TDS, or Tax Deducted at Source, is a certain percentage of one’s monthly income which is taxed from the point of payment. According to the Income Tax Act, 1961, every individual or organisation is liable to pay taxes if their income is above a certain threshold.
TDS deduction is applicable to multiple types of payments, including –
- Commission earned.
- Interest payment by banks.
- Professional or consultant fees.
Tax Deducted at Source is a type of advance tax which Government of India levies on a periodic basis. The overall deducted TDS is claimed as tax refund after a taxpayer files the Income Tax Return.
When is TDS Deducted?
TDS deduction rules necessitate tax payment when a taxpayer gets payment due, or receives actual payment (whichever is earlier). Let’s take a look at a few examples where TDS will be applicable.
- Example 1 –
Assume Mr. Paul is a self-employed professional who got paid Rs.40,000 as advance and received another Rs.20,000 after completion of work. In this scenario, the payee will deduct TDS from the advance (Rs.4,000, 10% of Rs.40,000) and the rest (Rs.2,000, 10% of Rs.20,000). The total payable taxable amount will be Rs.6,000.
- Example 2 –
Mr. Paul receives the complete payment after the completion of his work. In this case, he will be taxed Rs.6,000 from the total sum by his payee, and Rs.54,000 will be paid to him for his work.
Who can Deduct TDS?
The person making the payment is liable for TDS deduction. That individual or organisation is liable to deduct the sum at specified rate and deposit it to the Government within every financial year.
Types of Payments and Applicable TDS
A payee is liable to levy Tax Deducted at Source at the following rate. Note, the absence of PAN will attract TDS at a rate of 20%, unless any specific rate (like MMR) is mentioned. –
|TDS according to section||Nature of payment made||Payer||Payee||Applicable rate||Exemption limit (threshold till which no TDS will be applicable)|
|Section 192||TDS on salary||Any salaried individual||Employer||According to the applicable Income Tax slab||Basic Gross Total Income exemption limit – up to Rs.2.5 lakh for taxpayers below the age of 60, Rs.3 lakh for individuals between the age of 60 to 80 years, and Rs.5 lakh for individuals above 80 years of age.|
|Section 192A||TDS on premature withdrawal of provident funds||Any individual||Employee||10% of the total sum||If the amount is less than Rs.50,000|
|Section 193||TDS on the interest earned from securities||Any individual||Any resident individual||10%||If the invested amount is in debentures, one can apply for an exemption of up to Rs.5,000 during a financial year.|
|Section 194||TDS on dividends||Domestic companies||Resident individual||10%||Up to Rs.2,500 during one financial year.|
|Section 194A||TDS on interest earned from investment assets other than securities||Individuals except taxpayers and Hindu Undivided Families liable to tax audit during last FY||Resident individual||10%||Up to Rs.10,000 for earnings from banks and post office deposits and up to Rs.5,000 for other cases.|
|Section 194B||TDS applicable on money earned on lottery or similar competition||Any individual||Any individual||30%||Up to Rs.10,000|
|Section 194BB||TDS on winning from race horses||Any individual||Any individual||30%||Up to Rs.10,000|
|Section 194C||TDS on payments made towards contractors||Any individual other than taxpayers and Hindu Undivided Families eligible for tax audit during last FY||Any resident person||1% for individuals and Hindu Undivided Family, 2% for other type of taxpayers||Up to Rs.30,000 for sectional payments and up to Rs.1,00,000 for total payment during an FY.|
|Section 194D||TDS on insurance commission||Insurance aggregator||Resident agent||5% for individuals and HUF and 10% for other agents||Up to Rs.15,000 during one FY|
|Section 194DA||TDS on payment made towards life insurance policy||Any individual||Any resident person||1%||Less than Rs.1,00,000 during one FY|
|Section 194E||TDS on payments made towards non-residential sportsperson or association||Any individual||Sportsperson, association||20%||No exemption applicable|
|Section 194EE||TDS on payments made towards deposit under NSS||Any individual||Any individual||10%||Up to Rs.2,500 during one FY|
|Section 194G||TDS payable from commission earned from the sale of lottery ticket||Any individual||Any individual||5%||Up to Rs.15,000|
|Section 194H||TDS on commission or brokerage earned||Any individual except taxpayers and Hindu Undivided Family liable for tax audit||Any resident individual||5%||Up to Rs.15,000|
|Section 194I||TDS on rent||Any individual except taxpayers and Hindu Undivided Families liable for tax audit||Any resident individual||2%||Up to Rs.1,80,000 during one FY|
|Section 194IA||TDS on funds earned for transfer of immovable asset (except agricultural land)||Any individual||Any resident individual||1%||Less than Rs.50,00,000|
|Section 194IB||TDS on payment of rent by certain individuals and Hindu Undivided Families||Any individuals and Hindu Undivided Families||Any resident individual||5%||Up to Rs.50,000 every month.|
|Section 194IC||TDS on payment made towards specified agreement||Any person||Any resident individual||10%||No exemption applicable|
|Section 194J||TDS on payments made towards any professional or technical services||Any individual except taxpayers and Hindu Undivided Families not liable for tax audit during last FY||Any resident individual||10% (2% taxes will be charged is the payment is made to a business that operates a call centre)||Up to Rs.30,000 during one FY|
|Section 194LA||TDS on payment of compensation because of acquisition of certain immovable asset||Any individual||Any residential individual||10%||Up to Rs.2,50,000|
|Section 194LB||TDS paid towards income earned from infrastructure debt fund interest||Infrastructure debt funds||National or international organisation||5%||No exemption applicable|
|Section 194LBA||TDS on income from units of a business trust||Business trusts||Unit holder, both resident and non-resident individual||10% for resident individuals and 5% for non-residents||No exemption applicable|
|Section 194LBB||TDS on income earned from units of investment funds||Investment funds||Unit holders, both resident and non-residents||10% for resident individuals. For non-resident individuals, the tax rates will be calculated as per the current rate||No exemptions applicable|
|Section 194 LBC||TDS on income earned from investments of securitisation trusts||Securitisation trusts||Investors, both residents and non-residents||25% for individuals and Hindu Undivided Family and 30% for any other type of investor||No exemptions applicable|
|Section 194LC||TDS on income earned from an Indian company||Indian companies and business trusts||Non-residents||5%||No exemptions applicable|
|Section 194LD||TDS on income earned from certain Government security and bond’s interest||Any individual||Foreign institutional investor or qualified foreign investor||5%||No exemptions applicable|
|Section 195||TDS on other types of payment made towards non-organisational entity or foreign company||Any individual||Specified body||As specified by DTAA or Income Tax Act||No exemptions applicable.|
TDS Return and the Associated Forms
TDS return is a statement issued after successful payment of the taxes, containing all the transactions mentioned towards TDS deduction made during a quarter. It is issued by the payer, submitted to the Income Tax Department of India.
Tax returns contain all TDS deduction details collected by the payer, as well as other essential information like the Permanent Account Number of the payer and payee and other particulars regarding the payment made to the Government of India. It also collects TDS challan information.
There are several forms associated with TDS returns; the following table contains its relevant details.
|Form number||Significance||Frequency of submission|
|Form 24Q||Statement containing details of TDS deducted from salary||Quarterly|
|Form 26Q||Statement containing details of TDS deducted from earning except salary||Quarterly|
|Form 26QB||Statement containing details of TDS deducted on income from the transfer of immovable asset (except agricultural land)||Should be submitted within 30 days from the end of the month when the deduction is made.|
|Form 26QC||Statement containing details of TDS deducted from payment of rent||Should be submitted within 30 days from the end of a particular month when the deduction is made.|
|Form 27Q||Statement containing details of TDS deducted on incomes earned from interest, dividend, or other sum payable||Quarterly|
The person deducting TDS is also liable to provide an acknowledgement form to the taxpayer. It acts as proof that the necessary taxes have been paid and deposited to the Government. This certificate contains details like the particulars of payment, payee and payer details, date of tax deduction and date of credit submission. TDS certificate is necessary to claim tax credit or refund (if any) while filing Income Tax Return.
Different TDS certificates are issued against different TDS forms. These include –
|TDS certificate||Respective TDS return form||Due date||Frequency of issue|
|Form 16||Form 24Q||Within 15th June of a Financial Year which succeeds a Financial Year when the tax is deducted||Annually|
|Form 16A||Form 26Q||Within 15 days of submitting Form 26Q||Once every quarter|
|Form 16B||Form 26QB||Within 15 days of submitting Form 26QB||Monthly|
|Form 16C||Form 26QC||Within 15 days of submitting Form 26QC||Monthly|
Due Dates of Different Forms
Taxpayers are liable to submit Forms containing TDS deduction details according to different due dates and quarters. For Financial Year 2019-2020, the dates are the following –
|Quarter||Quarter period||Last date of filing|
|1st quarter||1st April to 30th June||31st July, 2019|
|2nd quarter||1st July to 30th September||31st October, 2019|
|3rd quarter||1st October to 31st December||31st January, 2020|
|4th quarter||1st January to 31st March||31st May, 2020|
Any taxpayer not complying with the TDS deduction rules will be liable to pay penalties, usually in the form of fees and interest levied on the principal taxable amount. There are multiple types of penalties levied; for example –
- Regulation regarding tax deduction – Levied tax will be deducted when the actual payment is being paid. Any delay in tax deduction will be subjected to a penalty at 1% interest/month until the sum is deducted.
In case the person responsible for TDS deduction fails to do so, they are likely to be restricted from ascertaining the taxable profit from the total expenditure.
- Regulations regarding TDS payment – Taxpayers are required to pay the taxable sum to the Government of India by the 7th day of the month which succeeds the tax filing. Incidents of none or late payment will attract a penalty at 1.5% per month (on the total payable sum) till the sum is deposited.
- Regulations regarding TDS return filing – TDS returns should be filed on the 31st day of January, May, July, and October of every financial year. Non-filing or late filing of return will attract a penalty of Rs.200 every day (according to Section 234E of the Income Tax Act of India) till the return is filed. However, the penalty should not exceed the total sum of tax levied.
How to know deducted TDS amount?
The process to find whether TDS has been deducted or not and whether it has been credited to a particular taxpayer’s account can be completed online. The steps are as follow –
- Step 1 – Navigate to the official website of Income Tax Department of India and select the option to register as a new user.
- Step 2 – Enter details of the Permanent Account Number and generate a password.
- Step 3 – After logging in with the registered ID and password, select the option to view tax credit statement, or Form 26AS.
26AS is a tax credit statement that carries a detailed report of TDS deducted during a financial year.
- Step 4 – The website will redirect to the page for TDS Reconciliation Analysis and Correction Enabling System, which will show all the details of a taxpayer’s tax liabilities, including details of Tax Deducted at Source, advance tax paid, and other information.
TDS refund and non-reduction of the applicable tax
If a taxpayer pays more tax than what he or she is legally obligated to pay, will be able to file a claim regarding tax refund. Taxpayers can file the same with their annual income tax return, and the refund amount will be disbursed along with the Income Tax Return.
For example, suppose Mr. Paul presented an invoice of Rs.40,000, against which he received a total of Rs.39,200 after deducting 2% (Rs.800) TDS. However, under Section 194C, he is liable for taxation at 1% (or Rs.400). The balance amount will arise as a refund when Mr. Paul files his Income Tax Return.
If an individual’s annual income does not fall under taxable threshold, they can request for zero deduction on their income as well. It can be completed via 2 different methods –
- Declaring income below the basic exemption limit in the Form 15G or 15H will exempt an individual from TDS. These Forms have to be submitted every year, otherwise the applicant may be subjected to tax deduction.
- Applying for a certificate for deduction of tax at a lower or NIL rate via Form 13 will also register as zero TDS under this clause.
Tax Deducted at Source is an essential clause under Income Tax Act, 1961. Every taxpayer should be thoroughly aware of the taxation limit, forms, etc. in details to adhere to the regulations of the Income Tax Department of India.
Frequently Asked Questions
- Is it possible to file a NIL TDS return while filing Tax Deducted at Source for the first time?
Ans – An individual is not mandated by law to file NIL TDS return, however, they can file the same during the relevant quarter if their employer requires so.
- Will TDS be applicable on the bill for material and labour?
Ans – TDS will be deducted for the sum paid for labour only in this case.
- Is there any provision for TDS against freight and transportation charges?
Ans – TDS will be deducted against the amount paid in case there is more than 10 goods carriers owned by the taxpayer at any time during the previous year.
- Is a taxpayer eligible to pay TDS against the purchase of a flat?
Ans – Flats costing more than Rs.50 lakh will attract TDS at 1% under Section 194IA.