1. Income Tax Act, 2058: Chapter 17 (Withholding / TDS)
Tax deduction at source (TDS, अग्रिम कर कट्टी) means the payer deducts tax when making certain payments and deposits it with the Inland Revenue Office. The receiver later gets credit for this tax in the annual return. Government offices are major withholding agents.
| Section | Subject |
|---|---|
| 87 | Withholding on employment payments (salary, at slab rates) |
| 88 | Withholding on investment returns and service fees (interest, dividend, rent, royalty, commission, service fee) |
| 88क | Windfall gains (lottery, prizes) |
| 89 | Withholding on contract payments |
| 90 | Deposit of withheld tax and statements |
| 92 | Withholding certificate |
- The payer is called the withholding agent (रोक्का गर्ने व्यक्ति).
- Duties: deduct the correct amount; deposit it and file the monthly e-TDS statement within 25 days after the end of the month; give a withholding certificate to the payee.
- If the agent fails to deduct or deposit, the agent becomes personally liable for the tax, with interest.
| Common payments (rates change each year through the Finance Act) | Usual rate |
|---|---|
| Service fee to a VAT-registered person | 1.5% |
| House or land rent paid to individuals | 10% |
| Dividend | 5% |
| Contract payments above Rs 50,000 to residents | 1.5% |
| Windfall gains (lottery, prize) | 25% |
Always check the current year’s Finance Act before quoting a rate in the exam.
2. Audit Act, 2075: Section 8 (लेखापरीक्षण गरिने विषय)
Section 8 lists the matters the Auditor General examines. The main ones are:
- Whether spending followed the approved budget (appropriation) and the law.
- Whether accounts and reports were kept properly and financial statements are correct.
- Whether revenue was assessed and collected properly.
- Whether income and expenditure have enough supporting evidence.
- Physical progress achieved against the money spent.
- Proper use and protection of resources and public property.
- Debt, investment and deposit (धरौटी) accounts.
- Effectiveness of internal control and internal audit.
- Use of information technology in accounting.
- Settlement of beruju.
Section 9 adds a propriety (औचित्य) audit: whether spending was reasonable and not wasteful, even if technically legal.
3. Worked examples of TDS
The rates below are the usual ones used in the exam. Always confirm the current year’s Finance Act.
| Payment | Calculation | TDS | Amount paid to payee |
|---|---|---|---|
| Rent Rs 30,000 to an individual landlord | 30,000 × 10% | Rs 3,000 | Rs 27,000 |
| Contract bill Rs 2,00,000 to a resident supplier | 2,00,000 × 1.5% | Rs 3,000 | Rs 1,97,000 |
| Service fee Rs 50,000 to a VAT-registered firm | 50,000 × 1.5% | Rs 750 | Rs 49,250 |
| Lottery prize Rs 2,00,000 | 2,00,000 × 25% | Rs 50,000 | Rs 1,50,000 |
| Dividend Rs 20,000 | 20,000 × 5% | Rs 1,000 | Rs 19,000 |
Reverse question: if TDS of Rs 1,500 was deducted at 1.5%, the payment was 1,500 ÷ 0.015 = Rs 1,00,000.
4. Final and non-final withholding
| Type | Meaning | Examples |
|---|---|---|
| Final withholding | The tax cut settles the tax on that income. The payee need not show it in the annual return. | Dividend, windfall gain, interest paid to an individual by a bank |
| Non-final withholding | The tax cut is an advance. The payee includes the income in the return and claims the TDS as a credit. | Contract payments, most service fees to businesses |
5. Types of audit at a glance
| Type | What it checks | Who does it |
|---|---|---|
| Internal audit | Checks accounts and controls during the year so mistakes are fixed early | Office’s internal system (in government, the Treasury and Accounts Controller Office) |
| Final (external) audit | Independent audit after the year ends | Office of the Auditor General |
| Compliance (regularity) audit | Whether money was spent as the law and budget allow | Auditor General |
| Financial audit | Whether the accounts and financial statements are correct | Auditor General |
| Performance audit | Economy, efficiency and effectiveness of programmes | Auditor General |
| Propriety audit (section 9) | Whether spending was reasonable and not wasteful | Auditor General |
Irregular amounts found in audit are recorded as beruju. The head of office (account-responsible officer) must answer audit queries on time and settle the beruju.
6. How this topic is asked in the exam
- Objective: the chapter (17) and sections (87–92), the 25-day deposit rule, common TDS rates, and section 8 and 9 of the Audit Act.
- Short answer: “Who is a withholding agent? Write their duties” or “Write any five matters audited under section 8.”
- Practical: calculate TDS and the net amount paid, as in the table in section 3.
📌 Key points to remember
- TDS = tax deducted by the payer at the time of payment (Chapter 17, sections 87–92).
- Withholding agent deposits TDS and files e-TDS within 25 days after month end.
- Common rates: 1.5% service fee to VAT-registered, 10% rent, 5% dividend, 25% windfall.
- Audit Act 2075, section 8: matters the Auditor General audits (budget compliance, accounts, revenue, evidence, assets, internal control, beruju).
- Section 9: propriety (औचित्य) audit.
Test yourself: Tax Deduction at Source (Income Tax Act 2058, Chapter 17) and Audit Act 2075 (Section 8
Practise Income Tax Act, 2058: Chapter 17 (Withholding / TDS) and Audit Act, 2075: Section 8 (लेखापरीक्षण गरिने विषय) with 15 questions.