TDS is an acronym of Tax Deducted Source (TDS). The Income-tax Law implements a system of tax deduction at the moment of income generation to facilitate speedy and effective tax collection. In this system Tax is deducted by the payer and is remitted to the Government by the payer on behalf of the payee.
The regulations governing tax deduction at source apply to a variety of payments, including salary, interest, commission, brokerage, professional fees, royalty, contract payments, and so on. The payer must deduct tax at source on payments to which the TDS regulations apply, and he must deposit the tax deducted to the credit of the Government.
According to the Income Tax Act, any entity or individual is required to deduct tax at the source if the amount paid exceeds the maximum limit as per the provisions.
Persons require deducting TDS
In any transaction, there are two people involved: the one making the payment and the person receiving the payment. Under the TDS Scheme, the government has covered specific people who make payments. The person making the payment is required to deduct the tax at a prescribed rate and deposit it with the government.
The government has notified following individuals who are obligated to deduct Tax Deducted at Source (TDS) for specified payments:
1. Individuals and HUFs are required to deduct TDS on the specified services if they are involved in:
1. A business with a turnover of ₹ 1 crore or more during the preceding financial year, or
2. A profession with receipts of ₹ 50 lakh or more during the preceding financial year,
and they are obligated to have their books of account audited under section 44AB.
However there is exception to this provision when audit is require due to reporting of net profit which is less than 8% of the turnover (Section 44AD) of the business or 50% of the gross receipt (Section 44ADA) in case of professional services. In this case TDS is not require to be deducted by such person.
3. Any other person apart from Individual and HUF such as Partnership Firm, LLP, Private Limited Company, Co-operative Society etc.
There are also other provisions where individual or HUF is require to deduct tax even when they are not operating any business or profession like: Purchase of Immovable property, payment of rent for land or building exceeding ₹ 50,000 per month.
Time of Deduction of TDS :
Deduction of TDS is depends on the nature of payment. In most of the cases TDS is required to be deducted at the time of credit or at time of payment whichever is earlier. Like payment of Commission, Professional fees, Consultancy, contract etc.)
However there is exceptions to this, In some cases TDS is require to be deducted at the time actual payment . Like Payment of Salary, Dividends, winnings from lottery, crossword puzzle or horse race etc.
Further, the provisions related to deduction of TDS are given under section 192 to section 195 of the Income tax act. These provision provides the threshold limit and the rates required to deduct the TDS.
Payment, Return filing and TDS Certificate:
The person responsible for deducting TDS is required to deposit the amount of TDS to the Government with in due date prescribed under the act and submit quarterly returns containing information on the TDS deducted.
The TDS Certificate displays the amount of tax that has been deducted and deposited by the deductor. It is mandatory for the deductor to provide the TDS certificate to the deductee within the prescribed time limit. It is advisable to obtain the certificate directly from the deductor to ensure that the TDS has been deposited accurately and that the Deductee PAN has been reported correctly.
Penalty Provisions:
There are provision of penalty and interest in cases like TDS is required to be deducted but not deducted or not deposited, or late deposite, return not filed or certificate is not issued.
1. TDS is not deducted: Interest at the rate 1% per month or the part of the month levied for the period from the date on which TDS is deductible to the date of actual deduction.
2. TDS is deducted but payment is made lately: Interest at the rate 1.5% per month or the part of the month levied for the period from the date on which TDS is deductible to the date of actual deduction.
3. Late filing fee under section 234E:
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- For any delay in furnishing the TDS statement Penalty of ₹ 200 per day shall be levied.
- The total late filing fees should not exceed the total amount of TDS reported in the return.
4. Penalty for not filing TDS statement: If the TDS statement is not filed within one year from the due date of furnishing of TDS return, then a penalty under section 271H can be levied.
5. Penalty for not issuing TDS certificate: A penalty of ₹ 500 per day shall be imposed for any delay in issuing TDS certificate. The total late issuing fees should not exceed the total amount of TDS reported in the return.
In Conclusion, TDS may have been implemented to limit the likelihood of tax avoidance by the income recipient. Deduction of TDS and deposit the same with all the required information in the prescribed form and within the time limit is mandatory by the law. Failure to comply with the provision can lead to penalty. TDS deduction is made only in certain transactions prescribed under the law. Take tailored professional advice, in cases where require and where complications are involved.
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