Important provisions of Tax Deducted at Source

The Tax Deducted At Source (TDS) provision is a crucial element of the Income Tax Act, 1961. It encompasses various sections that mandate tax deduction on specific payments. TDS is often regarded as a tedious process due to its complexity and the numerous sections involved. This article aims to shed light on key TDS provisions under Sections 192, 193, 194, and 195 of the Income Tax Act.

Section 192 focuses on salary payments and outlines the tax deduction requirements based on different salary thresholds for employees, including senior citizens and very senior citizens. Section 193 pertains to interest on securities, specifying the obligation to deduct income tax at the prevailing rate. Exceptions are provided for interest on debentures meeting certain conditions, as stated in Section 193(V).

Section 194 addresses the deduction of tax on dividends paid by companies. The threshold for tax deduction is explained, highlighting the rate of deduction when the aggregate dividend amount exceeds a specified limit. Section 194A applies to interest other than “Interest on Securities,” delineating the conditions and rates for tax deduction.

Sections 194B, 194BA, and 194BB cover tax deduction on winning amounts from lotteries, online games, and horse races, respectively. These sections define the threshold amounts and the applicable tax deduction rates. Section 194C outlines tax deduction requirements for payments made to contractors, depending on the nature of the payment and the payee’s status.

Additional sections, such as 194D, 10DA, 194EE, 194G, 194H, 194I, 194IA, 194IB, and 194J, provide specific guidelines for tax deduction on insurance commissions, life insurance policy payments, National Savings Schemes (NSS) withdrawals, commission on lottery ticket sales, commission or brokerage payments, rent payments, and fees for professional or technical services.

Section 192: Salary:

Any employer paid any employee salary per month more than Rs. 20,833 that means annually Rs.2,50,000 tax is to be deducted on total amount of salary. If an employee is senior citizen monthly salary of Rs. 25,000 that means annually Rs. 3,00,000 tax is to be deducted on total amount of salary, and in the case of Very Senior Citizen, monthly salary of Rs.  41,667 that means annually Rs. 5,00,000 tax is to be deducted on total amount of salary.

Section 193: Interest on securities:

The person responsible for paying to a resident any income by way of interest on securities, shall at the time of credit of such income to the account of payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income tax at the rate in force i.e. 10%. It may be noted that, deduction of income tax is required to be made in respect of interest exceeding Rs. 10,000 payable on 8% Savings (Taxable) Bonds, 2003.

Section 193(V), provides that no tax shall be deducted at source from interest on debentures subject to the following conditions:

       (1) the interest is payable to an individual or a HUF, who is resident in India;

       (2) the interest is paid by a company in which the public are substantially interested and the debentures are listed on a recognized stock exchange in India;

       (3) the interest is paid by the company by an account payee cheque; and

       (4) the aggregate amount of such interest paid or likely to be paid during the financial year by the company to such payee does not exceed Rs.5,000.

Section 194: Dividend:

In the case of a shareholder, being an individual, if the dividend paid by the company, the aggregate amount of dividend does not exceed Rs.5,000 deduction of tax is not to be made. If it exceed Rs.5,000 tax is to be deducted at the rate of 10%.

Section 194A: Interest other than “Interest on Securities”:

 Any person, not being an individual or a Hindu Undivided Family, who is responsible for paying to a resident, any income by way of interest other than income, shall at the time of credit of such income to the account of payee or at the time of payment thereof in cash or by issue of cheque or draft or by any other mode, whichever is earlier, deduct income tax thereon at the rate of 10%, if the amount of interest exceeds Rs.5,000.

Section 194B: Winning from lottery etc.:

The person responsible for paying to any person any income by way of winning from any lottery or crossword puzzle or card game and other game of any sort, or from gambling or betting of any form or nature whatsoever, being an amount or aggregate of amounts exceeding ten thousand rupees during the financial year, shall at the time of payment thereof, deduct income tax thereon at the rate of 30%

 Section 194BA: Winning from online games:

Any person responsible for paying to any person any income by way of winning from any online game during the financial year  shall deduct income tax on the net winnings in his user account, computed in the manner as may be prescribed, at the end of the financial year at the rate in force.

Section 194BB: Winning from horse race:

Any person to whom a license has been granted for horse racing in any race course, who is responsible for paying to any person any income by way of winnings from any horse race exceeding Rs.10,000 during the financial year, shall at the time of payment thereof , deduct income tax thereon at the rate of 30%.

Section 194C: Payments to contractors:

Any person responsible for paying any sum to any resident contractor for carrying out any work in pursuance of a contract between them, shall at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to one percent where the payment is being made or credit is being given to an individual or a Hindu Undivided Family; two percent to a person other than individual or Hindu Undivided Family, where the amount exceeds Rs. 30,000.

Section 194D: Insurance Commission:

When an Insurance Company pay the commission to its agents, and amount of commission exceed Rs. 15,000, tax is to be deducted at the rate of 5%

Section 10DA: Payment in respect of Life Insurance Policy:

When insurance company make payment as maturity of insurance policy, including the sum allocated by way of bonus on such policy, other than the amount not includible in the total income under section 10(10D). When the aggregate amount of payment in a financial year is Rs. 1,00,000 or more, tax is to be deduct at the rate of 5%.

Section 194EE: Payments in respect of deposits under National Savings Schemes (NSS):

Any person withdraw the amount credited to his account under National Savings Scheme, exceeds Rs. 2,500, tax is to be deducted at the rate of 10%.

Section 194G: Commission, etc. on sale of lottery tickets:

Any person who pay commission on sale of lottery tickets, to any individual, if it exceed Rs.15,000 tax is to be deducted at the rate of 5%.

Section 194H: Payments of commission or brokerage:

Any person, not being an individual or Hindu Undivided Family, who pay to any resident, any income by way of commission or brokerage, which exceed Rs. 15,000 tax is to be deducted at the rate of 5%.

Section 194I: Payment of Rent:

Any person, who is responsible for payment of rent, shall deduct tax at the following rates;

two percent for the use of any machinery or plant or equipment; and

ten percent for the use of any land or building, factory building or land appurtenant to a building or furniture or fittings if it exceeds Rs. 2,40,000.

Section 194IA: Payment on transfer of certain immovable property other than agricultural land:

Any person transferring any immovable property, other than agricultural land, to a resident transferor any sum received as consideration Rs. 50,00,000 or more tax is to be deducted at the rate of 1%.

Section 194IB: Payment of Rent:

Any person, being an individual or a Hindu Undivided family pay the rent of more than Rs.50,000 per month, tax is to be deducted at the rate of 5%

Section 194J: Payment of fees for professional or technical services:

Any person, responsible for paying to a resident any sum by way of-

• fees for professional work or services, or
• fees for technical services, or
• any remuneration or fees or commission by whatever named called, to a director of a company, or
• royalty,

shall deduct tax at the rate of 10%, if it exceed Rs. 30,000.

Over and above there are certain other payments are covered under sub sections of this section 194.

Conclusion: The Income Tax Act’s TDS provisions play a significant role in ensuring the deduction of tax at the source for various payment scenarios. Understanding the key sections, such as 192, 193, 194, and 195, is essential for complying with TDS requirements. This article has provided an analysis of these sections, outlining the thresholds, rates, and implications for tax deduction. By gaining insights into these provisions, individuals and businesses can navigate the TDS framework effectively and fulfill their tax obligations.