A Comprehensive Guide on TDS

A Comprehensive Guide on TDS

 

What is TDS?

 

Tax Deduction at Source (TDS) is a system introduced by the government which works on the concept that where the person responsible for making specified payments is liable to deduct a certain percentage of tax if the payment exceeds certain threshold limits. 

Applicability of TDS?

Any person (Deductor) making specified payments mentioned under the Income Tax Act, 1961 are required to deduct TDS at the time of making such specified payment to any person (Deductee). TDS is not applicable if the person making the payment is an individual or HUF whose books are not to be audited under section 44AB of the Income-tax Act, 1961.

When rent payments by individuals and HUF exceed Rs 50,000 per month. In such cases, they are required to deduct TDS @ 5%. Even though, such individual or HUF is not liable for a tax audit. However, such Individuals and HUF liable to deduct TDS @ 5% need not apply for TAN.

In addition, an individual or HUF paying any sum to a contractor or a professional or commission or brokerage more than Rs 50 lakh in a financial year is require to deduct tax at source (TDS) at the time of credit of such sum or at the time of payment of such sum; whichever is earlier.

After deducting the tax at the source, the deductor is obliged to deposit it with the government against the PAN of deductee, within the prescribed time period. All persons deducting Tax at source are required to apply for and obtain a Tax Deduction Number (TAN) and to file Quarterly returns.

Who is the Deductor and Deductee?

Deductor: The person making the payment is required to deduct tax at source (TDS) at the prescribed rate and that person is known as Deductor.

Deductee: The payee, who receives the net payment i.e. Payment after deduction of tax at the source is called the Deductee.

What is the specified payment in TDS?

TDS is applicable on almost all the transactions, except for a few. The nature of such specified payments along with TDS rates for the financial year 2020 – 21 are as follows:-

A CATEGORY – WHEN THE RECIPIENT / DEDUCTEE IS RESIDENT

SectionNature of PaymentThreshold Limit


Amount (In Rs.)
Individual / HUF


TDS Rate (%)
Others


TDS Rate (%)
192SalariesNormal or Special Tax Rate
Surcharge:
●10%
(if total income
exceeds Rs. 50
lakh but doesn’t
exceed Rs. 1
crore),
●15%
(If total income
exceeds Rs. 1
crore but doesn’t
exceed Rs. 2
crore),
●25%
(If total income
exceeds Rs. 2
crore but doesn’t
exceed Rs. 5
crore),
●37%
(If total income
exceeds Rs. 5 crore)
Higher Education Cess: 4%
192APremature withdrawal from EPF50,00010
193Interest on Securities/ Debentures10,0001010
194Dividends (other than listed Companies)5,000
(w.e.f. 01.04.2020)
1010
194AInterest other than interest on securities / debentures




Interest (Others)
For Senior Citizen – Rs 50,000/-

For Others – Rs 40,000/-


5,000
10





10
10





10
194B Winning from Lotteries10,000 30 30
194BB Winning from Horse Race 10,000 30 30
194C Contractor –
Payment or credit to a resident
contractor/sub-contractor for
Single Transaction


Payment or credit to a resident
contractor/sub-contractor other
than single transaction
30,000





1,00,000
1





1
2





2
194D Insurance Commission 15,000 510
194EE National Savings Scheme 2,500 1010
194F Repurchase Units by MFs -2020
194G Commission – Lottery 15,000 5 5
194H Commission / Brokerage 15,000 55
194I Rent of Land and Building,
Furniture or Fitting


Rent of Plant / Machinery /
Equipment
2,40,000



2,40,000
10



2
10



2
194IA Transfer of certain immovable
property other than agriculture
land
50,00,000 11
194IB Payment of rent by an individual or
HUF not subjected to tax audit
under Section 44AB
50,000
per month
5-
194IC Payment under Joint Development
Agreement to a resident individual
or HUF who transfers land or
building as per such agreement
-1010
194J Fees for technical services(Not being a professional services), certain
royalties, Payment to Call Centre
Operator


Others
30,000






30,000
2






10
2






10
194LA Payment of compensation on
acquisition of certain immovable
property
-1010
194LBA(1) Payment of the nature referred to
in section 10(23FC) or section 10(23FC)(a) or section 10(23FCA)
by business trust to resident unit
holders.
--1010
194LBB Payment in respect of units of
investment fund specified in
section 115UB.
--1010
194LBC(1)Payment in respect of an
investment in a securitisation trust
specified in clause (d) of the
Explanation occurring after section
115TCA (with effect from June 1,
2016).
-2530
194M Payment of contractual work,
commission (not being insurance
commission referred to in section
194D), brokerage or professional
fees, by an individual or a HUF not
covered under section 194C,
section 194H and 194J.
50,00,00055
194N Payment in cash by banking
company or co-operative bank or
post office.
1,00,00,000 2


5 ​
(if the amount
exceeds 1 cr.)
2


5 ​
(if the amount
exceeds 1 cr.)
194K Income in respect of units payable
to resident.
5,000 1010

Note: Tax is to be deducted exclusive of surcharge and Health & Education cess except in case of salary.

Point to remember – Due to Covid-19, CBDT has reduced the TDS rate by 25% through press release dated 13/05/2020. (Valid up-to 31.03.2021)

B CATEGORY – WHEN THE RECIPIENT / DEDUCTEE IS NON-RESIDENT OR FOREIGN COMPANY

SectionNature of PaymentIf recipient is non-resident Individual/ HUF/ AOP/ BOI/ Artificial juridical personIf recipient is non-resident co-operative society / firmIf recipient is non-domestic company
< / = 50 lakh >50 lakh <1 cr > 1 crore< / = 1 cr> 1 cr< / = 1 cr> 1 cr but < 10 cr> 10 cr
192SalariesNormal Tax Rate

SC, EC and SHEC (wherever applicable as per prescribed rate)
-----
192APremature withdrawal from EPF10.411.4411.96-----
194B Winning from Lotteries31.234.3235.8831.234.94431.231.82432.76
194BBWinning from Horse Race31.234.3235.8831.234.94431.231.82432.76
194ENon Resident Sportsmen or Sports Association 20.822.8823.9220.823.29620.821.21621.84
194EENational Savings Scheme10.411.4411.96-----
194FRe-purchase of units of MFs or UTI20.822.8823.92-----
194GCommission on sale of lottery tickets5.25.725.985.25.8245.25.3045.46
194LBIncome by way of interest by infrastructure debt fund5.25.725.985.25.8245.25.3025.46
194LBA(2)Payment of the nature referred to in Section 10(23FC)(a)5.25.725.985.25.8245.25.3045.46
194LBA(2)Payment of the nature referred to in Section 10(23FC)(b)10.411.4411.9610.411.6510.410.6110.92
194LBA(3)Payment of the nature referred to in section 10(23FCA) by business trust to unit holders31.20/


20.80*
34.32/


22.88*
35.88/


23.92*
31.20/


20.80*
34.944/


23.30*
41.60/


20.80*
42.43/


21.22*
43.68/


21.84*
* In case of distribution of dividend received from specified domestic company
194LBBPayment in respect of units of investment fund specified in Sec. 115UB31.20/


20.80*
34.32/


22.88*
35.88/


23.92*
31.20/


20.80*
34.944/


23.30*
41.60/


20.80*
42.43/


21.22*
43.68/


21.84*
* In case of distribution of dividend received from specified domestic company.
194LBC(2)Payment in respect of an investment in a securitisation trust specified in clause (d) of the Explanation occurring after section 115TCA31.234.3235.8831.234.94441.642.43243.68
194LCIncome by way of interest by an Indian specified company to a non-resident / foreign company on foreign currency approved loan / long-term infrastructure bonds from outside India 5.20/


4.16*
5.72/


4.58*
5.98/


4.78*
5.20/


4.16*
5.824/


4.66*
5.20/


4.16*
5.304/


4.24*
5.46/


4.37*
* In case where interest is payable in respect of Long-term Bond or Rupee Denominated Bond listed on recognized stock exchange located in IFSC
194LDInterest on certain bonds and Govt. Securities5.25.725.985.25.8245.25.3045.46
Payment/ credit of other sum to a non-resident
195a) Income in respect of investment made by a Non-resident Indian Citizen20.822.8823.92-----
b) Income by way of long-term capital gains referred to in Section 115E in case of a Non-resident Indian Citizen10.411.4411.9610.411.64810.410.60810.92
c) Income by way of long-term capital gains referred to in Section 112A10.411.4411.9610.411.64810.410.60810.92
195d) Income by way of short-term capital gains referred to in Section 111A15.617.1617.9415.617.47215.615.91216.38
e) Any other income by way of long-term capital gains [not being long-term capital gains referred to in clauses (33), (36) and (38) of Section 10]20.822.8823.9220.823.29620.821.21621.84
f) Income by way of interest payable by Government or an Indian concern on moneys borrowed or debt incurred by Government or the Indian concern in foreign currency (not being income by way of interest referred to in Section 194LB or Section 194LC20.822.8823.9220.823.29620.821.21621.84
195g. royalty10.411.4411.9610.411.64810.410.60810.92
h. royalty (Not being royalty of the nature referred to (g) supra)
-where the agreement is made after March 31, 1961 but before April 1, 197610.411.4411.9610.411.6485253.0454.6
-where the agreement is made on or after April 1, 197610.411.4411.9610.411.64810.410.60810.92
i. fees for technical services
-where the agreement is made after February 29, 1964 but before April 1, 197610.411.4411.9610.411.64851.5253.0454.6
-where the agreement is made on or after April 1, 1976


j. any other income
10.4


31.2
11.44


34.32
11.96


35.88
10.4


31.2
11.648


34.944
10.4


41.6
10.608


42.432
10.92


43.68
196BPayment/ credit of income from units (including long-term capital gains on transfer of such units) to an offshore fund10.411.4411.9610.411.64810.410.60810.92
196CPayment/credit of interest of foreign currency bonds or GDR (including long-term capital gains on transfer of such bonds)10.411.4411.9610.411.64810.410.60810.92
196DPayment/ credit of income from securities (not being dividend, short-term or long-term capital gain) to Foreign Institutional Investors20.822.8823.9220.823.29620.821.21621.84

Note: Tax is to be deducted inclusive of surcharge and Health & Education cess wherever applicable. The detail is as under:-

If the recipient is a non-resident Individual/ HUF/ AOP/ BOI/ Artificial juridical person

Payment amount Surcharge (%) Health & Education Cess (%)
< / = 50 lakh 4
>50 lakh <1 cr 10 4
> 1 crore 15 4

When the recipient is a non-resident co-operative society/firm

Payment amount Surcharge (%) Health & Education Cess (%)
< / = 1 cr 4
> 1 crore 12 4

 

If the recipient is a non-domestic company

 

Payment amount Surcharge (%) Health & Education Cess (%)
< / = 1 cr 4
> 1 cr 2 4
> 10 cr 5 4

 

What is TAN and How to apply for TAN?

TAN stands for Tax Deduction Account Number. It is a 10 digits alphanumeric number require to be obtain by all persons who are responsible for deducting or collecting tax. Under Section 203A of the Income Tax Act, 1961, it is mandatory to quote Tax Deduction Account Number (TAN) allotted by the Income Tax Department on all TDS returns.

The procedure for the application of TAN is very simple and One can do online by filling up Form 49B.

When TDS should be deducted?

The tax is to be deduct at the source at the time when the payment gets due or actual payment, whichever is earlier.

What is the due date for depositing the TDS to the government?

The TDS deducted is to be deposit to the government by the 7th of the subsequent month. However, the TDS deducted in the month of March can be deposit till 30th April

For TDS deduct on rent and purchase of property, the due date is 30 days from the end of the month in which TDS deduct.

How to deposit TDS?

Tax Deducted at Source has to be deposit using Challan ITNS-281 on the government portal.

How to file TDS Returns?

Filing of TDS return is mandatory for all the persons who have deducted TDS.

TDS return is to submit quarterly, in which various details are required to furnish like:

  • TAN of the deductor,
  • Nature of payment,
  • Detail of amount paid to the deductee,
  • Amount of TDS deducted,
  • Date of payment credited to the deductee,
  • Date of tax deducted at source,
  • PAN of deductee,
  • Details of TDS Challan

Different forms are prescribe by the government for filing returns depending upon the purpose of the deduction of tax at source.

Various types of return forms and detail of due date of filing of TDS return is as under:-

Form No. Nature of transaction Due date of filing of return
24Q TDS on salary 1st Quarter – 31st July

2nd Quarter – 31st October

3rd Quarter – 31st January

4th Quarter – 31st May

26Q Tax deducted from income generated from other sources other than salary
27Q TDS on all payments made to non-residents except salaries
26QB TDS on sale of property 30 days from the end of the month in which TDS deduct.
26QC TDS on rent 30 days from the end of the month in which TDS deduct.

Tax deducted at the source by the deductor can be claimed Deductee later by filing form 26AS or TDS Certificate which can be provided by the Deductor.

TDS Certificate

This is a certificate issued by the person deducting the tax at source to the deductee from whose income TDS was deducted while making payment.

These certificates are helpful when the Deductee wants to claim the deducted amount of tax from the Income-tax Department. There are four types of certificates issued by deductor as under: –

Form Nature of Payment on which tax is deducted at source Due Date Issued (frequency)
16 Salary 31st May relevant assessment year Yearly
16A Non – Salary Payments 15 days from the due date of filing return Quarterly
16B Sale of property 15 days from the due date of filing return After every respective transaction
16C Rent 15 days from the due date of filing return   After every respective transaction

 

How TDS credits automatically appear in Form 26AS?

As TDS directly links with the PAN of Deductee, therefore, when TDS has deducted from any nature of payment of deductee and the tax deducted has deposited by the deductor with the government, this results in automatically appearing of such TDS in Form 26AS of the deductee. Form 26AS is a consolidated tax statement of all the PAN holders.

Apart from a detail of tax deducted at the source of deductee/assessee, Form 26AS consists of detail of income tax directly paid by him either as advance tax or self-assessment tax.

So deductee/assessee must go through the Tax Credit in Form 26AS to verify if all the tax deducted as been deposited by the deductor with the government correctly or not and also to verify all the tax payments made by him are made under correct PAN, for a correct assessment year, etc.

What are the Consequences of non-deduction or delay in deducting / depositing of TDS and late filing of TDS returns?

Non-Compliance of TDS provisions led to the levy of interest, fees, and penalties, which are as under:-

Consequences of non-deduction of TDS –

If a person who is responsible for deducting tax at source fails to do so, then the assessing has powers to disallow whole or part of (As per section 40a(ia) and 40a(ib) of the Income-tax Act, 1961) such expenditure for ascertaining taxable profits.

Late deduction of TDS –

Tax is deducted at the time of payment or credit getting due whichever is earlier. In cases of late deduction of tax, interest @ 1% per month or part of the month, of the TDS amount is a charge.

Late payment of Tax Deduction at Source –

Deducted tax at the source is to be deposit to the credit of government on every 7th day of the succeeding month in which the tax has been deducted. If the tax does not deposit within due time, interest @ 1.5% per month or part of the month, of TDS amount is a charge.

Fees for late filing of return of Tax Deduction at Source –

As a result of the late filing of the TDS return, fees under section 234E of the Income-tax Act, 1961 are levy @ Rs 200/- per day subject to a maximum amount of TDS until the return is a file.

Penalty for late filing of Tax Deduction at Source return –

And in addition to the late fees under section 234E of the Income-tax Act, 1961, the Assessing Officer may direct a person who fails to file the return of TDS within the due date, to pay a penalty under section 271H of the Income-tax Act, 1961 which is minimum of Rs. 10,000/-and can be extended to Rs.1,00,000/-.


Knowledge Source:

Steps to follow while filing income tax returns, File Your TDS Return Now, How to File GST Return Online in India?

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