Tax Deducted at Source-Know all about TDS: By CA Kapil Goel


Dear Professional Colleagues,

In this Article, Tax Deducted at Source (TDS) has been made easy to understand and recall.

Tax Deducted at Source
 (TDS) is one of the modes of collecting income tax in India at the very source of income, governed under the Indian Income Tax Act of 1961. It is controlled by the Central Board for Direct Taxes (CBDT) and is part of the Department of Revenue in-charge of Indian Revenue Service (IRS).
TDS is simply an indirect method of collection of tax which combines the concepts of “pay as you earn” and “collect as it earned.” Its importance to the government lies in the fact that it prepones the collection of tax, provides a greater reach and wider base for tax. At the same time, it benefits to the tax payer also, it distributes the incidence of tax and provides a simple and convenient mode of payment of taxes.

The concept of TDS requires that the person, on whom responsibility has been cast, is to deduct tax at the appropriate rates, from payments of specific nature which are being made to a specified recipient. The deducted sum is required to be deposited to the credit of the Central Government. The recipient from whose income tax has been deducted at source gets the credit of the amount deducted in his personal assessment on the basis of the certificate issued by the deductor.

In the concept of TDS, Income Tax Act requires specified persons to deduct tax on specified nature of payments being made by them. An Individual or an H.U.F. is not liable to deduct TDS on such payment except where the individual or H.U.F. is carrying on a business/profession where accounts are required to be audited u/s 44AB, in the immediately preceding financial year. A person is liable to get its accounts audited u/s 44AB if during the relevant financial year its gross sales, turnover or gross receipts exceeds Rs. 1 Crore in case of a business, or Rs. 50 lacs in case of a profession.

There are also some conditions also where there is no liability of deductor to deduct TDS which are as follows:
  • On declaration furnished by payee on Form 15G or 15H as the case may be.
  • On certificate issued by ITO.
  • Payment to Government/RBI/Statutory Corporation etc.
  • Exempt Incomes.
  • Interest Payment by Offshore Banking Units.
  • Payment to New Pension System Trust.
  • Notified payment to Notified Institutions / Associations.

TDS Rates and Returns for Assessment Year 2017-18 (Financial Year 2016-17)

TDS Rate on Payment of Salary and Wages:

Section 192 Payment of Salary and Wages
Criterion of Deduction

TDS is deducted if the estimated income of the employee is taxable.

Employer must not deduct tax on non-taxable allowances like conveyance allowance, rent allowance, medical allowance and deductible investments under sections like 80C, 80CC, 80D, 80DD, 80DDB, 80E, 80GG and 80U.

No tax is required to be deducted at source if the estimated total income of the employee is less than the minimum taxable income (Rs. 2,50,000/- in case of Individual, HUF, AOP, BOD and AJP. Nil for others.)

TDS Rate As per Income Tax, Surcharge and Education Cess rates applicable on the estimated income of employee for the year.

 

TDS Rates on Payments other than Salary and Wages to Residents
(including domestic companies)

Section

For Payment of

On Payments Exceeding

Individual/HUF

Others

193

Interest on Securities

Rs. 10000/-

10%

10%

 

193

Interest on Debentures

Rs. 5000/-

10%

10%

194

Deemed Dividend

No minimum

10%

10%

194 A

Interest other than on securities by banks

Rs. 10000/-

10%

10%

194 A

Interest other than on securities by others

Rs. 5000/-

10%

10%

194 B

Winnings from Lotteries / Puzzle / Game

Rs. 10000/-

30%

30%

194 BB

Winnings from Horse Race

Rs. 10000/-

30%

30%

194 C (1)

Payment to Contractors

Rs. 30000/- for single payment

Rs. 75000/- for aggregate
payment during Financial Year

1%

2%

194 C (2)

Payment to Sub-Contractors / for Advertisements

194 D

Payment of Insurance Commission

Rs. 15000/-

5%

5%

194 EE

Payment of NSS Deposits

Rs. 2500/-

10%

NA

194 G

Commission on Sale of Lottery tickets

Rs. 15000/-

5%

5%

194 H

Commission or Brokerage

Rs. 15000/-

5%

5%

194 I

Rent of Land, Building or Furniture

Rs. 180000/-

10%

10%

Rent of Plant & Machinery

Rs. 180000/-

2%

2%

194 IA

Transfer of Immovable Property (w.e.f. 01.06.2013)

Rs. 50 lacs

1%

1%

194 J

Professional / technical services, royalty

Rs. 30000/-

10%

10%

194 J (1)

Remuneration / commission to director of the company

10%

10%

194 J (ba)

Any remuneration / fees / commission paid to a director of a company, other than those on which tax is deductible u/s 192.

10%

10%

194 L

Compensation on acquisition of CapitalAsset

Rs. 100000/-

10%

10%

194 LA

Compensation on acquisition of certain immovable property

Rs. 200000/-

10%

10%

 

194LB

Interest from Infrastructure Bond

No minimum

5%

5%

Notes:

  1. No surcharge or education cess is deductible / collectible at source on payments made to residents {Individuals / HUF / Society / AOP / Firm / Domestic Company) on payment of incomes other than salary or wages.
  2. TDS at higher rate of 20% or TDS rate, whichever is higher, has to be deducted if the deductee does not provide PAN to the deductor. (section 206AA)

All persons who are required to deduct tax at source or collect tax at source on behalf of IncomeTax Department are required to apply for and obtain Tax Deduction or Tax Collection Account Number (TAN).

Point of Deduction of TDS

Salary: At the time of payment

Other Payments: When income paid or credited including credit to “Payable” or “Suspense” account.

Consequences of failure to deduct tax: 

Interest – 1% of the tax deductible.

Penalty – equal to the amount of tax deductible but not deducted.

Due Dates for depositing TDS

Quarter

Salary Payments

Other Payment

April to February

7th of next month

7th of next month

March

30th April

30th April

Consequences of default:

Interest @ 1.5% of tax not deposited is payable u/s 201(A).

Punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years and with fine under Section 276(B).

Issue of TDS Certificate

  1. Section 192 (TDS on Salary) :

The certificate on Form No. 16 should be issued by the deductor by 31st day of May of the financial year immediately following the financial year in which the income was paid and tax deducted.

  1. In all other cases :

The certificate on Form No. 16A should be issued within fifteen days from the due date for furnishing the “statement of TDS” under rule 31A.

Penalty on Failure to Issue TDS Certificate: Rs. 100/- every day for the period failure continues subject to a maximum of TDS amount.

Forms for submitting Quarterly Statements of Tax Deducted at Source (Rule 31A)

(a) Statement of deduction of tax under section 192 in Form No. 24Q

(b) Statement of deduction of tax under sections 193 to 196D in :

  1. Form No. 27Q in respect of the deductee who is a non-resident not being a company or a foreign company or resident but not ordinarily resident; and
  2. Form No. 26Q in respect of all other deductees.

Due Dates for submitting Quarterly Statements of Tax Deducted at Source (Rule 31A)

Date of ending of the quarter of the financial year

Due date, if deductor is an office of the Government

Due Date for others

30th June

31st July of the financial year

15th July of the financial year

30th September

31st October of the financial year

15th October of the financial year

31st December

31st January of the financial year

15th January of the financial year

31st March

15th May of the financial year immediately following the financial year in which deduction is made

15th May of the financial year immediately following the financial year in which deduction is made.

 

Penal Provisions for failure / default in submitting returns /statements

Section 272A(2)

Failure to submit returns prescribed under Section 200(3)

Penalty of Rs. 100/- every day during which the failure continues upto a maximum of TDS amount.

Section 234E

Failure to TDS return in time

Fine of Rs. 200/- every day during which the failure continues will be levied on deductor as long as the default continues, subject to a maximum of TDS amount.

Section 271H

(i) If deductor defaults for more than 1 year in filing TDS Statement

(ii) If deductor furnishes incorrect details like PAN, TDS amount, Challan particulars etc.

Penalty which shall not be less than ten thousand rupees but which may extend to one lakh rupees.

 

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