Obligation to Deduct Tax

• Subsidiaries operating in India are treated as deductors under the Income Tax Act, 1961.
  
• They must deduct Tax Deducted at Source (TDS) on specified payments such as salaries, rent, interest, professional fees, contract payments, commission, and dividends.
  
• TDS must be deducted at the time of credit or payment, whichever is earlier.
  
• The applicable TDS rate depends on the nature of the payment and the recipient’s PAN status.
  
• Non-deduction or short deduction leads to disallowance of expense under Section 40(a)(ia).
  

Common Sections for TDS

• Section 192: TDS on salary payments.
  
• Section 194C: TDS on contracts and sub-contracts.
  
• Section 194J: TDS on professional or technical services.
  
• Section 194I: TDS on rent for land, buildings, or equipment.
  
• Section 195: TDS on payments to non-residents.
  

PAN and Higher Deduction

• If the deductee does not furnish a valid PAN, TDS must be deducted at a higher rate of 20%.
  
• Subsidiaries must verify PAN details through the income tax portal or TRACES.
  
• For foreign payments, Form 10F, Tax Residency Certificate (TRC), and no PE declaration may be required.
  
• Certificates under Section 197 for lower/nil deduction must be validated before applying reduced TDS rates.
  

Deposit and Filing of TDS

• TDS deducted must be deposited to the government by the 7th of the next month, except for March which is due by 30th April.
  
• Payment is made through challan ITNS 281 using the online portal.
  
• Quarterly TDS returns must be filed in Form 24Q (salary), Form 26Q (domestic payments), and Form 27Q (foreign payments).
  
• Due dates for filing are 31st July, 31st October, 31st January, and 31st May for the respective quarters.
  
• Failure to file returns or incorrect filing attracts penalty under Section 234E and late fee under Section 271H.
  

Issuance of TDS Certificates

• Subsidiaries must issue Form 16 (for salaries) and Form 16A (for non-salaries) to deductees.
  
• These certificates must be generated from the TRACES portal after return filing.
  
• Due dates are 15th June for Form 16 and within 15 days of the due date of filing returns for Form 16A.
  
• Deductees use these certificates to claim TDS credit in their tax returns.
  
• Proper maintenance of TDS records and reconciliation with Form 26AS is essential.
  

Consequences of Non-Compliance

• Interest under Section 201(1A) at 1% or 1.5% per month is charged for late deduction or deposit.
  
• Disallowance of expenses under Section 40(a)(ia) if TDS is not deducted or deposited.
  
• Penalties and prosecution may apply for willful default in TDS compliance.
  
• Directors and officers can be held liable for continuous or intentional violations.
  
• Repeated defaults may trigger tax scrutiny or audit.