Query: Shall TDS be deducted on payments made to Resident doctors who are undergoing post-graduation?
Scenario: Resident doctors (Herein after referred as Doctor) are being employed in the hospitals under the cover of an agreement. Agreement stipulates the doctor shall render his/ her full-time services to the health care unit and shall hold till agreed period. Further, the agreement stipulates such other conditions deems fit in the interest of organization and consequences for the breach of terms. For the purposes of services rendered, remunerated with a series of fixed payments such as monthly, on the nomenclature of Stipend and exceeds the cost of education. The aggregate amount paid during the financial year is exceeding the basic exemption limit as specified in the Income Tax Act.
Issue: Whether such receipts taxable under Income tax act and shall such payments liable for TDS, if taxable.
Who is a resident doctor: A person who has completed his/her graduation with respect to medicine i.e. MBBS, pursues post-graduation of 3 years and works with the same health care unit in which PG is being pursued.
The interpretation of issue is under diverse school of thoughts and the same is reproduced hereunder.
1. FEE FOR PROFESSIONAL SERVICES – TDS U/S194J
Discernment: The payments are in the nature of consideration for services rendered under medical profession i.e. fee for professional services, since the resident doctors are the qualified professionals to deal with the subject matters.
Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of—
(a) fees for professional services, or
(b) fees for technical services, or
(ba) any remuneration or fees or commission by whatever name called, other than those on which tax is deductible under section 192, to a director of a company, or
(c) royalty, or
(d) any sum referred to in clause (va) of section 28,
shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to ten per cent of such sum as income-tax on income comprised therein
where the amount of such sum or, as the case may be, the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, exceeds thirty thousand rupees, in the case of fees for professional services referred to in clause (a)
“professional services” means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA or of this section
2. WORKS CONTRACT – TDS U/S 194C: –
Discernment: The payments with respect to services rendered are under the cover of an agreement. The agreement stipulates such conditions which binds the doctor to work in such conditions in the best interest of organization and consequences for the breach of conditions. Further, the agreement is in the nature of contract for service and not a contract of service. The doctor shall work under the directions of the organization and the arrangement deliberates carrying out work in pursuance of the contract for a finite period.
Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to—
- one per cent where the payment is being made or credit is being given to an individual or a Hindu undivided family;
- two per cent where the payment is being made or credit is being given to a person other than an individual or a Hindu undivided family,
of such sum as income-tax on income comprised therein.
“work” shall include—
(b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting;
(c) carriage of goods or passengers by any mode of transport other than by railways;
(e) manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer.
3. EMPLOYMENT NATURE – TDS U/S 192: –
Discernment: The doctor shall work with the organization on full time basis and under the directions of the Head of the department. Further, the agreement does not entrust the scope of work and duties to be performed. The series of payments are affected with monthly frequency like salary payments. The terms of the agreement confer neither consequences for service level deficiency nor performance-based payments. The nature of arrangement conveys contract of service instead of contract for service.
Substantiation: Any person responsible for paying any income chargeable under the head “Salaries” shall, at the time of payment, deduct income-tax on the amount payable at the average rate of income-tax computed on the basis of the rates in force for the financial year in which the payment is made, on the estimated income of the assessee under this head for that financial year.
4. SCHOLARSHIPS NATURE -EXEMPT U/S 10(16): –
Discernment: The doctors referred to in the situation are pursuing post-graduation. As a part of curriculum organization imparting practical exposure to the said doctors. From the learned backdrop, a view may be drawn that the doctors are undergoing practical training. The payments are in relation to the services rendered, are in the nomenclature of stipend i.e. to meet the cost of education and basic needs. The payments may be considered as scholarships, since the organization is neither issuing form 16 nor form 16A.
Sec. 10: In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included—
(16) scholarships granted to meet the cost of education;
Following points are noteworthy before drawing a conclusion.
- The services rendered are as a part of curriculum of Post-Graduation and not in due course of practice of medical profession. The services rendered may not be qualified for the professional services as stated in sec.194J.
- The agreement binds on the doctor not to turn into prejudicial to the interest of the organization and the same cannot be construed as existence of commercial substance. Contractor-Contractee relationship will not be established due to lack of commercial substance. Further, there is no particular scope of work entrusted to the doctor.
- The payments are being affected by virtue of the course pursuing and services rendered in due course. The amount received by the doctors i.e. stipend, exceeding the cost of education and the differential amount, also exceeding the basic exemption limit.
- The duration of the services exists only till the conclusion of course instead of indefinite period. The same cannot cater the requirement of Employer-Employee relationship. Further, the payments are fixed and does not reflect salary pay structure.
In the above backdrop, the said arrangement does not fall under the ambit of professional services, works contract, employment or scholarship to meet the cost of education. The income may be taxed under the head Income from other sources u/s 56(1) as it is not covered under any specific head of income. Further, exemption u/s 10(16) may be claimed to the extent of cost of education as the payment is in the nature of scholarship i.e. stipend.
The TDS provisions of any section under Income tax act intact with regard to payments made to resident doctors as the income referred to herein is not subject to TDS under the provisions made in the Act.
Sec.56(1):Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head “Income from other sources”, if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E.
Sec.14: Save as otherwise provided by this Act, all income shall, for the purposes of charge of income-tax and computation of total income, be classified under the following heads of income:—
C.—Income from house property.
D.—Profits and gains of business or profession.
E.—Capital gains. F.—Income from other sources.
The computation of income may be as hereunder: –
|(Less) Exemption u/s 10(16) – (To the extent of cost of education)||(XX)|
|Deduction under chapter VI-A||(XXX)|
Inference: In light of the above provisions and facts established, the payments are not subject to TDS as they are not covered under any of the provisions of Chapter XVII-B (TDS provisions) of The Income Tax Act, 1961. However, the payee shall be liable to pay income tax under the head Income from other sources u/s 56(1) of the Act, in case the amount exceeds basic exemption limit as specified.
Please note, the material located on our blog is for informational purposes only, is general in nature, and is not intended to and should not be relied upon or construed as an opinion or advice regarding any specific issue or factual circumstance. Nor is this information intended to create, and receipt of it does not create, a Professional-client relationship between you and the author. Therefore, you should consult a professional in the event you want any advice.
The post was framed and compiled based on a practical assignment taken up by the Author (Prabhath Sharma) Mr. G. Nagendra Kumar (Assistant Manager, Internal Audit Dept., HDFC Bank)