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

Section	Nature of Payment	Threshold Limit Amount (In Rs.)	Individual / HUF TDS Rate (%)	Others TDS Rate (%)
192	Salaries		Normal 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%
192A	Premature withdrawal from EPF	50,000	10	–
193	Interest on Securities/ Debentures	10,000	10	10
194	Dividends (other than listed Companies)	5,000 (w.e.f. 01.04.2020)	10	10
194A	Interest 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 Lotteries	10,000	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	5	10
194EE	National Savings Scheme	2,500	10	10
194F	Repurchase Units by MFs	-	20	20
194G	Commission – Lottery	15,000	5	5
194H	Commission / Brokerage	15,000	5	5
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	1	1
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	-	10	10
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	-	10	10
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.	--	10	10
194LBB	Payment in respect of units of investment fund specified in section 115UB.	--	10	10
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).	-	25	30
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.	50,00,000	5	5
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	10	10

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

Section	Nature of Payment	If recipient is non-resident Individual/ HUF/ AOP/ BOI/ Artificial juridical person			If recipient is non-resident co-operative society / firm		If 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
192	Salaries	Normal Tax Rate SC, EC and SHEC (wherever applicable as per prescribed rate)			-	-	-	-	-
192A	Premature withdrawal from EPF	10.4	11.44	11.96	-	-	-	-	-
194B	Winning from Lotteries	31.2	34.32	35.88	31.2	34.944	31.2	31.824	32.76
194BB	Winning from Horse Race	31.2	34.32	35.88	31.2	34.944	31.2	31.824	32.76
194E	Non Resident Sportsmen or Sports Association	20.8	22.88	23.92	20.8	23.296	20.8	21.216	21.84
194EE	National Savings Scheme	10.4	11.44	11.96	-	-	-	-	-
194F	Re-purchase of units of MFs or UTI	20.8	22.88	23.92	-	-	-	-	-
194G	Commission on sale of lottery tickets	5.2	5.72	5.98	5.2	5.824	5.2	5.304	5.46
194LB	Income by way of interest by infrastructure debt fund	5.2	5.72	5.98	5.2	5.824	5.2	5.302	5.46
194LBA(2)	Payment of the nature referred to in Section 10(23FC)(a)	5.2	5.72	5.98	5.2	5.824	5.2	5.304	5.46
194LBA(2)	Payment of the nature referred to in Section 10(23FC)(b)	10.4	11.44	11.96	10.4	11.65	10.4	10.61	10.92
194LBA(3)	Payment of the nature referred to in section 10(23FCA) by business trust to unit holders	31.20/ 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*
194LBA(3)		* In case of distribution of dividend received from specified domestic company
194LBB	Payment in respect of units of investment fund specified in Sec. 115UB	31.20/ 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*
194LBB		* 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 115TCA	31.2	34.32	35.88	31.2	34.944	41.6	42.432	43.68
194LC	Income 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*
194LC		* In case where interest is payable in respect of Long-term Bond or Rupee Denominated Bond listed on recognized stock exchange located in IFSC
194LD	Interest on certain bonds and Govt. Securities	5.2	5.72	5.98	5.2	5.824	5.2	5.304	5.46
	Payment/ credit of other sum to a non-resident
195	a) Income in respect of investment made by a Non-resident Indian Citizen	20.8	22.88	23.92	-	-	-	-	-
	b) Income by way of long-term capital gains referred to in Section 115E in case of a Non-resident Indian Citizen	10.4	11.44	11.96	10.4	11.648	10.4	10.608	10.92
	c) Income by way of long-term capital gains referred to in Section 112A	10.4	11.44	11.96	10.4	11.648	10.4	10.608	10.92
195	d) Income by way of short-term capital gains referred to in Section 111A	15.6	17.16	17.94	15.6	17.472	15.6	15.912	16.38
	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]	20.8	22.88	23.92	20.8	23.296	20.8	21.216	21.84
	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 194LC	20.8	22.88	23.92	20.8	23.296	20.8	21.216	21.84
195	g. royalty	10.4	11.44	11.96	10.4	11.648	10.4	10.608	10.92
	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, 1976	10.4	11.44	11.96	10.4	11.648	52	53.04	54.6
	-where the agreement is made on or after April 1, 1976	10.4	11.44	11.96	10.4	11.648	10.4	10.608	10.92
	i. fees for technical services
	-where the agreement is made after February 29, 1964 but before April 1, 1976	10.4	11.44	11.96	10.4	11.648	51.52	53.04	54.6
	-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
196B	Payment/ credit of income from units (including long-term capital gains on transfer of such units) to an offshore fund	10.4	11.44	11.96	10.4	11.648	10.4	10.608	10.92
196C	Payment/credit of interest of foreign currency bonds or GDR (including long-term capital gains on transfer of such bonds)	10.4	11.44	11.96	10.4	11.648	10.4	10.608	10.92
196D	Payment/ credit of income from securities (not being dividend, short-term or long-term capital gain) to Foreign Institutional Investors	20.8	22.88	23.92	20.8	23.296	20.8	21.216	21.84

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	31^st 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 7^th 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/-.