Tax Deducted at Source (TDS)- Provisions

Article contains Overview of Tax Deducted at Source and explains what is TDS, Who is supposed to deduct tax at source & When, What is the TDS Rates for FY 2020-21, When TDS Needs to Deposit to Govt., What are the TDS Returns and their Due Dates and What are the consequences in case of non-compliance (interest and penalty) with TDS provisions.

1. Overview of Tax Deducted at Source.

What is TDS	Introduced to collect tax at the source from where an individual’s income is generated
Who is responsible for Tax Deduction at Source	Every person who makes payments as prescribed by TDS provisions
When is TDS deducted	When a payment is due or when actual payment is made; whichever is earlier
When TDS Needs to Deposit to Govt.	On the 7th of the Next month in which TDS is deducted. Salary Paid in the month of March should be deposited on or before the 30th of April
Rates prescribed for different types of payments	Refer list below Update – TDS rates for non-salaried payments are reduced by 25% from 14th May 2020

2. What is TDS?

Tax Deducted at Source or TDS forms a major part of direct taxation mechanism The Government used TDS as a tool to collect tax at very source of income in order to minimize tax evasion and also relieves the taxpayer from the burden of paying taxes as a lump sum at the end of the financial year (FY). Under this, the responsible person is supposed to deduct a certain percentage of tax before making the payment to the receiver, such payments include rent, commission, professional fees, salary, interest, etc. The recipient of income will receive the net amount (after reducing TDS)

For Example:-

ABC Pvt. Ltd makes a payment of Rs 45,000/- towards professional fees to Mr. X, then ABC Pvt. Ltd shall deduct a tax of Rs 4,500/- and make a net payment of Rs 41,500/- (45,000/- deducted by Rs 4,500/-) to Mr. X. The amount of 4,500/- deducted by ABC Pvt. Ltd are going to be directly deposited to the credit of the govt .

3. Who is supposed to deduct tax at source & When? 

Any person who is responsible for making payment of nature covered under the TDS provisions of Income Tax Act, 1961 shall be liable to deduct tax at source. But no TDS has to deducted if a person making the payment is an individual or HUF whose books are not required to be audited.

However, just in case of rent payments made by individuals and HUF exceeding Rs 50,000 per month, are required to deduct TDS @ 5% although the individual or HUF is not liable for a tax audit. Also, such Individuals and HUF liable to deduct TDS @ 5% needn’t apply for TAN.

Employer deducts TDS at the income tax slab rates applicable on Salary of Employees.

Banks deduct TDS on Interest income @10% if PAN is Provided, but in case of no PAN may deduct @ 20%. You can submit Form 15G and Form 15H to the bank if your total income is below taxable limit in order that they don’t deduct TDS on your interest income.

There are some cases where TDS is not Deducted such as:-

1. On declaration furnished by the payee on Form 15G or 15H.

2. Payment to Government/RBI/Statutory Corporation etc.

3. Exempt Incomes

4. On certificate issued by ITO u/s 197

5. Interest earned on NSC, KVP, or Indian Vikas Patra Scheme

6. Interest earned from recurring deposits or Savings Account opened in co-operative societies.

7. TDS is not Deducted on reimbursement of expenses like Travelling expenses, Management expenses, etc.

TDS is based on the simple premise that tax is deducted when a payment is due or when an actual payment is made; whichever is earlier.

4. TDS Rates for FY 2020-21 

Section	Sources of Income/Expenses	Threshold Limit	TDS Rate (%)
192	Payment of Salary Income	As per the Income tax slab rate	As per the slab
192 A	Premature withdrawal of Employee Provident Fund (EPF)	₹ 50,000	-10% -20% (In casePAN is not  provided)
193	Interest payment on Securities	₹ 10,000	10%
193	Interest payment on Debentures	₹ 5,000	10%
194	Dividend Income	Not Applicable	10%
194 A	Interest payment other than ‘interest on securities’ like interest on bank deposits, interest on loans and advances, interest on post office deposits etc.	-₹ 10,000 in case the TDS payer is a bank or any banking institution, banking co-operative society and the post office. -₹ 5,000 in any other case	10%
194 B	Prize money from crossword puzzle, lottery, etc.	₹ 10,000	30%
194 BB	Winning from Jackpot /horse race	₹ 10,000	30%
194C	Payments made to contractors and sub-contractors	₹ 30,000 for Single Payment and ₹ 1,00,000 for Annual Payment	1% (For Individual & HUF) 2% (For Others)
194 D	Commission made by Insurance companies to its agents	₹ 15,000	5%
194 DA	Maturity of LIC	₹ 1,00,000	5%
194 EE	Payment of National Savings Scheme Deposits(NSSD)	₹ 2,500	10%
194F	Repurchase of units by mutual fund or UTI	Not Applicable	20%
194 G	Payment of Commission on the sale of lottery tickets	₹ 15,000	5%
194 H	Payment of  Commission or Brokerage	₹ 15,000	5%
194 I	Payment of  Rent for use of Land and building/ furniture/ fitting	₹ 2,40,000	10%
	Payment of  Rent for use of Plant and machinery	₹ 2,40,000	2%
194 IA	Proceeds from sale of immovable property other than agriculture land	₹ 50,00,000	1%
194 J	Payment of Royalty, professional or technical services	₹ 30,000	10%
194 K	Dividend income from shares and mutual fund	₹ 5,000	10%
194 LA	Payment of  Compensation on acquisition of certain immovable property	₹ 2,50,000	10%
194 LB	Payment of  Interest on infrastructure debt fund	Not Applicable	5%
194 N	Annual cash withdrawal from all account with a bank/ co-operative society/post office	₹ 1 crore	2%
194-O	Payment made by an e-commerce operator to a seller for sale of goods and services via its e-commerce portal	₹ 5 lakh	1%

UPDATE: As a part of the special and comprehensive economic package because of COVID-19 pandemic – Aatmanirbhar Bharat Abhiyaan, the below measures have been taken with respect to TDS and TCS:

•  TDS rates for non-salaried payments made to residents and TCS rates for specific sections of receipts are reduced by 25% of the existing rates.
•  The new rates will only be applicable to payments other than salary, such as payment for a contract, professional fees, rent, interest, dividend, commission, brokerage, etc.
•  The reduced rates are going to 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 lead to a liquidity release of Rs. 50,000 crore.

5. When TDS Needs to Deposit to Govt.?

Particular	Payment made	Due date for Paying TDS
Government Office	Without Challan	Same Day
	With Challan	7th of Next Month
	Prerequisite opt to be deposited the by employer	7th of Next Month
Others	For the Month of March	30th April
	Other Months	7th of Next Month

6. What are the TDS Returns and their Due Dates?

• Form 24Q for salaries
• Form 26Q for other than salaries
• Form 26QB for Section 194(IA)
• Form 26QC for Section 194(IB)
• Form 26QD for Section 194(M)
• Form 27Q for Non-resident
• Form 27EQ for TCS

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 F.Y.
2nd Quarter	July to September	On 31st Oct of the same F.Y.
3rd Quarter	October to December	On 31st Jan of the same F.Y.
4th Quarter	January to March	On 31st May of the next F.Y.

7. What are the consequences in case of non-compliance (interest and penalty) with TDS provisions?

Several provisions are provided for instances where interest, fees and penalties are levied on non-compliance of TDS provisions which are:-

Consequences of non-deduction of TDS

If a deductor/collector fails to collect the tax at source, whole of such expenses are often disallowed u/s 40(a)(ia) from computation of total profits by the income tax assessing officer.

Late deduction of TDS

TDS is to be deducted at the time of payment/credit getting due or payment whichever is earlier. In case the tax at source is deducted after single day or few days of doing the payment of income, then simple interest (SI) at the rate of 1% per month on the amount of tax deducted at source will be levied subject to the maximum amount of TDS is levied.

Late payment of TDS

There is a specified monthly due date for depositing the TDS so collected, to the government. If deductors fail to do so, they need to pay simple interest on the total amount deducted as tax at the rate of 1.5% per month..

Section	Nature of Default	Amount of Interest	Period
201(1A)	Non-deduction of TDS, in whole or   in part	1% per month	From the date on which tax need to be deducted to the date on which tax is deducted
	After deduction of TDS, non-payment of tax either in whole or in part	1.5% per month	From the date of deduction to the date of the payment.

Late filing of return of TDS

If the deductor fails to furnish the TDS return on or before the specified due date, he shall be liable to pay a penalty under section 234E of ₹ 200 per day till the date of default subject to the maximum amount of TDS is levied.