UPDATE: As a part of the special and comprehensive economic package due to COVID-19 pandemic – Aatmanirbhar Bharat Abhiyaan, the following measures have been taken with respect to TDS and TCS:
- TDS rates for non-salaried payments made to residents and TCS rates for the specified receipts have been reduced by 25% of the existing rates.
- The new rates will only be applicable to payments other than salary, such as payment for contract, professional fees, rent, interest, dividend, commission, brokerage, etc.
- The reduced rates will be applicable for the remaining part of FY 2020-21, i.e., from 14th May, 2020 to 31st March, 2021.
- This measure is expected to result in a liquidity release of Rs. 50,000 crore.
Tax Deducted at Source or TDS forms a major part of direct taxation mechanism applicable to various heads of income to collect taxes at the very source, i.e., at the time of payout. As TDS is deducted right at the source, it helps check tax evasion and also relieves the taxpayer from the burden of paying taxes as a lumpsum at the end of the financial year (FY). Hence, TDS mechanism allows both a steady inflow of revenue to the government and reduced financial strain for tax payers.
Table of Contents :
Tax Deducted at Source – Concept
According to the Income Tax Act, 1961, policies and regulations related to tax deducted at source (TDS) are managed by CBDT (Central Board of Direct Taxes). A person who is liable to deduct the tax is called “deductor” and the person from whose account the relevant TDS is deducted is called “deductee”.
As per the working mechanism of TDS, the deductor deducts the tax at the time of making payment (if it is above a predefined limit) and forward the same to the government on behalf of the deductee. It is the deductor’s duty to pay the tax deducted at source to the government within a prescribed time limit. The deductor after filing returns, issues a TDS certificate to the deductee.
Types of TDS
UPDATE: 2 new sections (194K & 194-O) have been inserted in Income Tax Act by FM Nirmala Sitharaman in Union Budget 2020. Section 194K has introduced TDS on dividend income from shares and mutual fund units by putting an end to Dividend Distribution Tax (DDT). Further section 194-O has introduced TDS at 1% for sale of goods and services by an e-commerce participant facilitated by an e-commerce operator.
Below mentioned ar some of the sources of income that fall under the purview of tax deducted at source (TDS):
- Salary – Payment from employer to employee
- Interest on securities
- Interest excluding interest on securities
- Prize money from winning games like a crossword puzzle, card, lottery, etc.
- Contractor payments
- Insurance Commission
- LIC maturity amount
- Brokerage or commission
- Transfer of immovable property
- Compensation on acquiring immovable property
- Payment of rent
- Commission payments
- Interest on bank deposits
- Remuneration paid to director of the company, etc.
Points to Remember Before Deducting TDS
- Section 192 to 194L of Income Tax Act can be referred for the complete list of expenses and sources of income under TDS.
- If an individual does not fall under income tax slab, he or she can furnish Form 15G or Form 15H to the deductor as a declaration in advance for non-deduction of tax at source.
- Form 15H is for senior citizens.
- Form 15G is for all other individuals.
- TDS is applicable to each type of income beyond a certain limit.
- TDS is deducted as per the income tax slab rate for salaried individuals.
- For other deductees, TDS is deducted at the specified percentage for each income type.
TDS Rates for FY 2020-21 (Individuals and HUF)
|Section||Sources of Income/Expenses||Threshold Limit||TDS Rate (%)|
|192||Payment of Salary Income||As per the Income tax slab||As per the slab rate|
|192 A||Premature withdrawal of Employee Provident Fund||₹ 50,000||
|193||Interest on Securities||₹ 10,000||10%|
|193||Interest on Debentures||₹ 5,000||10%|
|194||Dividend Income (other than the dividend referred to in Section 115-0)||Not Applicable||10%|
|194 A||Interest other than ‘interest on securities’ like interest on bank deposits, interest on loans and advances, interest on post office deposits etc.||
|194 B||Prize money from lottery, cross word puzzle etc.||₹ 10,000||30%|
|194 BB||Winning from horse race/Jackpot||₹ 10,000||30%|
|194C||Payments to contractors and sub-contractors||₹ 30,000 for Single Payment and ₹ 1,00,000 for Annual Payment||1%*|
|194 D||Commission paid by Insurance companies to its agents||₹ 15,000||5%|
|194 DA||Maturity of life insurance policy||₹ 1,00,000||5%|
|194 EE||Payment of National Savings Scheme Deposits||₹ 2,500||10%|
|194F||Repurchase of units by mutual fund or Unit Trust of India||Not Applicable||20%|
|194 G||Commission on the sale of lottery tickets||₹ 15,000||5%|
|194 H||Commission or Brokerage||₹ 15,000||5%|
|194 I||Rent for use of Land and building/ furniture/ fitting||₹ 2,40,000||10%|
|Rent for use of Plant and machinery||₹ 2,40,000||2%|
|194 IA||Sale proceeds of immovable property other than agriculture land||₹ 50,00,000||1%|
|194 J||Royalty, professional or technical services||₹ 30,000||10%|
|194 K||Dividend income from shares and mutual fund units||₹ 5,000||10%|
|194 LA||Compensation paid on acquisition of certain immovable property||₹ 2,50,000||10%|
|194 LB||Interest from infrastructure debt fund||Not Applicable||5%|
|194 N||Annual cash withdrawal from one or more account with a bank/ co-operative society/post office||₹ 1 crore||2%|
|194-O||Payment made by an e-commerce operator to a seller on sale of goods and services via its e-commerce portal||₹ 5 lakh||1%|
*TDS is deducted at the rate of 2% for deductees other than individuals and HUFs.
TDS is not applicable in the following cases:
- When the amount is paid to government or any government body and Reserve Bank of India.
- Amount is paid to notified mutual funds under Section 10(23D).
- When deductee has certificate of no-deduction under Section 192 of the Income Tax Act.
- When amount is paid to state or central financial corporations.
- Interest credited or paid to :
- Banks or Banking Company
- Life Insurance Corporation, Unit Trust of India or any other insurance company
- National Savings Certificate
- Kisan Vikas Patra
- Non Resident External Account
- Banking Co-operative society
- Savings account and Recurring deposits of banks and co-operative society
- Notified body for non-deduction of tax
Advantages of Tax deducted at source (TDS)
- It helps to prevent tax evasion.
- As TDS deductions take place throughout the financial year, it’s an effective mode of revenue inflow to the government.
- It widens the tax collection base.
- It is a way to share the responsibility of tax collection between the government and the deductors.
As per Section 203 of Income Tax Act, everyone who deducts tax at source is required to furnish a certificate to the respective deductee specifying the amount deducted as tax, along with all the other particulars. Such certificates are called TDS certificates.
In case of Salary Incom
- The employer has to provide Form 16 to his employee specifying the amount of tax deducted at source.
- The form has all the particulars related to computation, deduction and payment of tax.
For non-salaried cases
- Form 16A is given by the deductor mentioning all details of tax computation, deduction and payments.
- The certificate needs to be issued to the deductee within 15 days of due date of filing TDS return.
- TCS Certificate (Tax Collected at Source): A certificate that contains the amount of TDS collected and deposited with the tax department. It is issued via Form 27D.
Depositing TDS to Central Government
- The deductor needs to deposit the TDS to central government by making a payment through NSDL using physical form that can be processed in authorized bank branches.
- The payment can be made online through the official portal of NSDL using Challan 281 and by routing the payments through net banking.
- The amount deducted as tax needs to be deposited before filing the TDS return.
- The e-payment is compulsory for all assesses who are liable for audit under Section 44AB.
TDS Payment Due Dates
Monthly due date for payment of TDS is as below:
|April||On or before 7th May|
|May||On or before 7th June|
|June||On or before 7th July|
|July||On or before 7th August|
|Aug||On or before 7th September|
|Sept||On or before 7th October|
|Oct||On or before 7th November|
|Nov||On or before 7th December|
|Dec||On or before 7th January|
|Jan||On or before 7th February|
|Feb||On or before 7th March|
|Mar||On or before 7th April for government deductors
On or before 30th April for non-government deductors
Also Read: TDS Refund
TDS Return Filing Due Dates
The due dates for quarterly filing of TDS returns are as follows:
|Quarter||Quarter Period||Due date to file TDS return|
|1st Quarter||April to June||On 31st July of the same FY|
|2nd Quarter||July to September||On 31st Oct of the same FY|
|3rd Quarter||October to December||On 31st Jan of the same FY|
|4th Quarter||January to March||On 31st May of the next FY|
Also Read: E-filing procedure for TDS returns
Penalties Associated With TDS Deduction
The deductor has to pay penalty, if the TDS deduction and payment deadlines are breached.
For non-deduction of TDS
If a deductor/collector fails to collect the tax at source, whole of such expenses can be disallowed from computation of total profits by the income tax assessing officer.
For late-deduction of TDS
In case the tax at source is deducted after a day or few days of making the payment of income, then simple interest at the rate of 1% per month on the amount of tax deducted at source will be levied.
For late-payment of TDS
As mentioned above, there is a monthly due date for depositing the TDS so collected to the government. If deductors fail to do so, they have to pay simple interest on the amount deducted as tax at the rate of 1.5% per month.
For late-filing of TDS Returns
If the deductor fails to furnish the TDS return on or before specified due date, he shall be liable to pay a penalty of ₹ 200 per day till the date of default. Please note that the total amount of such penalty cannot exceed the total amount of tax deducted at source.
For non-filing of TDS Returns
If the deductor fails to file TDS return within the due date, then the assessing officer may charge a penalty ranging from ₹ 10000 to ₹ 1 lakh.
Important Points to Remember
- Everyone who is deducting TDS needs to have TAN (Tax deduction and collection Account Number) as per the provisions of Section 203 A of the Income Tax Act.
- TAN is a mandatory requirement for filing of TDS returns. Moreover, it should be mentioned on the tax deduction certificate issued.
- TDS deductions are linked to your PAN (Permanent Account Number). Thus, it is essential to have PAN details of the deductee to deduct tax at source.
- Every deductee needs to present the TDS certificate to adjust the amount of tax deducted against the total tax payable.
- TDS details can be checked through Tax credit Form 26AS which is available to all PAN holders.
- This consolidated tax statement gives you the clear details of TDS deducted on various types of payments.