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. 25 lacs (wef A.y 2017-18 this limit has been increased to Rs 50 Lakhs) 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 Form 15H as the case may be.
- On certificate issued by ITO.
- Payment to Government/RBI/ Corporation established by or under Central Act which is exempt from income tax by virtue of any law/ Mutual Fund specified under section 10(23D).
- 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 2020-21 (Financial Year 2019-20)
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 Section 80C, Section 80CCC, Section 80CCD, Section 80D, Section 80DD, Section 80DDB, Section 80E, Section 80G, Section 80 GGA, Section 80TTA. 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) |
| TDS Rate | As per Income Tax, Surcharge and Education Cess rates applicable on the estimated income of employee for the year. |
| Section 192A(inserted wef June 2015) | Payment of Accumulated Balance Due of Employees’ Provident Fund Scheme,1952 to employees |
| Criterion of Deduction | Tax is to be deducted by the trustees of Employees’ Provident Fund Scheme,1952 or any other person authorised under the scheme to make such accumulated payments to employees and the amount of such payment is Rs 50,000 or more |
| TDS Rate | In case of Resident Payee-10%(no surcharge or health and education cess)
In case of Non-Resident-10%(will be increased by surcharge and health and education cess)
|
A) Commonly used TDS Provision for payments made to persons resident in India (Individuals, Firms, Companies, etc.):-
| Section | Nature of Payment for Domestic Transactions | Threshold Limit | Individual / HUF | Others | 15G-15H |
| Rs. | TDS Rate (%) | Allowed | |||
| 192 | Salaries (Annexure-I) | – | Basis on Slab | – | No |
| 192A | Premature withdrawal from EPF | 50,000 | 10 | – | YES |
| 193 | Interest on Securities/ Debentures | 10,000 | 10 | 10 | No |
194A
| Interest (Banks, co-operative society and post office)/ For Senior Citizen Rs. 50000 | 40,000/
50000
| 10 | 10 | YES |
| Interest (Others) | 5,000 | 10 | 10 | YES | |
194C
| Contractor – Single Transaction | 30,000 | 1 | 2 | No |
| Contractor – During the F.Y. | 1,00,000 | 1 | 2 | No | |
| Transporter (44AE) declaration with PAN | – | – | – | – | |
| 194H | Commission / Brokerage | 15,000 | 5 | 5 | No |
194I
| Rent of Land and Building – F&F | 2,40,000 | 10 | 10 | YES |
| Rent of Plant / Machinery / Equipment | 2,40,000 | 2 | 2 | YES | |
| 194IB | Rent by Individual / HUF (wef 01.06.2017) | 50000/PM | 5 | – | No |
| 194IA | Transfer of certain immovable property other than agriculture land | 50,00,000 | 1 | 1 | No |
194J
| Professional Fees / Technical Fees /Director fees/ royalty | 30,000 | 10 | 10 | No |
| Payment to Call Centre Operator
(w.e.f. 01.06.2017)
| 30,000 | 2 | 2 | No | |
Conditions for being a resident senior citizen:
(i) Individual of 60 years or more at any time during the year
(ii) An individual is said to be resident in any previous year if he satisfies any one of the following conditions:
b. He stays in India for at least 60 days during the relevant previous year and at least 365 days for 4 years preceding that previous year.
- 194A the interest limit is enhanced from Rs. 10,000/- to Rs. 40,000/- in case of payer is bank, co-operative society and post office. If the payee is senior citizen, the limit is Rs. 50,000.
- u/s194-I the monetary limit enhanced to Rs. 2,40,000/- from Rs. 1,80,000/-. Accordingly, if the rent payment does not exceed Rs. 2,40,000/- in a financial year, deductor is not require to deduct the TDS.
B) All TDS Provision for payments made to persons resident/ non resident in India (Individuals, Firms, Companies, etc.)
| Section | Nature of Payment for Domestic Transactions | Threshold Limit | Individual / HUF | Others | 15G-15H | Deduction At the time of |
| Rs. | TDS Rate (%) | Allowed | ||||
| 192 | Salaries (Annexure-I)
(resident & non resident)
| – | Basis on Slab | – | No | payment |
| 192A | Premature withdrawal from EPF | 50,000 | 10 | – | YES | payment |
| 193 | Interest on Securities/ Debentures | 10,000 | 10 | 10 | No | Credit or payment (earlier) |
| 194 | Dividends (other than listed Companies) | – | 10 | 10 | YES | payment |
194A
| Interest (Banks)/ For Senior Citizen Rs. 50000 | 40,000 | 10 | 10 | YES | Credit or payment (earlier) |
| Interest (Others) | 5,000 | 10 | 10 | YES | Credit or payment (earlier) | |
| 194B | Winning from Lotteries
(resident & non resident)
| 10,000 | 30 | 30 | No | payment |
| 194BB | Winning from Horse Race
(resident & non resident)
| 10,000 | 30 | 30 | No | payment |
194C
| Contractor – Single Transaction | 30,000 | 1 | 2 | No | Credit or payment (earlier) |
| Contractor – During the F.Y. | 1,00,000 | 1 | 2 | No | Credit or payment (earlier) | |
| Transporter (44AE) declaration with PAN | – | – | – | – | ||
| 194D | Insurance Commission | 15,000 | 5 | 10 | YES | Credit or payment (earlier) |
| 194DA | Life insurance Policy | 1,00,000 | 1 | 1 | YES | payment |
| 194E | Non-Resident Sportsmen or Sports Association | 20 | 20 | No | Credit or payment (earlier) | |
| 194EE | NSS
(resident & non resident)
| 2,500 | 10 | 10 | YES | payment |
| 194F | Repurchase Units by MFs
(resident & non resident)
| 20 | 20 | No | Credit or payment (earlier) | |
| 194G | Commission – Lottery
(resident & non resident)
| 15,000 | 5 | 5 | No | Credit or payment (earlier) |
| 194H | Commission / Brokerage | 15,000 | 5 | 5 | No | Credit or payment (earlier) |
194I
| Rent of Land and Building – F&F | 2,40,000 | 10 | 10 | YES | Credit or payment (earlier) |
| Rent of Plant / Machinery / Equipment | 2,40,000 | 2 | 2 | YES | Credit or payment (earlier) | |
| 194IB | Rent by Individual / HUF (wef 01.06.2017) | 50000/PM | 5 | – | No | Credit or payment (earlier) |
| 194IA | Transfer of certain immovable property other than agriculture land | 50,00,000 | 1 | 1 | No | Credit or payment (earlier) |
194J
| Professional Fees / Technical Fees /Director fees/ royalty | 30,000 | 10 | 10 | No | Credit or payment (earlier) |
| Payment to Call Centre Operator | 30,000 | 2 | 2 | No | Credit or payment (earlier) | |
194LA
| Compensation on transfer of certain immovable property other than agricultural land | 2,50,000 | 10 | 10 | No | payment |
| Immovable Property (TDS exempted under RFCTLARR Act (w.e.f. 01.04.2017) | – | – | – | – | ||
| 194LB | Income by way of interest from from infrastructure debt fund(non- resident) | 5 | 5 | No | Credit or payment (earlier) | |
| 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 (applicable from July 1, 2012) | 5 | 5 | No | Credit or payment (earlier) | |
| 194LD | Interest on certain bonds and Govt. Securities (from 01-06-2013)
(non resident)
| 5 | 5 | No | Credit or payment (earlier) | |
| 195 | Other sum (payable to non Resident) | |||||
| a) Income in respect of investment made by a Non-resident Indian Citizen | 20 | 20 | No |
Credit or payment (earlier)
| ||
| b) Income by way of long-term capital gains referred to in Section 115E in case of a Non-resident Indian Citizen | 10 | 10 | No | |||
| c) Income by way of long-term capital gains referred to in sub-clause (iii) of clause (c) of sub-section (1) of Section 193 | 10 | 10 | No | |||
| d) Income by way of short-term capital gains referred to in Section 111A | 15 | 15 | No | |||
| 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 | 20 | No | |||
| f) Income by way of interest payable by Government or an Indian concern on money 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 | 20 | No | |||
| Any other income | 30 | 30 | No | |||
Notes:
1. For the financial year 2018-19 there is no surcharge or health and education cess on amount 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. However if the recipient is non resident the rate of TDS will be increased by surcharge or health and education
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 Income Tax 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 / TDS
Penalty – equal to the amount of tax deductible but not deducted u/s 271C
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 in Payment of TDS:
Interest @ one and one-half percent for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid. Section 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 15th day of June of the financial year immediately following the financial year in which the income was paid and tax deducted.
2. 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. 26QB for tax deduction u/s 194-IA
3. Form no. 26QC for tax deduction u/s 194-IB
4. 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 | 31st July of the financial year |
| 30th September | 31st October of the financial year | 31st October of the financial year |
| 31st December | 31st January of the financial year | 31st January of the financial year |
| 31st March | 31st May of the financial year immediately following the financial year in which deduction is made | 31st May of the financial year immediately following the financial year in which deduction is made. |
However the above due date shall not apply to Form 26QB/26QC as in these cases challan of electronic deposit of TDS is itself considered as return
Penal Provisions for failure / default in submitting TDS 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 file TDS return on 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 in in filing TDS Statement within the prescribed time
(ii) If deductor furnishes incorrect details like PAN, TDS amount, Challan particulars etc.
| Penalty of sum which shall not be less than ten thousand rupees but which may extend to one lakh rupees.
No penalty shall be levied for the failure to file TDS/TCS return on time,if the person proves that after paying tax deducted or collected along with the fee and interest, if any, to the credit of the Central Government, he has filed the return before the expiry of a period of one year from the time prescribed for delivering or causing to be delivered such statement.
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