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CA Intermediate · Taxation · Tax Deduction or Collection at Source and Advance Tax

Nirmal Builders Ltd engaged Kaveri Constructions, a partnership firm and a resident contractor, for civil work. During tax year 2026-27 it made four separate payments to the firm: ₹25,000, ₹28,000, ₹22,000 and ₹30,000. No lower-deduction certificate exists. Taking the contractor TDS rates as 1% for individuals/HUFs and 2% for others, with a ₹30,000 single-payment limit and a ₹1,00,000 annual aggregate limit, how much tax is to be deducted in total over the year?

The total TDS is ₹2,100. Although no single payment exceeds ₹30,000, the aggregate of ₹1,05,000 crosses the ₹1,00,000 annual limit, so tax applies to all payments. Since the contractor is a firm, the 2% rate is used, giving 2% of ₹1,05,000 equal to ₹2,100.

  1. A₹2,100Correct
  2. B₹1,050
  3. C₹600
  4. DNil

Explanation

No single payment exceeds ₹30,000, but the aggregate is 25,000+28,000+22,000+30,000 = ₹1,05,000, which exceeds ₹1,00,000. So tax applies to all payments, with the deduction starting when the aggregate limit is crossed and covering the earlier amounts. A firm attracts the 2% rate: 2% × 1,05,000 = ₹2,100. ₹1,050 wrongly uses the 1% rate meant for individuals/HUFs, and Nil wrongly considers only the single-payment limit.

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