purpose for which the payment is made:
a. 194C
i. Payment to an advertising agency / directly to print / electronic media (payments to government agencies excluded from the scope of
TDS)
ii. Putting up hoarding
iii. Sponsorship for debates, seminars etc. held in educational institutions, associations etc.
iv. Advertisement in souvenirs.
b. 194I
i. Rent paid for a space which is sub-let for putting up a hoarding
4. As per CBDT, payment for hotel accommodation by a company, whether in the nature of lease and license agreements is covered under the section 194I,
if such accommodation is taken on a ‘regular basis’. Accordingly, following payments shall not be covered under this section:
a. Payment by an employee directly to a hotel, as and when he stays there, which shall be reimbursed to him by his employer.
b. Corporate employers entering into agreements with hotels, with a view to fix the tariff rates, which are in the nature of rate contract
agreements.

(The above chart considers the view expressed by CBDT in its circulars. In certain cases, the CBDT view may not be the correct view & an assessee can depart
from the CBDT view. However, this may result in litigation. In case there are any items of expenditure, where VW / payee feel that TDS is not attracted, then we
could discuss this over a call).