INTRODUCTION

TDS or Tax Deducted as Source is an indirect method of collecting tax. It aims at collecting the tax at the very source of income. TDS is a pay as you earn scene. It is collected as it is earned.

PAYMENTS COVERED UNDER THE SCHEME OF TDS

Section 192 to 194 of the Income Tax Act, 1961, talks about the payments which are covered under the TDS Scheme.

Tax Deduction Source write on sticky notes isolated on office desk

Section 192 of the Income Tax Act, 1961

This section talks about TDS on salary. Basically, under this section, TDS is deducted on payments which are in the nature of Salary. The employers deduct the tax from the salary that he pays to his employees and then pays it to the Government within 7 days from the end of the month in which the tax is deducted. Once he pays, he intimates the same to his employee and the employee gets the benefit while paying his taxes. TDS is deducted on an average range depending on the salary.

The Employees of a company are either the ones on the payroll or the ones by contract.  Those employees who are on payroll are salaried employees and are taxed as per the IT tax slab rate.  However, those who are employed on contracted for them the TDS is deducted under Section 194C and 194J. For example, the ones who are Blue coloured employees, for them TDS is 1%. Similarly, those who are White Collared employees for them TDS is 10%.

TDS on interest paid by banks: Banks deduct TDS on the interest paid by them on Fixed Deposits. For non-senior citizens if the interest amount exceeds Rs. 40,000, and for senior citizens if the interest amount crosses Rs. 50,000, then TDS is 10% respectively. On saving account, no TDS is deducted by the bank. In case of Current Account, since no interest is paid, hence no TDS is deducted.

TDS on interest paid on loans: If the loan is taken from the bank or any financial institution, then no TDS is deducted. However, if the loan is taken from any friend/relative, then TDS @ 10% is deducted on the Interest Expense on Loan, if the interest amount exceeds Rs. 5,000.

Section 193 of Income Tax Act, 1961

As per this section, TDS @10% is deducted on interest income on securities.

Section 194 J of Income Tax Act, 1961

Those people who are not covered under Section 192 are covered under this section. This includes:

  • Fees for Professional/Technical Services
  • Royalty/ Remuneration/ fees / commission payable to Directors.

Under this section TDS can be deducted by any person except HUF/Individual. HUF/Individual can only deduct if their turnover was covered under Section 44AB for Tax Audit in the preceding financial year. The Deductee needs to be a resident to be covered under this section. Non residents are covered under section 195.

As per Section 194 J, TDS @ 10% is deducted on payments which exceed Rs 30,000, however this threshold limit is not applicable to the Payment made to Directors. The TDS is deducted whenever the invoice is generated or whenever there is any advance payment. However, as per this section no TDS is deducted on professional services for one’s personal use.

Section 194 C of Income Tax Act, 1961

This section is applicable in those cases where the amount is more than Rs. 30,000. In those cases where the person who has rendered the service is in individual capacity then TDS is @1%, but in other cases @2%. However, in cases where the amount is up to Rs. 30,000, the cumulative limit is seen. If the amount is upto Rs 1 lacs, then no TDS is deducted, but if the annual payment exceeds Rs. 1 Lacs, then TDS is applicable, where the person who has rendered the service is in individual capacity then TDS is @1%, but in other cases @2%.

Section 194 M of Income Tax Act, 1961

This section is applicable in those cases where the payment made is for personal purposes or the payment is made to the proprietorship which was not audited under Section 44AB in the preceding Financial Year. TDS is deducted if the payments exceed Rs, 50,00,000/-.

Section 194 IA and 194 IB of Income Tax Act, 1961

As per this section if the payment is made for the use of Machinery/Plant/Equipment, then the TDS is deducted @2%. However, if the payment is made for the use of any other asset, then the TDS is deducted @10%. These are the simplest section and there is no threshold limit. Even if the payment is for Rs. 1, TDS will be deducted.

Section 194 of Income Tax Act, 1961

This section is applicable only if the dividend is paid under Section 2(22)(e) of the Income Tax Act, 1961, i.e., if the dividend received is more than Rs 10,00,000/-, then this section is applicable. Under this section TDS will be @ 10%.

Section 194 D of Income Tax Act, 1961

This section covers payments done for insurance commission. TDS @ 10% is deducted in case the amount exceeds Rs. 20,000/-.

Section 194 H of Income Tax Act, 1961

This section covers payments done for commissions other than the insurance commissions. TDS @ 5% is deducted in case the amount exceeds Rs. 15,000/-.

Section 195 of Income Tax Act, 1961

This section covers all non-residents whether they have their presence in India or not. It does not include RNOR.

Section 197 of Income Tax Act, 1961

This section talks about certification for lower Tax deduction.

CONCLUSION

In case of TDS, it is paid to the Government on the 7th of the next month, except for the month of March where it is paid at the end of the month of April. In case of salary, it is paid on the payment of salary, whereas in other case on generation of invoice or any kind of advance payment whichever is earlier. If the amount is not paid on time, then a late fine at the rate of 1.5% interest for 2 months is paid. However, if amount is not even collected and paid, then a late fine at the rate of 2% interest for 2 months is paid. In case the return is not filed on time, then a late fine of Rs. 200 per day is applicable.

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