TAX DEDUCTION AT SOURCE (TDS)

In order to ensure better tax compliance and ensuring the timely payment of tax to the Government treasury, a mechanism has been established by making it mandatory for certain persons responsible for making payment of some expenses to deduct tax from such payment and deposit it to the Government account. Tax is required to be deducted by persons responsible for making payment of Salaries, Interest on securities, Dividends, Interest other than interest on securities and many other such payments.

Page Contents

TDS From Salaries [Section 192]:

The person responsible for paying income under the head “Salaries” shall be required to deduct tax at source at the average rate of tax computed on the basis of the prevailing rate of income tax for the previous year in which the payment is made. In other words tax has to be deducted by every person (even such person who is not engaged in any business) who is making payment of salary and such income exceeds the maximum amount which is not chargeable to tax in the hands of the recipient after allowing deduction, relief and exemptions as listed below.

TDS on salaries shall be calculated and deducted in accordance with the following provisions:

a. Determination of Salary: The amount of Salaries payable shall be determined/estimated in accordance with the provisions of the Act.

b. Exemptions & Deductions: Exemptions under section 10 and deductions under sections 80C, 80CCC, 80CCD, 80D, 80DD, 80E, 80GG and 80-U shall be allowed from the amount of Salary so calculated.

c. Relief: Relief under section 89 shall be allowed on the arrears of salary.

d. Other Income: Any other income including salary from another employer reported by the employee shall be added.

e. Tax Payable: The tax shall be calculated on the amount of income arrived at by making above adjustments.

f. Tax on Perquisites paid by Employer: The employer at his option may pay tax on the perquisite s(non-monetary benefits). Where the tax is so paid by the employer, no tax shall be required to be deducted on the amount of perquisites.

g. Netting off of tax: The tax paid by the employer shall be deducted from the total tax payable by the employee.

h. Average Tax: Average rate of tax shall be calculated by dividing the amount of net tax payable by the total income (as reduced by the amount of perquisites on which the tax has been paid by the employer).

i. Monthly Tax: The amount of tax which is to be deducted every month shall be calculated by applying average rate of tax on the monthly amount of gross salary payable. The total tax deducted shall be equal to the tax liability calculated in accordance with the provisions of the Income Tax Act after considering all the incomes, exemptions, deductions and reliefs enumerated above.

j. Liability to deduct tax: Tax is required to be deducted by every person irrespective of his status and irrespective of his turnover.

k. Obtain evidences for claims or deductions: The deductor is required to obtain evidences or proofs etc. towards the claims or deductions as per the provisions of the Act. In other words no deduction

Certificate for Deduction At Lower Rate [Section 197]:

The Assessing Officer may issue a Certificate to the Assessee for the deduction of tax at NIL rate or at a lower rate if on an application made by the assessee in Form No.13, he is satisfied that the total income of the recipient justifies the deduction tax at such rates. Thereafter, the persons responsible for deducting tax at source shall deduct tax at such lower rate until such certificate is cancelled.

COVID-19 RELIEF: The following relief has been provided by the order no. F.No.275/25/2020-IT(B)] Dated 31st March. 2020 :

1. Situation 1 :

FILED APPLICATION:

Where the assessee has filed the application on Traces portal for the issue of certificate for lower deduction and such application has not been disposed off by the A.O. due to the disruptions of Covid-19 and such assesseee was issued certificate of lower deduction for the F.Y. 2019-20 : The certificate for F.Y. 2019-20 (any period of F.Y. 2019-20) would be valid for the period 01.04.2020 to the date of disposal of the application filed by the A.O. or 30.06.2020 whichever is earlier. Such certificate would be valid for the same deductors or collectors with the same monetary limits as was stipulated by the certificate for F.Y. 2019-20.

Further, if the application for F.Y. 2020-21 contains a new or different TAN which was not there in the certificate for F.Y. 2019-20 or the rates of TDS/TCS mentioned in the old certificates are higher and a revision of the rates of TDS has been sought in the new application then the validity of the certificate for FY 2019-20 shall not remain for the period 01.04.2020 to 30.06.2020 and the assessee needs to apply afresh as per situation 3 below.

2. Situation 2 :

NOT FILED APPLICATION & BUT ISSUED CERTIFICATE IN P.Y.:

Where the assessee could not file the application on Traces portal for the issue of certificate for lower deduction  but such assesseee was issued certificate of lower deduction for the F.Y. 2019-20 : The certificate for F.Y. 2019-20 would be valid for the period 01.04.2020 to the date of disposal of the application filed by the A.O. or 30.06.2020 whichever is earlier. Such certificate would be valid for the same deductors or collectors with the same monetary limits as was stipulated by the certificate for F.Y. 2019-20.

3. Situation 3 :

NOT FILED APPLICATION & NOT ISSUED CERTIFICATE IN P.Y.:

Where the assessee could not file the application on Traces portal for the issue of certificate for lower deduction  and such assesseee was also not  issued certificate of lower deduction for the F.Y. 2019-20 : In such a case the assessee shall apply for lower deduction certificate via e-mail addressed to the concerned A.O. and the following data/documents need to be submitted through such email:

a) Duly filled in form 13

b) The documents/information as required to be uploaded on TDS-CPC website while filling up of form 13

c) Projected Balance Sheet & P&L Account for F.Y. 2020-21

d) Provisional Balance Sheet & P&L Account for the F.Y. 2019-20

e) Balance Sheet and P&L account for the FY 2018-19

f) Form 26AS for the F.Y. 2019-20 & 2018-19

g) ITR pertaining to F.Y. 2018-19

In the aforesaid situation 3 the certificate shall be issued via e-mail upto 30.06.2020 or any other earlier date as specified by the A.O.

Payments to Non-Residents (including foreign companies) having permanent establishments in India: It has been clarified by the press release dated 04.04.2020 that where the payments are being made to such persons and the application for lower deduction has been made, the TDS will be deducted @10% including surcharge and cess on such payments till 30.06.2020 or till the disposal of their applications, whichever is earlier.

TDS From Interest Other Than Interest On Securities [Section 194A]:

Person Liable to Deduct Tax: Any person other than Individual or HUF

(However, an Individual or HuF who is engaged in business & having turnover exceeding Rs.1 Crore or who is engaged in profession & having gross receipts exceeding Rs.50 Lacs in the preceding financial year shall be required to deduct tax).

Payee: Resident
Time of Deduction: At the time of credit of such income to the account of payee or at the time of making payment, whichever is earlier.
Nature of Payment on  which TDS required Interest other than Interest on Securities

TDS not required to be deducted in the following cases:

1. Monetary Limits: No tax is required to be deducted where the interest credited or likely to be credited or paid during the financial year does not exceed:

a. Rs. 40000/- (w.e.f. 01.04.2019 – earlier the limit was 10000/-) where the payer is a Bank covered by the Banking Regulation Act, 1949; or the Co-operative society engaged in the business of banking or interest is paid by post office on any notified post office deposit.

(The aforesaid limit of Rs.40000/- has been enhanced to Rs.50000/- in case of Senior Citizens who is a resident in India w.e.f. 01.04.2018)

The aforesaid monetary limits shall be computed with reference to the income credited or paid by a branch of banking company or the co-operative society as the case may be. However, where the banking company or the co-operative society has adopted the core banking solutions, the monetary limits shall be computed for the entire bank or the co-operative society.

b. Rs. 5000/- in any other case.

2. Specified Recipients: No tax is required to be deducted where the interest is credited or paid to any of the following:

a. Bank or Co-op. Society: A Bank covered by the Banking Regulation Act, 1949 or a Co-operative Society engaged in the business of banking

b. Corporation: A financial corporation under the Central, State or Provincial Act;

c. LIC;

d. Unit Trust of India

e. Insurer: Any company or Co-operative Society carrying on Insurance business;

f. Others: Any other notified Institution, Association or Body (However, no notification shall issued after 01.04.2020)

3. Specified payer or deposits: No tax is required to be deducted from the interest:

a. Paid by a firm to its partner;

b. Paid by a Co-operative Society to another co-operative society;

c. Paid by a banking company in respect of deposits(other than time deposits);

d. Paid by a Primary Agricultural Credit Society or Primary Credit Society or a co-operative land mortgage bank or a co-operative land development bank.;

e. Paid by a Co-operative Society [other than a co-operative society engaged in the business of banking or a bank] on deposits (other than time deposits);

f. Paid by a Co-operative Society(other than a co-operative bank) to a member of such society or to any other co-operative society;

g. Credited or paid in respect of deposits under any scheme framed and notified by the Central Govt;

h. Credited or paid by the Central Government under the provisions of Income Tax Act, Wealth Tax Act etc.;

i. Such income credited by way of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal;

j. Such income paid by way of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal where such interest does not exceed Rs.50000/-;

k. Amount credited or paid by infrastructure capital company or infrastructure capital fund or a public sector company or a scheduled bank in relation to zero coupon bond issued after 01.06.2005

l. Any income by way or interest referred to in .clause 23(FC) of section 10.

Note : However w.e.f. 01.04.2020 it has been provided that in the case of (d), (e) & (f) above the aforesaid co-operative societies have to deduct tax at source if the total sales, gross receipts or turnover of such co-operative society exceeds fifty crore rupees during the financial year immediately preceding the financial year in which such interest is paid subject to the limit of Rs.50000/- in case of senior citizens and Rs.40000/- in any other case.

CERTIFICATE FOR DEDUCTION AT LOWER RATE [S. 197]:

The Assessing Officer may issue a Certificate to the Assessee for the deduction of tax at NIL rate or at a lower rate if on an application made by the assessee in Form No.13, he is satisfied that the total income of the recipient justifies the deduction tax at such rates. Thereafter, the persons responsible for deducting tax at source shall deduct tax at such lower rate until such certificate is cancelled.

COVID-19 RELIEF: The COVID-19 relief as mentioned above under section 192 is also applicable for the certificate for lower deduction from the payments made towards Interest other than interest on securities.

TDS From Payments To Contractors [Section 194C]

Section 194-C specifies the payments made against the work in the nature of contract are subjected to the provisions of TDS.

Nature of Payment on  which TDS required:

Sums paid or credited (whichever is earlier) for carrying out any work including supply of labour for carrying out any work in pursuance of a contract between the contractor and the specified person.

Person Liable to Deduct Tax: The following specified persons are liable to deduct tax at source:

(a)  the Central Government or any State Government; or

(b)  any local authority; or

(c)  any corporation established by or under a Central, State or Provincial Act; or

(d)  any company; or

(e)  any co-operative society; or

(f)  any authority, constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both; or

(g)  any society registered under the Societies Registration Act, 1860 or under any law corresponding to that Act in force in any part of India; or

(h)  any trust; or

(i)  any university established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a university under section 3 of the University Grants Commission Act, 1956; or

(j)  any Government of a foreign State or a foreign enterprise or any association or body established outside India; or

(k)  any firm; or

(l)  any person, being an individual or a Hindu undivided family or an association of persons or a body of individuals, if such person,—

(A)  does not fall under any of the preceding sub-clauses; and

(B)  is liable to audit of accounts under clause (a) or clause (b) of section 44AB  during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the contractor;

With effect from 01.04.2020 the aforesaid clause (B) has been amended as under:

has total sales, gross receipts or turnover from business or profession carried on by him exceeding one crore rupees in case of business or fifty lakh rupees in case of profession during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the contractor;

‘Work’ includes:

The definition of the term ‘work’ is very wide. It includes the following:

a. Advertising;

b. Broadcasting or telecasting including production of programmes for such broadcasting or telecasting;

c. Carriage of goods or passengers by any mode of transport other than railways;

d. Catering;

e. Manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer. (However, where the material is purchased from other person and thereafter it is manufactured or supplied according to the requirements or specifications of the customer, such an act would not be covered by the term ‘Work’.)

With effect from 01.04.2020 the aforesaid clause (e) has been amended and the amended clause is as under:

manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer or its associate, being a person placed similarly in relation to such customer as is the person placed in relation to the assessee under the provisions contained in clause (b) of sub-section (2) of section 40A,

but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer or associate of such customer.

Hence w.e.f. 01.04.2020 the manufacturing or supplying a product according to the requirement or specification out of the material purchased not only from the customer but its associate as per section 40A(2)(b) would also be covered within the definition of the work and the same shall be subjected to TDS.

TDS in such a case would be required to be deducted in the following manner:

i) Value of material separately mentioned: Where the value of the material is separately mentioned in the invoice, the TDS shall be deducted on the invoice value as reduced by the value of material supplied by the customer or its associate;

ii) Value of material not separately mentioned: Where the value of the material in not separately mentioned, the TDS shall be deducted on the full value.

TDS NOT REQUIRED

1. PERSONAL PURPOSES: An individual or HuF is not required to deduct tax at source where the amount paid or credited is attributable exclusively for personal purposes of such individual or HuF.

2. BUSINESS OF PLYING, HIRING OR LEASING OF GOODS CARRIAGES: No tax is required to be deducted from payment made to contractor who is engaged in the business of plying, hiring or leasing of goods carriages, subject to the following conditions:

a. Payment is made in connection with the business of plying, hiring or leasing of goods carriages;

b. He owns not more than ten goods carriages at any time during the previous year;

c. A declaration to the effect that he owns specified number of goods carriages is furnished along with his permanent account number to the person responsible for making the payment.

3. CONTRACT VALUE BELOW CERTAIN LIMITS: No TDS is required where the total amount paid or payable against a single contract does not exceed Rs.30000/- or the aggregate amount paid or credited to a contractor during a financial year does not exceed Rs.100000/-.

A. RATES OF TDS UNDER SECTION 194C :

Rates of TDS from the payments made to contractors are as under:

S.no. Payee Rate of TDS
a. Where the payment made to Individual or HuF 1%
b. Where the payment made to others 2%

CERTIFICATE FOR DEDUCTION AT LOWER RATE [S. 197]:

The Assessing Officer may issue a Certificate to the Assessee for the deduction of tax at NIL rate or at a lower rate if on an application made by the assessee in Form No.13, he is satisfied that the total income of the recipient justifies the deduction tax at such rates. Thereafter, the persons responsible for deducting tax at source shall deduct tax at such lower rate until such certificate is cancelled.

COVID-19 RELIEF: The COVID-19 relief as mentioned above under section 192 is also applicable for the certificate for lower deduction from the payments made to the contractors.

TDS From Commission Or Brokerage [Section 194-H] :

Person Liable to Deduct Tax: Any person other than Individual or HUF

(However, an Individual or HuF who is engaged in business & having turnover exceeding Rs.1 crore or who is engaged in profession & having gross receipts exceeding Rs.50 Lacs in the preceding financial year shall be required to deduct tax).

Payee: Resident
Time of Deduction: At the time of credit of such income to the account of payee or at the time of making payment,  whichever is earlier.
Nature of Payment on  which TDS required Commission or brokerage* (Other than Insurance Commission)
TDS Rate 5% (Prescribed by the section)

TDS not required to be deducted in the following cases:

1. Monetary Limits: No tax is required to be deducted where the interest credited or likely to be credited or paid during the financial year does not exceed Rs.15000/-.

2. Specified Recipients: No tax is required to be deducted where the interest is credited or paid by BSNL or MTNL to their public call office franchisees.

 Meaning of the term “Commission or Brokerage”[Explanation (i) to section 194-H]: The term “Commission or Brokerage” shall include the any payment received by a person acting on behalf of another person for services rendered (excluding professional services) or services rendered in the course of buying or selling of goods or in relation to any asset other than securities.

Discount allowed to licensed stamp vendors does not fall within the expression “commission” or “brokerage” under section 194H – CIT v. Ahmedabad Stamp Vendors Association (2012) 348 ITR 378 (SC).

CERTIFICATE FOR DEDUCTION AT LOWER RATE [S. 197]:

The Assessing Officer may issue a Certificate to the Assessee for the deduction of tax at NIL rate or at a lower rate if on an application made by the assessee in Form No.13, he is satisfied that the total income of the recipient justifies the deduction tax at such rates. Thereafter, the persons responsible for deducting tax at source shall deduct tax at such lower rate until such certificate is cancelled.

COVID-19 RELIEF: The COVID-19 relief as mentioned above under section 192 is also applicable for the certificate for lower deduction from the payments made towards commission or brokerage.

TDS From Rent [Section 194I] :

Person Liable to Deduct Tax: Any person other than Individual or HUF (However, an Individual or HuF who is engaged in business & having turnover exceeding Rs.1 Crore or who is engaged in profession & having gross receipts exceeding Rs.50 Lacs in the preceding financial year shall be required to deduct tax).
Payee: Resident
Time of Deduction: At the time of credit of such income to the account of payee or at the time of making payment, whichever is earlier.
Nature of Payment on  which TDS required Rent (i.e. Payment for use of Land, Building, Machinery, Plant, Equipment, Furniture or Fitting (whether or not any or all of these are owned by the assessee).

TDS Rate:

a. 2% for the use of Machinery, Plant or Equipment;

b. 10% for use of any Land, Building or Furniture or Fitting

TDS not required to be deducted in the following cases:

1. THRESHOLD LIMIT: No TDS would be required to be deducted where the amount of income or aggregate of the income credited or likely to be credited to the account of the payee during a financial year does not exceed Rs.240000/-

2. BUSINESS TRUST: No TDS is required to be deducted where the payment is made to a business trust being a real estate investment trust in respect of any real estate asset as referred to in clause (23FCA) of section 10 owned directly by such business trust.

CERTIFICATE FOR DEDUCTION AT LOWER RATE [S. 197]:

The Assessing Officer may issue a Certificate to the Assessee for the deduction of tax at NIL rate or at a lower rate if on an application made by the assessee in Form No.13, he is satisfied that the total income of the recipient justifies the deduction tax at such rates. Thereafter, the persons responsible for deducting tax at source shall deduct tax at such lower rate until such certificate is cancelled.

COVID-19 RELIEF: The COVID-19 relief as mentioned above under section 192 is also applicable for the certificate for lower deduction from the payments made towards Rent.

TDS From Payment On Transfer Of Certain Immovable Property [Section 194IA] :

Person Liable to Deduct Tax: Any Person being a transferee
Payee: Resident
Time of Deduction: At the time of credit of such income to the account of payee or at the time of making payment, whichever is earlier.
Nature of Payment on  which TDS required Payment of Consideration by the transferee to the resident transferor for transfer of any immovable property (other than Rural agricultural land situated in India)

TDS Rate:

1% of the amount of consideration

TDS not required to be deducted in the following cases:

THRESHOLD LIMIT: No TDS would be required to be deducted where the amount of consideration is less than 50 Lakh rupees.

AMENDMENT BY FINANCE ACT, 2019 w.e.f.    01.09.2019

MEANING OF CONSIDERATION: Consideration for transfer of immovable property shall include all charges viz., Club Membership fee, Car Parking fee, Electricity or Water Facility fee, Maintenance fee Advance fee or any other charges of similar nature which are incidental to transfer of immovable property.

PAYMENT OF AMOUNT OF TDS TO THE GOVERNMENT: The person making deduction of tax under section 194IA is not required to comply the provisions of section 203A hence there is no need to obtain TAN. He is required to make the payment of TDS to the government using form 26QB. Form 26QB is to be generated online and the payment can be made using online or off line modes.

TDS From Rent By Certain Individuals Or HUF [Section 194IB] :

Person Liable to Deduct Tax: Any person being Individual or HUF (other than an Individual or HuF who is engaged in business & having turnover exceeding Rs.1 Crore or who is engaged in profession & having gross receipts exceeding Rs.50 Lacs in the preceding financial year shall be required to deduct tax).
Payee: Resident
Time of Deduction: At the time of credit or payment of rent for the last month of the previous year or the last month of tenancy (if the property is vacated during the year) to the account of payee
Nature of Payment on  which TDS required Rent (i.e. Payment for use of Land or Building or both) under any lease, sub-lease, tenancy or any other agreement or arrangement exceeding Rs.50000/- for a month or part of month 

RENT FOR USE OF PLANT & MACHINERY OR FURNITURE & FIXTURE ETC.

A question arises as to whether TDS is deductible on rent is payable for use of plant & machinery or furniture & fixture installed in the rented property or otherwise and such rent is separately charged for use of such assets or the rent is exclusively paid for use of such assets. The interpretation of the provisions of section 194IB does not suggest so. In other words no TDS is required to be deducted on the amount of rent which is specifically paid or payable for the use of any asset other than land or building or both.

TDS Rate:         5%

CO-OWNED PROPERTY : In case of a property which is co-owned by more than one owners the limit of Rs.50000/- is applicable to each co-owner separately and the tax is required to be deducted only where the rent exceeding Rs.50000/- is paid to any one or more of such co-owners.

The CBDT has given its clarification by way of FAQs on the above issue as under:

Whether limit of Rs. 50,000 per month under section 194-IB is applicable to each of the co-owners separately in case rent is paid individually to co-owners?

​​As per the section 194IB, an individual or HUF whose books of account are not liable for audit u/s 44AB, paying rent to a resident exceeding Rs. 50,000 per month or part of the month for land or building, liable to deduct tax @ 5% at the time of credit of rent, for the last month of the previous year or last month of the tenancy in case property is vacated during the year, as the case may be, to the account of the payee or at the time of payment thereof in cash or by cheque or draft or any other mode, whichever is earlier.

Therefore, limit of Rs. 50,000 is applicable for each co-owner separately, if rent is paid to co-owners of the property.

For Example: Mr. A is making payment of rent of Rs. 1,00,000 per month to Mr. B &Mr. C who are co-owners of the property, where in rent paid to Mr. B is Rs. 70,000 and to Mr. C is Rs. 30,000 ; A is liable to deduct tax @ 5% under section 194IB on rent paid to Mr. B as the amount of rent paid exceeds Rs. 50,000 and is not required to deduct tax on rent paid to Mr. C as the amount of rent paid does not exceed Rs. 50,000.

PAN NOT FURNISHED: In case of non-furnishing of permanent account number by the payee of the rent the amount of TDS shall not exceed the amount of rent for the last month of the previous year or last month of the tenancy.

PAYMENT OF AMOUNT OF TDS TO THE GOVERNMENT: The person making deduction of tax under section 194IB is not required to comply the provisions of section 203A hence there is no need to obtain TAN. He is required to make the payment of TDS to the government using form 26QC. Form 26QC is to be generated online and the payment can be made using online or off line modes.

TDS From Payment Under Specified Agreement [Section 194IC] :

Person Liable to Deduct Tax:                           Any Person
Payee:                                                                  Resident
Time of Deduction:  At the time of credit of such income to the account of payee or at the time of making payment, whichever is earlier.
Nature of Payment on which TDS required Payment of Consideration (not being consideration in kind) under an agreement as referred to in section 45(5A)

TDS Rate:

10% of the amount of consideration

SPECIFIED AGREEMENT UNDER S. 45(5A): It means a registered agreement in which person (being individual or HUF) owning land or building or both agrees to allow another person to develop a real estate project on such land or building etc. in consideration of share being land or building or both in such project whether with or without payment of part of consideration in cash.

Sub-section (5A) of section 45 specifies that the capital gain shall be chargeable to tax for the previous year in which the certificate of completion for whole or part of the project is issued by the competent authority. However, where the assessee has transferred his share in the project before such completion, the capital gain is such a case would be chargeable to tax for the previous year in which such transfer took place. Nevertheless, TDS would be deductible from the payment of consideration in cash (i.e. not in kind) at the time of making payment or at the time of credit of such payment to the account of payee irrespective of the fact that the transfer of the property took place at a later date as aforesaid.

TDS From Fees For Professional Or Technical Services [Section 194J] :

Person Liable to Deduct Tax: Any person other than Individual or HUF (However, an Individual or HuF who is engaged in business & having turnover exceeding Rs.1 crore or who is engaged in profession & having gross receipts exceeding Rs.50 Lacs in the preceding financial year shall be required to deduct tax).
Payee: Resident
Time of Deduction: At the time of credit of such income to the account of payee or at the time of making payment, whichever is earlier.
Nature of Payment on  which TDS required a.   Fees for Professional Services; or

b.   Fees for Technical Services; or

c.    Royalty; or

d.   Any sum referred to in section 28(va).

e.   Any remuneration or fees or commission (other than those on which tax is deductible under section 192) to a director of a company

TDS not required to be deducted in the following case:

a. Monetary Limits: No TDS would be required to be deducted where the amount of income or aggregate of the income credited or likely to be credited to the account of the payee during a financial year under each of the clause a) to d) above does not exceed Rs.30000/- which means there is no threshold limit for the payments made to the directors as specified in clause e) above.

b. Personal Purposes: Where the payment is made by an Individual or HUF for the personal purposes of such individual or any member of such HuF, no tax shall be required to be deducted by such Individual or HuF.

Meaning of “Professional Services” and “Fees for Technical Services”:

Professional Services” means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA or of this section;

Fees for Technical Services” means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head “Salaries”

RATE OF TDS

S.no. Nature of Payment Rate of TDS
1. Fees for Technical Services 2%
2. Where Payee is engaged only in the operation of call centre 2%
3. Other cases 10%

CERTIFICATE FOR DEDUCTION AT LOWER RATE [S. 197]:

The Assessing Officer may issue a Certificate to the Assessee for the deduction of tax at NIL rate or at a lower rate if on an application made by the assessee in Form No.13, he is satisfied that the total income of the recipient justifies the deduction tax at such rates. Thereafter, the persons responsible for deducting tax at source shall deduct tax at such lower rate until such certificate is cancelled.

COVID-19 RELIEF: The COVID-19 relief as mentioned above under section 192 is also applicable for the certificate for lower deduction from the payments made towards Rent.

TDS From Certain Sums Paid By Certain Individuals Or HUF [Section 194M] :

(Inserted w.e.f. 01.09.2019 by the Finance Act(No.2), 2019)

Person Liable to Deduct Tax: Any person being Individual or HUF (other than those who are required to deduct tax as per the provisions of section 194C, 194H or 194J).
Payee: Resident
Time of Deduction: At the time of credit or payment of any sum in pursuance of any contract or by way of commission or brokerage or fees for professional services
Nature of Payment on  which TDS required Any sum in excess of Rs.50 Lacs in pursuance of any contract or by way of commission or brokerage or fees for professional services during the financial year

TDS Rate:         5%

PAYMENT OF AMOUNT OF TDS TO THE GOVERNMENT: The person making deduction of tax under section 194IB is not required to comply the provisions of section 203A hence there is no need to obtain TAN. He is required to make the payment of TDS to the government using form 26QD. Form 26QD is to be generated online and the payment can be made using online or off line modes.

TDS From Payments Of Certain Amounts In Cash [Section 194N] WEF 01.07.2020:

Person Liable to Deduct Tax: 1. Banking company to which Banking Regulation Act, 1949 applies; or

2. Co-operative society engaged in carrying on business of banking; or

3. Post Office

Payee: Any Person withdrawing cash from one or more account
Time of Deduction: At the time of payment of such sum
Nature of Payment on  which TDS required Withdrawn amount exceeding Rs.1 Crore during the previous year

TDS Rate:         2% of the amount withdrawn in excess of Rs.1 Crore

IN-APPLICABILITY OF THE ABOVE PROVISIONS IN CASE OF FOLLOWING PAYEES

i. Government

ii. Any banking company or co-operative society engaged in carrying on the business of banking or a post office;

iii. Any business correspondent of a banking company or co-operative society engaged in carrying on the business of banking in accordance with the guidelines of RBI;

iv. Any white label automated teller machine operator of a banking company or a co-operative society engaged in carrying on the business of banking;

v. Any person which is notified by the Central Government.

TDS From Payments Of Certain Sums By E-Commerce Operator To E-Commerce Participant [Section 194O] :

(As substituted by the Finance Act, 2020 w.e.f. 01.07.2020)

Person Liable to Deduct Tax: 1.   Banking company to which Banking Regulation Act, 1949 applies;

2.   Co-operative society engaged in carrying on business of banking; or

3.   Post Office

Payee: Any Person withdrawing cash from one or more account
Time of Deduction: At the time of payment of such sum
Nature of Payment on  which TDS required Withdrawn amount exceeding Rs.1 Crore or Rs.20 Lakh(As the case may be) during the previous year

TDS Rate:

S.no. Amount on which TDS required Rate of TDS
1. If withdrawal amount exceeds Rs.1 crore during the financial, tax required to be deducted on the entire withdrawn amount where the case does not fall as per conditions in the s.no. 2 (a) & 2(b) below 2% of the total amount withdrawn
2. Where the recipient has not filed the Returns of income for the three assessment years relevant to the previous years for which due date of filing under section 139(1) has expired immediately preceding the previous year in which the payment is made:

a.   Amount withdrawn in excess of Rs.20 Lac but does not exceed Rs. 1 Crore during the previous year

b.   Amount withdrawn in excess of Rs.1 crore during the previous year

 

 

 

 

 

2% of the total amount withdrawn

 

5% of the total amount withdrawn

IN-APPLICABILITY OF THE ABOVE PROVISIONS IN CASE OF FOLLOWING PAYEES

i. Government

ii. Any banking company or co-operative society engaged in carrying on the business of banking or a post office;

iii. Any business correspondent of a banking company or co-operative society engaged in carrying on the business of banking in accordance with the guidelines of RBI;

iv. Any white label automated teller machine operator of a banking company or a co-operative society engaged in carrying on the business of banking;

v. Any person which is notified by the Central Government in consultation with the RBI or the provisions may be made applicable at the reduced rate of deduction.

TDS From Payments Of Certain Sums By E-Commerce Operator To E-Commerce Participant [Section 194O] :

(Inserted by the Finance Act, 2020 w.e.f. 01.10.2020)

Person Liable to Deduct Tax: E-commerce operator
Payee: E-Commerce Participant
Time of Deduction: At the time of credit of sale or services or both to the account of payee or at the time of making payment, whichever is earlier.
Nature of Payment on  which TDS required Amount of sale or services or both credited or paid by e-commerce operator to the e-commerce participant and where the payment is directly made by the customer to the e-commerce participant shall also be taken into account while determining the liability of TDS and TDS would be deducted on the amount inclusive of such amount

TDS Rate:         1%

TAX NOT TO BE DEDUCTED IN THE FOLLOWING CASES:

No TDS is required where the payment is made by e-commerce operator to the e-commerce participant being an Individual or HUF and the gross amount of such payment during the previous year does not exceed Rs.5 Lacs subject to the condition that the e-commerce participant has either furnished his PAN or Aadhaar number to the e-commerce operator.

TDS Ffrom other Sums [Section 195] :

Person Liable to Deduct Tax: Any person responsible for paying to a non-resident
Payee: Non-Resident (Not being a company) ; or Foreign Company
Time of Deduction: At the time of credit of such income to the account of payee or at the time of making payment, whichever is earlier.
Nature of Payment on  which TDS required Interest or other sum chargeable under the provisions of Income Tax Act (Not being a sum chargeable under the head salaries)

Rate of TDS – At the rates in force

TDS not required to be deducted in the following case:

a. Dividends referred to in Section 115-O: No TDS would be required to be deducted from dividends referred to in section 115-O. – This clause has been omitted w.e.f. 01.04.2020 by the Finance Act, 2020.

b. Sum not chargeable: Where the person responsible for paying such sums (other than Salaries) chargeable under the Act that the whole of such sum would not be income chargeable in the hands of the recipient, he may make an application to A.O. to determine the appropriate proportion of such sum chargeable and thereafter when determined by the A.O. the TDS shall be deducted on such proportion of the sum.

CERTIFICATE FOR DEDUCTION AT LOWER RATE [S. 197]:

The Assessing Officer may issue a Certificate to the Assessee for the deduction of tax at NIL rate or at a lower rate if on an application made by the assessee in Form No.13, he is satisfied that the total income of the recipient justifies the deduction tax at such rates. Thereafter, the persons responsible for deducting tax at source shall deduct tax at such lower rate until such certificate is cancelled.

COVID-19 RELIEF: The COVID-19 relief as mentioned above under section 192 is also applicable for the certificate for lower deduction from the payments to the non-residents as envisaged by s.195.

Grossing of Income [Section 195A] :

Where under an agreement the TDS is to be borne by the deductor, the TDS shall be deducted in such a manner that the tax is deducted at source at the rates in force for such financial year on the net amount payable.

For example, M/s X & Co. is liable to pay interest of Rs.90000/- to Mr. Y during the financial year 2009-10 and under an agreement it is agreed upon between both the parties that the TDS, if any shall be borne by M/s X & Co. The TDS rate for the said year is 10%. Calculate the amount of TDS payable?

TDS shall be calculated as under:

90000 X 10/90         = 10000

Now, if the amount of TDS is added to the amount of interest, the gross amount payable by M/s X & Co. is Rs.100000/- and on this amount the TDS calculated @10% works out to Rs.10000/-.

No Deduction To Be Made In Certain Cases [Section 197A] :

In the following cases, no tax shall be deducted by the person responsible for deducting tax at source:

i) In case of an Individual who furnishes a declaration in prescribed form in duplicate to the person responsible for deducting tax at source under section 194 (relating to dividends) or 194EE (relating to NSS) to the effect that the tax on his estimated total income of the said previous year shall be “NIL”. [S.197A(1)]

ii) In case of a person other than a Company or a Firm who furnishes a declaration in prescribed form in duplicate to the person responsible for deducting tax at source under section 192A, 193 (relating to Interest on Securities) or 194A (relating to Interest other than interest on securities), 194DA, 194I or 194K to the effect that the tax on his estimated total income of the said previous year shall be “NIL”. [S197A(1A)].

Exception: The above provisions shall not be applicable where such income credited or paid during the previous year exceeds the maximum amount which is not chargeable to tax – [S197A(1B)].

iii) Senior Citizens: Both the above provisions without the aforesaid exception would be applicable to a person who in an individual, resident in India and who is of the age of 60 Years or more at any time during the previous year.

iv) New Pension System Trust [S.197A(1E)]: No deduction is to be made from any payment to the New Pension System Trust referred to in S.10(44).

v) Payment to notified Institution, association or body etc.: No deduction or deduction at lower rates may be done from such payment made to the notified persons or class of persons including institution, association or body or class of institutions etc.

vii) Declaration to be furnished to CIT : One copy of the declaration received towards non-deduction is to be submitted to the CIT or CCIT on or before 7th day of the month following the month in which such declaration is received.

RULE 29C – Declaration In Form 15G & 15H:

Following procedure has been prescribed by Rule 29C for obtaining & submission of declaration in form no. 15G or 15H:

1. Form 15G has been prescribed to be obtained from an Individual who is below the age of 60 years or HUF

2. Form 15H has been prescribed to be obtained from an Individual who is the age of 60 years or above

3. Form 15G or 15H may be obtained in paper form or electronic mode after duly verifying through electronic process.

4. Each such form received during a quarter has to be allotted unique identification number.

5. Due dates of quarterly furnishing the detail of declaration received in form 15G & 15H are as under:

S.no. Quarter Ending Due Date
1 30 JUNE 15 JULY
2 30 SEPTEMBER 15 OCTOBER
3 31 DECEMBER 15 JANUARY
4 31 MARCH 30 APRIL

6. In terms of sub-rule (6) of Rule 29C the declarations received in form 15G and 15H may be required to be furnished to an Income Tax Authority before the end of seven years from the end of the financial year in which such declaration is received.

COVID-19 RELIEF: The COVID-19 relief for furnishing of form 15G and 15H has been provided vide Order no. F. no. 275/25/2020-IT(B) dated 03.04.2020, which is as under:

SUBMITTED FOR F.Y. 2019-20: It is provided that where a person had submitted valid form 15G and 15H to the banks or other institutions for F.Y. 2019-20 then those form 15G and 15H shall be valid upto 30.06.2020 for F.Y. 2020-21 and the detail of the credit or payment are to be reported in TDS statement for the Quarter ending 30.06.2020.

NOT SUBMITTED FOR F.Y. 2019-20: In such a case no relief has been provided.

However, from the language of the aforesaid order of the CBDT it appears that forms 15G and 15H submitted to the banks or other institutions for the F.Y. 2019-20 only shall be valid for F.Y. 2020-21 upto 30.06.2020. In other words, form 15G or 15H submitted to other categories of deductors viz. companies, firms, individuals or HuFs etc. shall not remain valid and such deductors have to obtain the fresh 15G or 15H as the case may be for the F.Y. 2020-21 and if such forms are not furnished by the payees, such deductors have to deduct tax at source as per the applicable provisions.

Moreover, the hardship is caused to those small tax payers who furnish form 15G and 15H to companies or small business firms etc. as at the year end and those tax payers could not furnish these forms by 31.03.2020 due to the lockdown w.e.f. 25.03.2020. Although technically whatever forms received by the deductor by 31st March, 2020 can be furnished by 30.06.2020 in terms of “The Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020, but where the payees who could not submit their declarations in form 15G or 15H as the case may be, by 31st March, 2020 would be subjected to TDS. In those cases no relief has been provided by the aforesaid order. Suitable representation by the Tax Bar Association and other such Associations need to be prepared and sent to the government for their consideration.

Tax Deducted Is Income Received [Section 198] :

For the purposes of computing income of the assessee, the tax deducted under the provisions of TDS, shall be deemed to be income received. However, tax paid on perquisites as referred to in S.192 (1A) shall not be deemed to be income of the assessee.

Amendments in Provisions Of Tax Collection at Source (TCS) By Finance Act, 2020

The following amendments have been proposed by the Finance Act, 2020 in the provisions of Tax collection at source:

By the Insertion of sub-section (1G) & (IH) in section 206C of the Income Tax Act, 1961 the tax is required to be collected w.e.f. 01.04.2020 on a few more transactions apart from the existing transactions which have been covered by section 206C. The summary of the new provisions are as under:

1. Insertion Of Sub-Section (1G) TO Section 206C-

With the insertion of sub-section (1G) the following persons are required to collect tax at source at the specified rates

Person liable to collect Transactions covered Exception
Authorised Dealer who receives amount for remittance out of India Amount received from a buyer for remittance out of India Where amount being remitted by the buyer is less than Rs. 7 lakh in a financial year
Seller of an Overseas Tour Program Package Amount received from a buyer (being a person who purchases such package

Rate of TCS

Type of Transaction Conditions TCS
Amount received from a buyer for remittance out of India Where the amount being remitted is less than Rs. 7 lakh NIL
Amount received from a buyer for remittance out of India Where the amount being remitted Rs. 7 lakh or more but other than the amount which is being remitted is a loan obtained from a financial institution as defined in section 80-E for the purpose of pursuing education 5%
Amount received from a buyer for remittance out of India Where the amount being remitted Rs. 7 lakh or more and the amount which is being remitted is a loan obtained from a financial institution as defined in section 80-E for the purpose of pursuing education 0.5%
Amount received from a buyer (being a person who purchases such package On the entire amount received for the purchases of such package 5%

Non-applicability of the provisions of sub-section (1G) : In the following circumstances the provisions of sub-section (1G) shall not be applicable:

a. Where the buyer is liable to deduct tax at source under any other provisions of the Income Tax Act and has deducted such amount;

b. Where the buyer is Central Govt., State Govt., an Embassy, a High Commission, a Legation, a Commission, a Consulate, the Trade Representation of a foreign State, a Local Authority or any other person notified by the Central Government

In-applicability of the provisions of sub-section (1G): In the following circumstances the provisions of sub-section (1G) shall not be applicable:

a. Where the buyer is liable to deduct tax at source under any other provisions of the Income Tax Act on the goods purchased by him from such seller and he has actually deducted

b. Where the buyer is Central Govt., State Govt., an Embassy, a High Commission, a Legation, a Commission, a Consulate, the Trade Representation of a foreign State, a Local Authority or any other person notified by the Central Government

2. Insertion Of Sub-Section (1H) TO Section 206C:

With the insertion of sub-section (1H) the following persons are required to collect tax at source at the specified rates

Person liable to collect Transactions covered Exception
Every person being Seller whose total sales, gross receipts or turnover from business exceed Rupees10 Crore during the financial year immediately preceding financial year in which such sale takes place Amount received in excess of Rs.50 Lakh in any previous year from a buyer as consideration for sale of any goods other than the goods covered under sub-section (1), (1F) or (1G) Where the buyer is liable to deduct tax at source under any other provisions of the Income Tax Act on the goods purchased by him from such seller and he has actually deducted

Rate of TCS

Type of Transaction Conditions TCS
Amount of Sale consideration exceeding Rs.50 Lakh Where Aadhaar number or PAN has been provided by the buyer to the seller 0.1% of the sale consideration exceeding Rs.50 Lakh
Amount of Sale consideration exceeding Rs.50 Lakh Where Aadhaar number or PAN has not been provided by the buyer to the seller 1% of the sale consideration exceeding Rs.50 Lakh

Payment of TDS To The Government Account [Section 200 Read With Rule 30]:

The time and mode of payment of the TDS into Government account has been prescribed in Rule 30 of the Income Tax Rules, 1962. These time limits are summarized below:

Deductor Nature of Deduction Due Date
i) By or on behalf of the Government All Deductions

a. where tax is paid without production of challan

b. where tax is paid accompanied by an income tax challan

Same Day

On or before 7 days from the end of the month in which deduction is made or income tax is due

ii-All persons – other than i) above and all TDS covered under s. 194IA, 194IB & 194M a.   where the income or amount is credited  or paid in the month of march

b.   any other case

 On or before 30 April

On or before 7 days from the end of the month in which

a. tax is deducted; or

b. income tax is due under s. 192(1A)

iii. Where TDS is covered under s. 194IA, 194IB & 194M

Within a period of 30 days from the end of the month in which deduction is made and the payment shall be made using challan cum statement in form no. 26QB, 26QC or 26QD

Quarterly Payments – The Assessing Officer in special cases and with the previous approval of Joint Commissioner may permit Quarterly Payment of TDS in these specified cases. Where tax is deducted under section 192, 194A, 194D or 194H, the quarterly payment can be made as under:

Quarter Ending

a.   30th June

b.   30th September

c.    31st December

d.   31st March

Due Date of Payment of TDS

a.   7th July

b.   7th October

c.    7th January

d.   30th April

Liability to pay interest:

Where a person who is liable to deduct tax does not deduct tax or after deducting the same does not pay, such person shall, in addition to the other consequences, be liable to pay simple interest as under:

i) 1% per month or part of the month from the date on which such tax was deductible to the date of deduction.

ii) 1.5% per month or part of the month from the date on which such tax was deducted to the date of actual payment.

iii) Where the deductor was not deemed to be an assessee in default under the circumstances mentioned above in such a case the interest shall be payable by such deductor @ 1% per month or part of the month on the amount of tax which was not deducted by the deductor. Such interest shall be payable from the date on which such tax was deductible to the date of furnishing of the return by the payee.

Relaxation For Delayed Payment Of TDS

By the Taxation & Other Laws Ordinance 2020 certain relaxations have been allowed by the government due to the Covid-19 endemic. Under such relaxations the government has although not extended the due date of payment of TDS yet the rate of interest on delayed payment of TDS has been reduced to 0.75% per month in case of the due date of payment of TDS falls between 20th March, 2020 and 29th June, 2020 and the payment is made on or before 30th June, 2020.

Further, no penalty would be levied or prosecution would be initiated in respect of the aforesaid delay.

Consequences Of Failure To Deduct Or Pay TDS [Section 201]:

The following persons shall be deemed to be an assessee in default:

a. Every person who is required to deduct tax under the provisions of Income Tax Act does not deduct tax or after deducting fails to pay the whole or any part of tax to the Government Account; or

b. Every person who is required to pay tax under section 192(1A) does not pay tax.

Circumstance when the deductor is not deemed to be in default

As per proviso to sub-section (1) of section 201 in the following circumstances the deductor shall not be deemed to be in default. If the payee furnished a certificate in the prescribed format from an accountant to the effect that:

a. has furnished his return of income under section 139;

b. has taken into account such sum for computing income in such return of income; and

c. has paid the due on income declared by him

Consequences When As Assessee Is “Deemed To Be In Default”:

Where the assessing officer is satisfied that the person liable to deduct tax has without good and sufficient reasons has failed to deduct and pay such tax, he may impose penalty under section 221.

Charge upon all Assets:

Where the tax is not paid after it is deducted, such amount of tax together with the amount of simple interest shall be a charge of all the assets of the assessee.

Time Limit of Passing Order of assessee deemed to be in default

The order deeming an assessee to be in default can be passed within the following time limits:

a. Where no Correction Statement is filed: No order deeming an assessee to be in default for failure to deduct the whole or part of tax from a resident in Indai can be passed at any time after the expiry of 7 years from the end of the financial year in which payment is made or credit is given.

b. Where correction Statements filed: In case where the deductor has furnished the correction statement the order deeming an assessee to be in default shall not be passed after the expiry of two years from the end of the financial year in which the correction statement is delivered or the aforesaid period of 7 years whichever is later.

Submission Of Quarterly TDS Statements [Section 200]:

The person responsible for deducting tax at source shall be required to submit the Quarterly Statements of Tax deducted and paid. The requirement of such statements shall be as under:

In case the payee is a Resident

a. In case of deduction under section 192 from Salaries – The statement shall be submitted in form no.24-Q

b. In case of any other deduction – The statement shall be submitted in form no. 26-Q.

In case the payee is a Non-Resident

a. The statement shall be submitted in form no.27-Q

However, all the above statements are required to be submitted on or before 31st July, 31st October and 31st January for the first three quarters of the financial year and for the last quarter of the financial year the last date of submission is 31st May following the last quarter of the financial year.

COVID-19 RELIEF: Taxation and Other Laws Ordinance, 2020 has provided relief for filing of TDS statements also. It is provided in the said Ordinance that wherever any time limit has been specified under the Act which falls between the period from 20.03.2020 to 29.06.2020 the due date of such statement etc. shall stand extended to 30.06.2020. In other words, all the due dates of filing of TDS statements, which fall between aforesaid dates shall be extended to 30.06.2020.

Tax Deduction And Collection Account Number [Section 203A] –

Every person who is required to deduct tax at source or collect tax under the provisions of Income Tax Act shall be required to obtain Tax Deduction Account Number or Tax Collection Account Number.

The applications for obtaining such number shall be made in form no. 49-B in duplicate within one month from the end of the month in which tax was deducted or collected, as the case may be.

The TDS or TCS Account number so obtained shall be quoted in all challans, Statements, Returns, Certificates etc.

Requirement To Furnish Permanent Account Number [Section 206AA] –

Every person whose tax is deducted under the provisions of the Income Tax Act shall be required to furnish his Permanent Account Number to the person responsible for deducting such tax.

Consequences of failure to furnish PAN: Where PAN is not furnished as stated above, the person responsible for deducting tax at source shall deduct tax at the higher of the following rates:

a. At the rates applicable under the relevant provisions; or

b. At the rates in force; or

c. @ 20% (@5% where the tax was deductible under section 194O).

Other Consequences of non-furnishing of PAN:

a. 15G/H to be invalid: The declaration in form 15-G/H under the provisions of section 197A shall not be valid unless such declaration contains the Permanent Account Number of the Declarant and where the declaration becomes invalid, the deductor shall deduct tax as per the above provisions.

b. No certificate of lower deduction to be issued: Where an application for deduction of tax at lower rate or nil rate has been made to the assessing officer under section 197, such an application shall contain the PAN of the applicant. In the absence of PAN in the said application, the certificate shall not be issued by the A.O.

c. Invalid PAN: The deductee shall deemed not to have furnished the PAN where the PAN provided to the deductor is invalid or does not pertain to the deductee and accordingly the provisions of this section would be applicable.

d. The PAN furnished by the deductee shall be indicated in all the correspondence, bills, vouchers and other documents which are sent to each other.

Author Bio

Qualification: CA in Practice
Company: RAJENDRA SARAF & ASSOCIATES
Location: Jodhpur, Rajasthan, IN
Member Since: 13 Mar 2020 | Total Posts: 2
Chartered Accountant in practice in the name of M/s Rajendra Saraf and Associates, since 1987 at Jodhpur dealing in Income Tax related matters including representing before various authorities & appellate forums viz. CIT(Appeals) and ITAT. Served the profession in various capacities including Tr View Full Profile

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