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easyTax Consultant interview question

A business owner asks why they must deduct TDS when paying their landlord and contractors. How do you explain it?

What the interviewer wants to hear

  • TDS collects tax at the time of payment
  • The payer must deduct, deposit and file returns
  • The payee gets credit through Form 26AS
  • Consequences of not deducting: interest, disallowance of expense, penalties
  • Needs PAN of payees

Model answer

I would explain that TDS is the government’s way of collecting tax at the time income is paid, rather than waiting until the end of the year. The law makes the payer responsible for deducting tax on specified payments such as rent, contractor payments and professional fees, once they cross set limits. The business deducts the tax, deposits it with the government by the due date, files quarterly TDS returns and issues certificates. The landlord or contractor does not lose the money: it appears in their Form 26AS and they claim it against their own tax. If the business fails to deduct or deposit, it can face interest, a disallowance of part of the expense when computing its own profit, and penalties. So I would help them collect PANs, set up TDS sections in their accounting software, and put due dates on a compliance calendar.

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