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 covered (including as per CBDT Circulars)	Illustrative list of expenditure excluded (including as per CBDT Circulars)
Salary (Section 192)	All payments made to employee including stock options and employee discounts	Salaries, Perquisites etc	Payments liable to FBT (for details refer FBT chart)
Interest other than interest on securities (Section 194A)	As per section 194A, any person paying interest other than interest on securities shall be liable to deduct TDS.	- interest paid to group company for loans / deposits taken	- interest credited / paid to specified banking companies, financial corporation established by or under a Central, State or Provincial Act, LIC, and such other entities.
Contractual payments (Section 194C)	As per section 194C, any person paying any sum to a resident for carrying out any 'work' (including supply of labour for carrying out any work) in pursuance of contract is liable to deduct tax under this section. The expression work shall also include - a) advertising, b) broadcasting and telecasting c) carriage of goods and passengers by any mode of transport other than by railways; d) catering	Payment for: - transport, service contracts - broadcasting, telecasting, - labour contracts - courier services - routine / normal maintenance contracts - supply of printed material - electrical contracts - reimbursement of actual expenses, if forming part of the bill amount - advertisement (note 3) - Clearing & Forwarding agents	Payment to: - airlines / travel agents for tickets - banks for services like discounting of bills, opening letters of credit etc. - contractor engaged in the business of plying, hiring, leasing of goods carriages and owning not more that two carriages at any time during the year. - any person for hiring / renting of equipment - recruitment agencies.
Commission / brokerage (Section 194H)	Commission or brokerage includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities	Payment for: - advertisement (note 3) Commission to: - real estate agent	Payment for: - professional services, except services in the nature of advertising - insurance commission
Rent (Section 194I)	As per section 194-I, “rent” means any payment, by whatever name called, under any lease, sublease, tenancy or any other agreement or arrangement for the use of (either separately or together) any, land; or building (including factory building); or land appurtenant to a building (including factory building); or machinery; or plant; or equipment; or furniture; or fittings, whether or not any or all of the above are owned by the payee .	Rent paid for: - land - building - machinery, plant or equipment - furniture, fittings - hotel (note 4) - business centre agreement - composite rent ( ie rent on premises and rent on amenities) Payment of non-refundable deposit, which can be adjusted against future rent	Payment of refundable deposit
Professional Services/ Technical Services (Section 194J)	(A) "Professional services" means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising. (B)"Fees for technical services" means any consideration for the rendering any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries (C)" Royalty" means consideration (including any lum sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head' Capital gain') for: (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 (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.	Fees paid to: - lawyers - CAs / accountants - engineers - architects - technical consultants - interior decorators - managerial consultants - recruitment agencies - reimbursement of actual expenses, if forming part of the bill amount. - for copyrights, know-how, design .( Inserted) - non-compete fee and exclusive rights	Payment for: - construction, assembly, mining or like project - routine / normal maintenance contracts - transfer of the right to manufacture, produce, or process any article or thing which is chargeable as capital gain - transfer of a right to carry on a business, which is chargeable under the head capital gain

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:
1. 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.

2. 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:
1. Payment by an employee directly to a hotel, as and when he stays there, which shall be reimbursed to him by his employer.
2. 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).