Reason (R) : If tax has not been deducted at source, the amount paid as interest will not be allowed as a deduction in computing business income.
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TDS on Interest Payable Outside India: Assertion & Reason Analysis
This section examines the validity of the provided Assertion (A) and Reason (R) concerning Tax Deduction at Source (TDS) on interest payments made outside India.
Assertion (A) Validity: TDS Mandate
Assertion (A) posits that TDS is required when interest is payable outside India.
- According to Section 195 of the Income Tax Act, 1961, tax must be deducted at source on interest payments made to non-residents, provided such interest is chargeable to tax in India.
- Therefore, Assertion (A) is correct.
Reason (R) Validity: Disallowance Consequence
Reason (R) states that failure to deduct TDS results in the disallowance of the interest expense.
- Section 40(a)(i) of the Income Tax Act, 1961, explicitly states that interest payable to a non-resident is not deductible if tax has not been deducted at source under Chapter XVII-B or if deducted tax has not been paid to the Central Government.
- Hence, Reason (R) is correct.
Explanation Assessment: Linking Assertion and Reason
Reason (R) directly addresses the consequence of not adhering to the rule stated in Assertion (A). The disallowance of the interest expense (R) serves as a critical reason why TDS must be applied (A) to interest payable outside India.
Thus, the non-deduction consequence (R) correctly explains the necessity of TDS (A).
Final Determination
Based on the analysis, both statements are correct, and Reason (R) accurately explains Assertion (A).
Important Questions from Deduction and Collection of tax at source
- Identify the person as per Income Tax Act, for whom the Mitakshara School of Hindu law related to succession is applicable to __________.
- Change of Possession of goods from one person to another for some specific purpose is __________.
- Which of the following statements is not correct ?
Income received and accrued or arisen outside India from a business controlled in or a profession set up in India, is taxed in the hands of which of the following?
a. Every citizen of India
b. Domicile of India
c. Ordinary Resident
d. Non-Ordinarily Resident
e. Non-Resident
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Match the LIST-I with LIST-II
LIST-I LIST-II A. Deduction of Tax at source on fees for professional and technical services I. Section 194 B B. Deduction of Tax at source from income by way of rent II. Section 193 C. Deduction of Tax at source from winnings from lotteries or crossword puzzles, etc. III. Section 194-I D. Deduction of Tax at source from interest on securities IV. Section 194 J
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