Case Study 1

Case Study 1

Company Details:

• Company Name: Finc Power Source Private Limited
• TAN Number: BLRG22875G
• Address: Address: 2870, Phoenix Building, Bagmane Business Park, Outer Ring Road, Marathahalli Post, Bangalore – 560037
• PAN Number: NHNCG2827L

TDS Login Details (Income Tax Website):

• User ID: BLRG22875G
• Password: Fin@123

Based on the transactions executed by Finc Power Source Private Limited during Q1, analyze the TDS implications under the provisions of the Income-tax Act, 2025 and calculate the applicable tax to be deducted at source for each case:

1. Loan Interest PaymentOn 17th April, interest of 18% p.a. on a loan of ₹25,00,000 taken from M/s. VR Finance Co. (a Non-Banking Financial Company) was payable monthly. Determine the TDS applicability, threshold limit, and deduction amount under Section 392.
2. Advertising Service ContractOn 1st May, a contract for advertisement services was entered with M/s Justdial Ltd for ₹18,000 per month. Analyze whether TDS is deductible for Q1 payments under Section 393 considering the revised single and aggregate contract thresholds.
3. Catering Service ContractOn 1st May, a catering contract for 3 months was entered with Ravishankar Caterers (a sole proprietorship) for a total amount of ₹37,500 (₹12,500/month) to be billed after completion. Evaluate the TDS liability under Section 393 against the updated statutory limits.
4. Commercial Property RentMonthly office rent of ₹20,000 for April and May and ₹25,000 for June (totaling ₹65,000 during Q1) was paid to Mr. Naveen H. Determine the applicability of TDS under Section 396(1)(b) based on the revised annual monetary limit.
5. Audit and Professional FeesOn 17th June, professional charges of ₹35,000 were paid to M/s G B A & Associates (a partnership firm of auditors). Calculate the required TDS, if any, under Section 398.
6. Digital Marketing FeesOn 30th June, ₹55,000 was paid to ABC Digital Agency (a proprietorship) for digital marketing services. Classify the nature of service and determine the applicable TDS rate and amount under Section 398.
7. Purchase of GoodsPurchases worth ₹58,00,000 were made during Q1 from Mega Distributors Pvt Ltd (a resident seller). Assuming Finc Power Source Private Limited’s turnover in the preceding financial year exceeded ₹10 Crore, compute the TDS liability under Section 401.
8. Agent CommissionOn 15th June, a commission of ₹25,000 was paid to Harish Bafna, an individual agent. Determine the applicable TDS rate and deduction under Section 395.
9. Lease BrokerageOn 25th April, ₹70,000 was paid to Royal Realtors as brokerage for leasing office space. Calculate the TDS to be deducted under Section 395.
10. Machinery Hire ChargesOn 15th June, rent of ₹60,000 was paid for machinery taken on lease from Venkat Engineering. Evaluate the TDS obligation under Section 396(1)(a).

Statement showing TDS to be deducted of Finc Power Source Private Limited:

TDS Summary Table

Notes:

1. Interest from NBFC – Section 392 Interest paid to Non-Banking Financial Companies is governed by Section 392. Under the updated provisions, the monetary threshold for non-bank interest deduction is revised to ₹10,000. Total interest payable for 3 months on ₹25,00,000 at 18% p.a. is ₹1,12,500, crossing the threshold. TDS @10% applies, amounting to ₹11,250.
2. Advertisement to Justdial – Section 393 Contractual payments for advertisement fall under Section 393. The revised threshold for contractual payments is ₹50,000 for a single contract or ₹2,00,000 in aggregate. Justdial’s contract of ₹18,000/month for 3 months totals ₹54,000, exceeding the single-contract threshold of ₹50,000. As a company entity, TDS @2% is applicable, resulting in a deduction of ₹1,080.
3. Catering Bill by Ravishankar – Section 393 Catering contracts are treated as works contracts under Section 393. Since the single bill for 3 months amounts to ₹37,500, it remains below the updated single transaction threshold of ₹50,000 (and aggregate threshold of ₹2,00,000). Consequently, no TDS is deductible.
4. Rent to Mr. Naveen H – Section 396(1)(b) Rent paid for land or building to individuals/entities is covered under Section 396(1)(b). Under the unified framework, the threshold limit for rent deduction is updated to ₹6,00,000 annually. Since the payment during Q1 is ₹65,000 (and total annual projected rent is ₹2,60,000), it falls well below the statutory threshold of ₹6,00,000. Hence, no TDS is required.
5. Audit Fee to Partnership Firm – Section 398 Audit and professional fees fall under Section 398. The basic threshold for professional services is revised to ₹50,000 per financial year. Because the payment of ₹35,000 made to M/s G B A & Associates does not exceed ₹50,000, no TDS is deductible under Section 398.
6. Digital Marketing to ABC Digital – Section 398 Digital marketing involving technical interfaces or data processing is classified under fees for technical services under Section 398. The payment of ₹55,000 exceeds the revised single/aggregate threshold of ₹50,000. Under the simplified structure, technical services attract a reduced TDS rate of 2% (down from 10%), resulting in a deduction of ₹1,100.
7. Goods Purchase – Section 401 Section 401 requires buyers with turnover exceeding ₹10 Crore in the preceding fiscal year to deduct TDS @0.1% on purchase of goods from resident sellers exceeding ₹50 Lakhs in a year. For purchases of ₹58,00,000 from Mega Distributors, TDS is computed on the excess amount of ₹8,00,000 (₹58,00,000 – ₹50,00,000) at 0.10%, which equals ₹800.
8. Commission to Harish Bafna – Section 395 Section 395 governs commission and brokerage payments. The revised threshold limit is ₹20,000, and the statutory TDS rate is simplified to 2% (down from 5%). Payment of ₹25,00,000 to Harish exceeds the threshold, requiring TDS @2% equal to ₹500.
9. Brokerage to Royal Realtors – Section 395 Brokerage paid for real estate leasing falls under Section 395. The payment of ₹70,000 exceeds the ₹20,000 threshold. Applying the revised rate of 2% yields a TDS deduction of ₹1,400.
10. Machinery Rent to Venkat Engineering – Section 396(1)(a) Rent paid for plant, machinery, or equipment is governed by Section 396(1)(a). The applicable annual threshold is ₹6,00,000. Since the lease payment of ₹60,000 is significantly below ₹6,00,000, no TDS is deductible.