Home > Income Tax > Everything about Tax Deducted at Source (TDS)

Everything about Tax Deducted at Source (TDS)

What is TDS?

TDS stands for Tax Deducted Source. In TDS system, persons responsible for making payment for specified services such as commission, brokerage, professional consultancy etc are required to deduct a fixed percentage from the amount.

Such deducted amount (which is called TDS) have to be deposited to the Government by the Deductor (person who is deducting tax) on behalf of deductee (person who is providing services) which deductee can claim as Income Tax Paid at the time of filing his Income Tax Return.

For example, ABC Pvt Ltd have to make payment of Rs 1,00,000 to Mr. XYZ for professional fee. TDS rate specified on professional fee is 10%.

TDS required to be deducted = 10% on Rs 1,00,000 = Rs 10,000

Net payment to Mr. XYZ = Gross Amount – TDS Deducted = Rs 1,00,000 – Rs 10,000 = Rs 90,000

TDS to be deposited to Government by ABC Pvt Ltd = Rs 10,000

TDS is also deductible on salary. Calculation of tax deductible is different in case of salary as TDS is not deductible as fixed percentage but as per specified method under section 192.

When any amount on which TDS is deductible is being paid or payable to a non-resident then TDS is deductible under section 195 and not under the respective TDS section.

Persons who are required to deduct TDS

Government has notified below persons who is require to deduct TDS for the specified services:-
a) Individual and HUF

An individual and HUF is required to deduct TDS on the specified services if they are engaged in:-
(i) business having turnover of Rs 1 crore or more during the previous financial year or
(ii) profession having receipts of Rs 50 lakh or more during the previous financial year    and they are required to get books of account audited under section 44AB.

Exception – If a person is require to get his books of account audited due to reporting of net profit which is less than 8% of the turnover (Section 44 AD) of the business or 50% of the gross receipt (Section 44ADA) in case of professional services then he is not required to deduct TDS

b) Any other person apart from Individual and HUF such as Partnership Firm, LLP, Private Limited Company, Co-operative Society etc.

Exception
In the below cases Individual and HUF which are not covered above are also required to deduct TDS:-

a) In case of purchase of immovable property where the consideration paid for the property is more than Rs 50 Lakh (Section 194IA).

b) When the rent paid for land or building exceeding Rs 50,000 per month (Section 194IB). In section 194IB only those Individual or HUF are covered which are not required to deduct TDS as per above mentioned point (a). If a person is covered as per point (a) then such person is required to deduct TDS under section 194I not under section 194IB.

These are only two cases in which a non business is also required to deduct TDS.

TAN – Meaning, requirement and exception

Tax Deduction and Collection Account Number (TAN) is a unique 10 digits alpha numeric number allotted to deductor/collector of TDS. It is issued to identify each deductor.

Every person who is require to deduct TDS shall apply for TAN. TAN is required to be quoted on all TDS payment challans, TDS certificate & TDS returns. You can submit a application in Form 49B in any NSDL office or you can also apply online for TAN from NSDL website.Penalty – There is penalty of Rs. 10,000 on failure to apply for TAN or failure in quoting TAN in payment challans, TDS certificates & TDS return.

Time Limit for getting TAN – No specific time limit is provided for getting TAN. However you should apply for TAN once you become liable to deduct TDS of any person. Because TDS payment and return filing can not be done without TAN.

Notes
a) No separate TAN is required to obtain for the purpose of TCS.

b) You are required to apply for the TAN only if you have made any payment above the threshold limit and TDS is required to be deducted. For example, if you are a Private Limited Company and not making any payment on which TDS is required to be deducted then there is no need for getting a TAN.

Exception
TAN is not required in case TDS is deducted for purchase of Immovable property (Section 194IA) or rent  paid (Section – 194IB). Deductor have to use their personal PAN for the TDS payment and for filing returns.

When TDS is to be deducted

The incidence of deducting TDS depends on the nature of payment.

TDS is required to be deducted at the time of actual payment only, not on due or accrual basis in following cases

a) Salary
b) Payment of accumulated balance of Employee’s Provident Fund
c) Dividends
d) Winning from lottery or crosswords puzzle.
e) Winning from horse race
f) Payment in respect of life insurance policy to policy holder
g) Payment in respect of deposits under National Saving Scheme
h) Payment on account of repurchase of units by Mutual Funds or Unit Trust of India
i) Payment of compensation on compulsory acquisition of certain immovable property

At the time of credit of such income to the account of the payee or at the time of actual payment, whichever is earlier in case of all other payments (such as commission, profession fee, consultancy etc) except the payments mentioned in above point.

TDS is required to be deducted from the beginning if it is likely that the total amount during the financial year will exceed the threshold limit. For example, in case you are having a contract for professional service amounting to Rs 2,00,000 and the first payment is due in the month of April amounting to Rs 13,000. In this case, TDS is required to be deducted @ 10% as it is likely that the total amount will exceed the threshold limit.

Nature of payments, threshold limits and rates

Below table summarize the nature of transaction on which TDS is required to be deducted if the amount exceeds the threshold limit along with the applicable rates of TDS for commonly used payments. For a complete list visit here – http://taxadda.com/handbook/tds-rates/

Calculation of TDS amount

TDS is required to be deducted on the gross amount if such amount exceeds the threshold limit specified for that particular nature of transactions.

Few example which will help in understanding the calculation of TDS

Example 1 – Service provided by a individual contractor ‘A’ to a partnership firm ‘B’ and the following payment is being made to the contractor during the year :-
First payment – Rs 32,000
Second payment – Rs 24,000
Third payment – 60,000

Solution
First payment – Rs 32,000
TDS is required to be deducted @ 1% as the sum exceeds the threshold limit of Rs 30,000 in single payment. Net payment required to be made to A will be Rs 31,680 after deducting TDS of Rs 320 (32000 * 1%).

Second payment – Rs 24,000
No TDS is required to be deducted as the single payment is less than Rs 30,000 as well as total payment made during the year will be Rs 56,000 (32,000 + 24,000) which is also less than the threshold limit of RS 75,000.

Third payment – 60,000
TDS is required to be deducted @1% on the whole amount as the total payment in the year exceeds Rs 75,000.
Total TDS required to be deducted is Rs 840 (24,000 * 1% + 60,000 * 1%) at the time of making payment of Rs 60,000. Net payment require to be made to A will be Rs 59,160

Example 2 – In the above example if the contractor A is a Partnership Firm in place of individual.

Solution
First payment – Rs 32,000
TDS is required to be deducted @ 3% as the sum exceeds the threshold limit of Rs 30,000 in single payment. Net payment require to be made to A will be Rs 31,360 after deducting TDS of Rs 640 (32000 * 2%).

Second payment – Rs 24,000
No TDS is required to be deducted as the single payment is less than Rs 30,000 as well as total payment made during the year will be Rs 56,000 (32,000 + 24,000) which is also less than the threshold limit of RS 75,000.

Third payment – 60,000
TDS is required to be deducted @2% on the whole amount as the total payment in the year exceeds Rs 75,000.
Total TDS required to be deducted is Rs 1680 (24,000 * 2% + 60,000 * 2%) at the time of making payment of Rs 60,000. Net payment require to be made to A will be Rs 58,320

Payment and return filing

Person deducting TDS have to deposit the amount of TDS to the Government and have to file quarterly returns with the details of the TDS deducted.

TDS Deposit
TDS deducted (salary or non-salary) is require to be deposited within 7 days from the end of the month in which TDS is deducted.However TDS deducted in month of March is required to be deposited on or before 30 April.

Due date for deducting TDS under section 194IA & 194IB – 30 days from the end of the month in which TDS is deducted.

Notes
1. TDS is require to be deposited using below form/challan

TDS on Purchase of property (Section 194IA) – Form 26QB
TDS on rent of property (Section 194IB) – Form 26QC
Other TDS payment – Challan No./ITNS 281

TDS can be deposited online or in any Authorized bank.
Online Payment Link – https://onlineservices.tin.egov-nsdl.com/etaxnew/tdsnontds.jsp
Bank Link – https://www.tin-nsdl.com/bank-center.html

E-payment is mandatory for Companies and a person who is require to get his books of account audited under section 44AB.

Separate challan are require to be deposited for each nature of payment for which TDS is deducted. For example if you have deducted TDS on contractor fee under section 194C and for profession fee under section 194J then you are required to deposit 2 challan for each section.

TDS Return

Quarterly TDS return is required to be filed by Deductor. Different return forms are specified for filing return as follows

Form Nature of Payment Deductee
24Q Salary (Resident or Non-Resident)
26Q Other than Salary Resident
27Q Other than Salary Non-Resident, Foreign Company or Not Ordinarily Resident
26QB Immovable Property Resident
26QC Payment of Rent Resident

Quarterly due dates for different forms

Quarter Due Date 24Q or 26Q  Due date for 27Q
Apr to Jun 31st July 15th July
July to Sep 31st Oct 15th Oct
Oct to Dec 31st Jan. 15th Jan
Jan to Mar 31st May 15th May

Form 26QB & 26QC – It is challan cum TDS statement which is required to be filed within 30 days from the end of the month in which TDS is required to be deducted.

Please check this link for more details regarding TDS deposit and return filing due dates
http://taxadda.com/handbook/tds-return/

TDS Certificate

TDS Certificate shows the amount of tax which has been deposited by Deductor. Deductor are required to issue TDS certificate to the deductee within specified time limit given in below table. TDS certificate have to be generated online using Traces websites only. Deductor are required to deposit tax and file TDS returns to the Government before he can request for TDS certificate from Traces.

As now a days individuals can easily check the tax deposited via 26AS so importance of the TDS certificate has been reduced. However it is better to collect TDS certificate from the deductor to make sure TDS has been deposited along with the correct reporting of the Deductee PAN.

TDS Certificate Nature of Payment Due date for issuance
Form 16 TDS on Salary On or before 31st May of the financial year immediately following the financial year in which Tax is deducted
Form 16A Other than Salary 15 days from the due date of furnishing TDS return
Form 16B Purchase of Immovable Property (Section 194IA) within 15 days of turning return cum challan in Form No 26QB
Form 16C TDS on rent (Section 194IB) within 15 days of turning return cum challan in Form No 26QC

Penalty provisions

Various penalties are applicable on the deductor under TDS which are as follows:-

A) Interest on late payment of TDS to Government

Interest is chargeable on short payment/late payment of TDS. There can be following scenarios :-

When TDS is not deducted
Interest at the rate of 1% per month or part thereof, for the period from the date on which TDS is deductible/collectible to the date on which TDS/TCS is actually deducted/collected.

When TDS is deducted but payment is made lately
Interest at the rate of 1.5% per month or part thereof, for the period from the date on which TDS is actually deducted/collected to the date on which such TDS/TCS is actually paid.

Calendar month is considered in calculating interest therefore if you delay payment by one day, you have to pay interest for two months. For example, if TDS is deducted in month of July and deposited on 8th of August then you have to pay interest for 2 month i.e. July and August. Total interest payable shall be 3%.

B) Penalty on late/wrong filing of TDS return

Late filing fee of Rs 200 per day under section 234E

1) Penalty of Rs. 200 per day shall be payable for any delay in furnishing the TDS statement.
2) The total late filing fees should not exceed the total amount of TDS reported in the return.

Penalty ranging Rs 10,000 to Rs 1,00,000 under section 271H

1) Delay in filling TDS statement for more than a year from the due date of filling of such TDS return – If the TDS statement is not filed within one year from the due date of furnishing of TDS return, then a minimum penalty of Rs 10,000 (which can go upto Rs 1,00,000) can be levied. The penalty under this section will be in addition to the late filing fee under section 234E.
2) furnishing incorrect details in the statement filed like PAN, Challan and TDS Amount etc – Section 271H also cover cases of filing incorrect TDS/TCS return. Similarly minimum penalty of Rs 10,000 (which can go upto Rs 1,00,0000) can be levied.

C) Penalty on late issuing of TDS Certificate

Penalty of Rs 100 per day shall be payable for any delay in issuing TDS certificate. The total late issuing fees should not exceed the total amount of TDS reported in the return.

Utility for deductee to check the amount of TDS which has been deducted and credited to his account

You can easily check the amount of TDS which has been deducted from your receipts/incomes online.

Step 1 -> Go to https://www.incometaxindiaefiling.gov.in

Step 2 -> Login or register for your income tax account

Step 3 -> Select View Form 26AS (Tax Credit) available under My Account

Step 4 -> You will be redirected on Traces website where you are required to select the Assessment Year for which you want to check TDS amount.

Form 26AS contains following details:-

  • Tax deducted at source
  • Tax collected at source
  • Advance or Self assessment tax deposited by assessee
  • Income tax refund issued by IT Department
  • Annual Information Return (AIR) of high value transaction

Request for non deduction or lower deduction

You can ask the tax deductors to not deduct tax if your income is below the basic exemption limit. There are two ways for doing this:-

  1. Filing Form 15G/15H
    An resident individual or HUF can file a declaration in Form 15G/15H for non deduction of TDS. In this declaration, deductee declares that his income is below the basis exemption limit during a particular financial year so no TDS should be deducted. Deductee is required to file this declaration for each financial year.
    Note – Form 15G is applicable to individual and Form 15H is applicable to senior citizen.
  2. Application in Form 13 to Assessing Officer
    Any person can apply for a certificate for non deduction or lower deduction of TDS to his assessing officer. If satisfied, Assessing office will issue a certificate to the deductee.

Applying for TDS refund

There is only a single refund i.e. Income Tax Refund which is excess of tax already paid by way of TDS, TCS, advance tax or self assessment tax less tax on your total income. You can get the refund of additional tax only after filing your income tax return for that particular years.

In other words, there is no other method to get TDS refund other than by filing Income Tax Return.

Also Read: Income Tax Guide

 

 

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