Section 195A l Certificate for Payment Made "NET of TAX"
Circular No. 785 was issued by the Central Board of Direct Taxes on 24 November 1999. Its subject is Section 195A l Certificate for Payment Made "NET of TAX".
Holds that a payer who bears the tax and pays the income net of tax must still issue the certificate under section 203. Some payers were refusing, saying no certificate was due where the tax was borne by them under an agreement. The Board points to section 195A, under which the income is grossed up to the amount that, after deduction, equals the net sum payable under the agreement; to section 198, which deems the sum deducted to be the payee's income; and to section 199, which gives credit to the person from whose income the deduction was made on production of the section 203 certificate. It follows that in every case of deduction, including net of tax arrangements, the payer is under a legal obligation to furnish the certificate in the prescribed form to the payee within the prescribed time.
It was brought to the Board's notice that in net of tax cases payers were declining to issue certificates under section 203 on the plea that the tax was theirs to bear.
SECTION 195A l CERTIFICATE FOR PAYMENT MADE "NET OF TAX"
1170. Issue of certificate for tax deducted at source in respect of payment made ‘net of tax’
1. Attention is invited to Board’s Circular No. 664, dated 29-9-1993 explaining the provisions of section 203 of Income-tax Act, 1961 under which the person deducting tax under any provision of Chapter XVII of the Income-tax Act, 1961 is required to furnish a certificate to the effect that tax has been deducted and to specify therein, inter alia, the amount deducted and any other particulars that may be prescribed.
2. In a number of cases, the payers of income agree to bear the tax on such income and make payment only ‘net of tax’ in terms of section195A of the Income-tax Act. it has been brought to the notice of the Board that in such cases, payers, however sometimes refuse to furnish a certificate under section 203 of the Income-tax Act, 1961 on the ground that there is no obligation to furnish such certificate where the tax on the income is required to be borne by them under any agreement.
3. In this context, attention is drawn to section 195A of the Income-tax Act, which provides that where under any agreement/arrangement, the tax chargeable on any income is borne by the payer of the income, then, for the purpose of deduction of tax at source, such income shall be increased to such an amount as would after deduction of tax thereon, be equal to the net amount payable under the agreement.
4. Any sum deducted in accordance with the provisions of Chapter XVII of the Income-tax Act is deemed to be the income of the payee as per section 198 of the Income-tax Act. Further, section 199 of the Act provides that credit for the tax deducted at source and paid to the Central Government shall be given to the person from whose income the deduction was made on the production of certificate furnished under section 203 of the Income-tax Act. Section 203 of the Act requires that every person deducting tax at source shall furnish to the payee a certificate in the prescribed form within the prescribed time.
5. In view of the above, it is clarified that in all cases of deduction of tax at source including those referred to in paras 2 and 3 above, the payer is under legal obligation to furnish a certificate for the tax deducted at source in the prescribed form to the payee within the time prescribed as per section 203 of the Income-tax Act, 1961
Circular : No. 785, dated 24-11-1999.
In a dispute with a payer who will not part with a certificate on a net of tax contract, and where a payee's credit is refused for want of that certificate.
Source: the Income Tax Department’s own published text — its page for this instrument.