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

Zenith Pharma Ltd, a company, pays annual rent during tax year 2026-27 of Rs 8,00,000 for a factory building and Rs 5,00,000 for machinery to Mr Gopal, a resident individual, under the same lease. The annual rent thresholds for deduction are exceeded. Assuming the rates of 10% for land or building (including furniture) and 2% for plant and machinery, what is the total tax to be deducted at source?

The total TDS is Rs 90,000. Rent on the factory building is taxed at 10%, giving Rs 80,000, while rent on machinery is taxed at 2%, giving Rs 10,000. The two amounts are added because the rates differ for the two kinds of asset.

  1. ARs 90,000Correct
  2. BRs 1,30,000
  3. CRs 26,000
  4. DRs 80,000

Explanation

Tax on building rent = 10% of 8,00,000 = Rs 80,000. Tax on machinery rent = 2% of 5,00,000 = Rs 10,000. Total = Rs 90,000. Applying 10% to both gives Rs 1,30,000, which ignores the lower rate for plant and machinery. Applying 2% to both gives Rs 26,000. Rs 80,000 omits the machinery rent.

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