Know all about Tax Deducted at Source
The government of India came up with the concept of Pay as You Earn and introduced the tax deducted at source under the Income-tax Act, 1961 (I-T Act). It means levying and collecting the tax from the very source of income.
In this article, we will discuss the TDS and its related provisions under the I-T Act.
What is Tax Deducted at Source and why is it levied?
Tax Deducted at source, also known as TDS, is a part of income tax deducted by the person while making certain payments like salary, commission, rent, interest, professional fees, etc.
Usually, the person receiving income is liable to pay income tax. But the government with the help of TDS provisions makes sure that income tax is deducted in advance from the payments you make. Therefore, it has introduced provisions where the person who makes the payment deducts tax at source, while the person who receives such payment receives the net amount (after reducing TDS).
The receiver is then entitled to get a credit of the amount so deducted based on Form 26AS or a TDS certificate issued by the deductor.
Below mentioned are some of the sources of income/expenses that fall under the purview of TDS:
- Salary – Payment from employer to employee (section 192)
- Interest on securities (section 193)
- Any other Interest like interest on bank deposits etc. (excluding interest on securities) (section 194A)
- Prize money from winning games like a crossword puzzle, card, lottery, etc. (section 194B)
- Payment to contractors (section 194C)
- Insurance Commission (section 194D)
- LIC maturity amount (section 194DA)
- Brokerage or commission (section 194H)
- Payment of rent on Plant and Machinery, Land and Building, etc.(section 194I )
- Payment of Professional and Technical fees (section 194J)
- Online gaming (section 194BA)
- Nonresidents earning income from mutual funds in India can give Tax Residency certificate and avail the benefit of the TDS rate given in the treaty instead of 20% (section 196A)
- TDS on listed debentures. (section 193)
- TDS on cash withdrawal by cooperative societies. ( section 194N)
- Virtual digital asset (section 194S)
- Sale of immovable property (section 194-IA)
Perks or benefits to any resident for carrying out any business or profession by the such resident (section 194R)
Payment of TDS?
TDS deducted at source should be deposited to the credit of the Central Government by following modes:
1) Electronic mode: E-Payment is mandatory for all corporate entities; and all persons (other than the company) to whom provisions of section 44AB of the I-T Act, 1961 are applicable.
2) Physical Mode: By furnishing Challan 281 in the authorized bank branch.
Due date for depositing the TDS to the government
TDS must be deposited to the government by the 7th of the subsequent month. It means, if the deductor has deducted tax from payments in November, then he has to pay the TDS on or before the 7th of December.
However, the TDS deducted in March is to be deposited by 30th April.
Filing of TDS returns
Filing TDS returns is mandatory for all the persons who have deducted TDS. The return is to be submitted quarterly and details need to be furnished like TAN, amount of TDS deducted, type of payment, PAN of deductee, etc.
Also, TDS forms are prescribed under the I-T Act for filing returns depending upon the purpose of the deduction of TDS. Below are the TDS forms:
|Form 24Q||Deductions on salary paid by the employer to the employee|
|Form 26 QB||Deductions made on Sale of property|
|Form 27 Q||Deductions in case of payment to NRIs except for salary|
|Form 26 QC||TDS on rent|
Due dates for TDS returns:
The TDS return forms 24Q, 26Q, and 27Q need to be filed within the below due dates
|April to June||31st July|
|July to September||31st October|
|October to December||31st January|
|January to March||31st May|
Penalty for Late Filing TDS Return
Below are the penalties levied by the Income Tax Department for the failure to submit or defaults in submitting your TDS return:
- Failure to submit your returns: Under Section 272A (2) of theI-T Act , a penalty of Rs.100 will be levied for each day that the returns remain unsubmitted, subject to a maximum of the TDS amount.
- Failure to file your returns on time: Under Section 234E of the I-T Act a penalty of Rs.200 will be levied for each day that the returns remain unfiled, subject to a maximum of the TDS amount.
- For defaults in the filing of TDS statement: Under Section 271H of the I-T Act, a penalty of Rs.10,000 to Rs.1 lakh will be levied in case the deductor defaults at the time of filing the TDS return within the due date.
- For incorrect details: Under Section 271H of the I-T Act, a penalty of Rs.10,000 to Rs.1 lakh will be charged in case the deductor submits incorrect information pertaining to PAN, challan particulars, TDS amount, etc.
- For non-payment of TDS: Under Section 201A of the I-T Act, interest will also be levied along with the penalty in case TDS is not paid within the due date. If a part of the tax amount or the whole of it is not deducted at the source, interest will be charged at 1.5% every month starting from the date on which the tax was deductible to the date on which the tax is actually deducted.
What is a TDS Certificate
It is a document issued by the TDS deductor to the TDS deductee while making payment. Based on the TDS certificate the receiver can claim the credit of tax deducted by the Payer. However, if the payer doesn’t have the certificate, he can still claim the credit if TDS is reflected in his form 26AS.
The payer is required to issue a TDS certificate within below mentioned due dates and as below based on the nature of payment on which the TDS is deducted.
|Form||Certificate issued for||Frequency||Due date|
|Form 16||TDS on salary payment||Yearly||31st May|
|Form 16A||TDS on non-salary payments||Quarterly||15 days from the due date of filing return|
|Form 16B||TDS on sale of property||Every transaction||15 days from the due date of filing return|
|Form 16C||TDS on rent||Every transaction||15 days from the due date of filing return|
Penalty for not issuing TDS certificate
If a deductor fails to issue TDS certificate within the specified date, he/she will be levied with a penalty of Rs 100 per day for each certificate. The amount of penalty will not exceed the TDS amount for the quarter.
When to deduct and when not to deduct TDS
TDS to be deducted at the time of payment getting due or actual payment whichever is earlier.
If your income is going to be below the basic exemption limit then you can declare your income as being lower than the basic exemption limit through Form 15G/15H and provide the form to the deductor.
Form 15G is for individuals and Form 15H is for senior citizens. You can also apply to the Assessing Officer of the Income Tax Department through Form 13 and get a certificate approving the deduction of lower taxes or nil deduction of taxes.
But if your income is above the basic exemption limit, you cannot seek an exemption from TDS. One major difference between Form 13 and Form 15G/15H is Form 15G/15H can be issued only by individuals, whereas requests in Form 13 can be submitted by any person i.e. individual, partnership firm, company, etc. to the Income tax officer to get approval for deduction of taxes at lower or NIL rate.
So from the TDS deductee’s (receiver) point of view if your income falls in the highest tax bracket, TDS provisions will become applicable. In such a case, the deduction of TDS and receiving net income in hands will keep the pressure off your pockets at the end of the year while paying the income tax, because the TDS already paid by the payer on your behalf will help reduce your tax liability at the end of the financial year. Thus, reducing the chances of delays in tax payments and thereby attracting penalties. It also helps keep transparency and acts as a stable income for the Government.
From the TDS deductor’s (payer) point of view, you need to make sure that the tax provisions are adhered to and that the TDS is required to be deducted and paid to the govt in a timely manner to avoid penalties.
Frequently Asked Questions (FAQs)
Where can I search whether TDS is deducted or not?
You can refer to Form 26AS available on the Income tax site for the respective financial year to get the TDS details.
At what rate the deductor will deduct TDS if I do not furnish my Permanent Account Number to them?
If you do not furnish your Permanent Account Number to the deductor, then the deductor shall deduct TDS at the rate prescribed in the relevant provisions of the Act or at 20% whichever is higher.
What is TAN?
TAN stands for Tax Deduction Account Number. TAN should be obtained by the person responsible to deduct TDS, i.e., the deductor. The deductor is required to quote TAN in all the documents relating to TDS.
However, the deductor is not required to obtain TAN and can use PAN for remitting the TDS in the case of TDS under Section 194-IA on the purchase of land and building.
Who is eligible for a TDS refund?
Individuals who have made financial declarations at the start of the year, which are less than the proof of investment submitted at the end of the year, will be eligible for a TDS refund. TDS refund can be claimed during cases where the tax deducted is more than the total tax liability computed while filing the Income tax Return.