Tax Deduction at Source (TDS)

Overview
Introduction of TDS
Objective of TDS Provisions of deduction of TDS

Issue of Certificates & filling Returns

Tax Collection of Source Penalty Provisions

Prosecution
Clarifications & Conclusion.

Introduction - Tax Deduction at Source

TDS as the name suggest , is deduction of tax at the

point / source of income. Tax Deduction at Source is an important part of revenue generation by govt.

Objectives of TDS
Regular revenue for Government
Checking of tax evasion

Widening of tax base

Easy collection

PROVISIONS UNDER INCOME TAX ACT

Sec -192 TDS on Salaries

Person Liable to pay salary is required to deduct TDS. TDS to be deducted on estimated income of the employee at the average rate in force for financial year. TDS to be deducted on the perquisite. Employee drawing salary from two employer should furnish details of income to the person responsible for payment of salary. Employee should provide details of any other income (not loss except from house property) earned by him.

Sec -192 TDS on Salaries

Deduction under section 80 C to 80 U to be

considered before deducting Tax. No consideration for deduction under 80 G except donations to certain funds such as National Defense Fund, PMs National Relief Fund etc. Estimated TDS to be deducted in equal monthly installments.

Section 193- Interest on securities.

Person responsible for paying Interest on securities

has to deduct TDS. Interest exceeding Rs. 2500 is liable for deduction of TDS Interest on certain securities are exempt. Eg. National defence Bonds, Gold Bonds etc. TDS is to be deducted on Payment or Credit whichever is earlier. Rate of TDS is 10 %

Section 194- Dividends.

Person responsible for paying Dividend has to

deduct TDS. TDS to be deducted on payment of Dividend Dividend exceeding Rs. 2500 is liable for deduction of TDS. Dividend paid / payable to GIC, LIC is exempt. No TDS needs to be deducted for Dividend as referred under Section 115 O. At present applicable only for deemed dividend u/s 2 (22)(e)

Section 194A- Interest other than interest on securities.

Person (Other than Individual & HUF) responsible for

paying Interest has to deduct TDS. However Individual and HUF who was subject to Tax Audit u/s. 44AB immediately preceding the financial year is liable to deduct TDS. Interest exceeding Rs. 5000 is liable for TDS. In case of payer is Bank, Co-operative Society, Post Office it should exceed Rs. 10000. Interest payable to Banks, LIC, UTI etc is exempt from deducting TDS. TDS is to be deducted on Payment or Credit whichever is earlier. Rate of TDS is 10 %.

Section 194A- Interest other than interest on securities. When Section 194A is not applicable
Interest paid to Banks, LIC, UTI, Insurance Co.
Interest is credited / paid by firm to its partner. Int. credited / paid by co-operative society to its member or other co

operative society. Interest payable by Central Govt or Income Tax or Wealth Tax Interest payable under PO Time deposits, Recurring Deposits, KVP,NSC, IVP. Interest on Zero Coupon Bonds by Infra companies/ fund, PSUs. Interest on compensation amount awarded by Motor accident claims tribunal where aggregate amount of such income paid during the financial year does not exceed Rs.50,000/-.

Section 194B- Winnings from lottery or crossword puzzle

Person responsible for paying winning amount has

to deduct TDS TDS to be deducted on payment of winnings from lottery, puzzle, card games , crossword etc. Winnings exceeding Rs. 10000 is liable for deduction of TDS. If winnings are wholly in Kind or partly in cash and Partly in Kind, before releasing the winnings, person responsible for paying ensures that tax has been paid in respect of winnings. Rate of TDS is 30 %

Section 194BB- Winnings from Horse Race

Any Person (Book Maker or having license for taking

betting on horse racing) is responsible for paying winning amount has to deduct TDS. TDS to be deducted on payment of winnings from Horse Race Winnings exceeding Rs. 5000 is liable for deduction of TDS. Rate of TDS is 30 %

Section 194C payment to Contractor & sub Contractor

Person (Except Individual / HUF/ AOP/BOI) responsible

for paying any sum has to deduct TDS. However Individual, HUF and AOP/BOI who was subject to Tax Audit u/s. 44AB immediately preceding the financial year is liable to deduct TDS. TDS to be deducted in case of contracts between specified persons and resident contractor for any work (including supply of labour). Specified persons includes Govt, local authority, corporation, Company, trust, firm, society, university, Individual & HUF

Section 194C payment to Contractor & sub Contractor

TDS not to be deducted on amount not exceeding Rs.

30,000/- in case of single contract or total payments in a year does not exceed Rs.75,000/-. TDS not to be deducted by contractor on payment to individual sub-contractor of goods carriage if individual does not owned more than 2 goods carriage at any time during the previous year

Section 194C payment to Contractor & sub Contractor

TDS is to be deducted on Payment or Credit whichever

is earlier. Rate of TDS is 1 % in the case of payment made to contractor /sub-contractor being an Individual /HUF and for others 2%.

Section 194H Commission or Brokerage

Person (Except Individual / HUF) responsible for

paying comm. / brokerage has to deduct TDS. However Individual and HUF who was subject to Tax Audit u/s. 44AB immediately preceding the financial year is liable to deduct TDS. No Deduction is required if Amount does not exceeds Rs. 5000. Payment or Credit whichever is earlier. Rate of TDS is 10 %.

Section 194I- Rent

Person (Except Individual / HUF) responsible for

paying rent on Land, Buildings, P&M, Furniture & Fittings and equipments has to deduct TDS. However Individual and HUF who was subject to Tax Audit u/s. 44AB immediately preceding the financial year is liable to deduct TDS. No Deduction is required if Amount does not exceeds Rs. 1,80,000/-.

Section 194I- Rent

Payment or Credit whichever is earlier. Rate of TDS : 2%
10 %

Rent on P& M & equipment

Rent on Land & Building and furniture

Section 194J -Fees for professional or technical services

Person (Except Individual / HUF) responsible for

paying fees for professional or technical services, royalty & Non compete fees as defined u/s 28(va) has to deduct TDS. However Individual and HUF who was subject to Tax Audit u/s. 44AB immediately preceding the financial year is liable to deduct TDS. No Deduction is required if aggregate amount does not exceeds Rs.30,000/-. Payment or Credit whichever is earlier. Rate of TDS is 10 %.

Section 195 Other Sums

Any Person responsible for payment to non-

resident, not being a company, or to a foreign company of any interest or any other sum chargeable under the provisions of this Act (except salaries) has to deduct TDS at the rates in force. TDS to be deducted at the time of Payment or Credit whichever is earlier. Recipient of Income can obtained No deduction of Tax u/s 195(3).

Section 196-No TDS in case of certain Payee

No Deduction of tax to be made from any sum payable

for Interest or dividend to

Government Reserve Bank of India Corporation established under law not liable to pay IT Mutual fund specified u/s 10 (23D)

SECTION 197- CERTIFICATE FOR DEDUCTION OF TAX AT LOWER RATE

Application for lower deduction can be filed by any

person. Application to be made in Form No.13 to the Assessing Officer of TDS. Certificate will be issued by the Assessing Officer of TDS on verification Not Applicable for Sec194B, 194BB, 194E, 194EE and194F

197A No Deduction to be made in certain case

Form 15 G Resident Individual in

respect of Dividend Income Any Person (not being a company or a firm) in respect of Interest Income or units Income Form can be issued only in the case when total income does not exceeds maximum amount which is not chargeable to tax.

Form 15 H Resident Individual who is

of the age of 60 years or more in respect of Dividend, Interest or Unit Income. Form can be issued only in the case when tax on his/her estimated total income will be Nil.

Section 200- Duty of person deducting Tax

Person deducting any sum as TDS should deposit the tax

to the credit of C.G.within due date as below:

Nature of Deduction Any Salary Payer/Deductor Government Due Date of making payment Same day.

Other than Govt. With in One week from the date of deduction In the case of Provision made on the last day of year then with in one month from the end of the year. Other than Govt. With in One week from the end of the month in which TDS deducted In the case of Provision made on the last day of year then with in one month from the end of the year.

Other than Salary,

TDS Certificates
Section Payment/ Credit Issue Date Form No.

192- Salary N.A

Other than Salary Other than Salary Other than last quarter Last Quarter

Two months from end of the year

16

Within one month from end of 16A the Quarter. Within two months from the end of the last qtr. 16A

Note : In case of Other than Salary the payer of Income at the request from payee can issue a consolidated certificate for tax deducted during the year. Credit for TDS shall be given to assessee without production of Certificate on or after 1st April 2010.

SECTION 206- PERSON DEDUCTING TAX TO FURNISH RETURN.

W.E.F. 01.04.05, the person responsible for paying TDS

needs to prepare and file Quarterly Statement with the TIN FCs appointed by NSDL. Details of Returns are :

Form No. 24Q 26Q

Particulars Salary Non-salary

SECTION 206- PERSON DEDUCTING TAX TO FURNISH RETURN.

Due Date of Filling Returns

Quarter Ended 30th June 30th Sept. 31st Dec. 31st March

Due Date if payment to non resident 14th July 14th October 14th January 14th May

Due Date for Others 15th July 15th October 15th January 15th May

CONSEQUENCES OF FAILURE TO DEDUCT OR DEPOSIT THE TAX AT SOURCE-1

The person responsible for deducting TDS who has

not deducted or after deducting not paid will be held as assessee in default. The person responsible for deducting TDS,does not deduct or after deducting does not pay or deposit the TDS then Interest u/s.201(1A) @ 1% or 1.5% per month respectively from the date on which the tax was deductible/ or tax deducted to the date on which such tax is actually paid will be levied on the amount of such tax.

SECTION 40a(ia) EXPENSES NOT DEDUCTIBLE

Any amount payable on which tax is deductible but

not deducted or after deduction has not been paid is not allowed as Expenses of the year in which it is incurred.

Cont.
The said payment will be allowed as an expenditure in

the year in which TDS is deducted & paid. Section 40(a)(ia) is applicable for Interest, commission or brokerage, rent, royalty, fees for professional or technical services payment.

Clarifications / Notifications

No TDS to be deducted on Service tax payable on Rent

(Cir.No. 4/2008, 28-4-08). i.e. In case of Payment other than rent, TDS has to be deducted on service tax element. In case of person paying Income Net of Tax, he is under legal obligation to furnish TDS certificate for TDS deducted even though the tax has been borne by payer (Cir. No. 785 dated 24.11.99)

 Circular 715 dated 08.08.1995 Clarifications / Notifications

Reimbursement cannot be deducted out of Bill Amount.

However if the reimbursement is claimed by separate bill than no TDS will be deducted on that. Contract for putting hoarding is in nature of advertising contract & sec 194 C will be applicable. If person has taken the place on rent and thereafter sublets for putting hoarding , it will fall under 194I. TDS not required where payment made for serving foods in a restaurant.

Service Rendered Payee worth Rs. 100000/-

Payer (Receiver of service) M/s B Ltd.

Payee (Giver of service) M/s A

Payment of Rs.90000/-

Deposit of Rs. 10000/- in Bank in governments a/c on account of M/s A

Issue of Certificate worth Rs.10000/Payee can Claim credit in his Return of Income

File Quarterly Return with NSDL every Quarter