In some manner, all of us must have somehow come across the Tax Deductions, be it on Salary, on Fees or any other kind of payments. But people are very less aware of the various situations and the law governing TDS. What are the limits up to which TDS should not be deducted? What are the troubles of not deducting TDS?? etc. etc. Therefore, today we will be discussing the various provisions and other relevant details about the TDS. So, Let’s start from the very beginning:
A. What is TDS?
The assessee is required to pay taxes on his income. This tax is collected by two modes; (i) Direct payment by Assessee e.g. Advance tax, Self Assessment Tax. (ii) Tax Deducted at Source (TDS) which is the deduction of Tax by the payer from the income of the recipient. As per the Income Tax Act, 1961, Any person liable for making a payment is required to deduct TDS if the payment exceeds the certain threshold limits.
B. Some Very Important Concepts:
Before we are heading towards the main sections we must have to understand some important points which are commonly applied to all the sections of TDS. These are as follows:
(i) Applicability of Surcharge and EC & SHEC: The applicability of Surcharge and EC & SHEC would generally be dependant on the Status (Resident/Non-Resident) of the payee(deductee).
(ii) In the entire chapter of TDS under any section where no TDS is required to be deducted on Individual/HUF; that Individual/HUF shall not include the Individual/HUF whose accounts are required to be audited. In simple words, Individual/HUF whose accounts are required to be audited shall not be considered as the Individual/HUF for the purpose of TDS exclusion.
(iii) TDS SHALL ALWAYS BE DEDUCTED ON GST EXCLUDED AMOUNT.
C. When TDS needs to be deducted?
TDS needs to be deducted under various situations and for various payments which are as follows:
1. TDS on Salaries [u/s 192]:
Deductor: Any person responsible for paying Salaries
Deductee: Any Individual Employee [Resident/Non-Resident]
When to Deduct: At the time of Payment only
Rate of TDS: At the average rate of tax for Current F.Y. in which payment is being made.
Important Point:
2. TDS on Interest on Securities [u/s 193]:
Deductor: Any Person responsible for paying Interest on Securities
Deductee: Any Person [Resident Only]
When to Deduct: At the time of Credit to the Account of Payee OR Actual Payment; Whichever is Earlier.
Rate of TDS: 10%
Important Notes: There are also some EXCEPTIONS in which NO TDS u/s 193 would be deducted on Interest. These are as follows:
[In all the above 3 cases if Interest amount exceeds Rs. 5,000 then TDS would be on entire Amount]
3. TDS on Dividend [u/s 194]:
Deductor: Indian Company
Deductee: Any Person being a Shareholder [Resident Only]
When to Deduct: At the time of Credit OR Payment; whichever is Earlier.
Rate of TDS: 10% [If amount up to Rs. 2,500/- = NO TDS; If Exceeds then TDS on the whole amount]
Important Note:
4. TDS on Interest other than Interest on Securities [u/s 194A]:
Deductor: Any Person other than Individual/HUF (but Including 44AB Ind/HUF)
Deductee: Any Person [Resident Only]
When to Deduct: At the time of Credit OR Payment; whichever is Earlier.
Rate of TDS: 10%
Important Note: There are also some EXCEPTIONS in which NO TDS u/s 194A would be deducted on Interest. These are as follows:
5. TDS on Winning from Lottery, Card games etc. [u/s 194B]:
Deductor: Any Person
Deductee: Any Person [Resident or Non-Resident]
When to Deduct: At the time of Payment.
Rate of TDS: 30% [Up to Rs. 10,000/- No TDS; If exceeds then TDS on the whole Amount]
Important Note:
6. TDS on Winning from Horse Race [u/s 194BB]:
Deductor: Any Person (being a Bookie/License Holder for Horse Racing)
Deductee: Any Person (Resident or Non-Resident)
When to Deduct: At the time of Payment
Rate of TDS: 30% [Up to Rs. 10,000/- No TDS; If exceeds then TDS on the whole Amount]
7. TDS on Payments to Contractors [u/s 194C]:
Deductor: Any Person
Deductee: Any Person (Resident Only)
When to Deduct: At the time of Credit OR Payment; whichever is Earlier.
Rate of TDS: When Receiver is Ind./HUF = 1%; In case Received by Other Person = 2%. [If Amount Paid is Up to Rs. 30,000 (Per contract) OR Rs. 1,00,000/- Per year = NO TDS. But if Exceeds then TDS on Entire Amount]
Important Note:
(i) In Case of Job Work:
(ii) No TDS shall be charged on the amount paid to the contractor by Individual/HUF for any services taken Exclusively for Personal Purposes.
(iii) If Payment is being made to any Transporter who is having max. up to 10 goods carriage during the Previous year and such Transporter made declaration along with PAN to the Payer then NO TDS shall be deducted.
8. TDS on Insurance Commission [u/s 194D]:
Deductor: Any Person
Deductee: Any Person (Resident Only)
When to Deduct: At the time of Credit OR Payment; Whichever is Earlier.
Rate of TDS: 10% [If Amount Up to Rs. 15,000/- = NO TDS; If Exceeds then on the whole amount]
9. TDS on Payment to Non-Resident Sportsmen or Sports Association or Entertainer [u/s 194E]:
Deductor: Any Person
Deductee: Sportsmen/Sport Association/Entertainer (cheerleaders) [Non-Residents Only]
When to Deduct: At the time of Payment OR Credit; Whichever is Earlier.
Rate of TDS: 20%
10. TDS on Payment toward Life Insurance Policy [u/s 194DA]:
Deductor: Any Person
Deductee: Any Person (Resident Only)
When to Deduct: At the time of Payment (including Payment of Bonus on such policy) of such amount which is not exempt u/s 10(10D).
Rate of TDS: 1% [If amount Up to Rs. 1,00,000/- = NO TDS; If exceeds then TDS on the whole amount]
11. TDS on Commission etc. on the sale of Lottery Tickets [u/s 194G]:
Deductor: Any Person
Deductee: Any Person (Resident or Non-Resident)
When to Deduct: At the time of Credit OR Payment; whichever is Earlier.
Rate of TDS: 5% [If Amount Up to Rs. 15,000/- = NO TDS; If exceeds then TDS on the whole amount]
Note: This deduction is on Amount paid as commission, remuneration, or prize etc. on stocking, distributing, purchasing or sale of lottery tickets.
12. TDS on Commission or Brokerage [u/s 194H]:
Deductor: Any Person other than Ind./HUF (But including 44AB Ind/HUF)
Deductee: Any Person (Resident Only)
When to Deduct: At the time of Credit OR Payment; whichever is Earlier.
Rate of TDS: 5% [If amount up to Rs. 15,000 = NO TDS; If exceeds then TDS on the whole amount]
Important Note:
(i) Transactions related to SECURITIES are not covered u/s 194H. i.e NO TDS on the;
BUT; TDS SHALL BE DEDUCTED ON COMMISSION/BROKERAGE PAID ON COMMODITIES TRANSACTIONS.
13. TDS on Rents [u/s 194-I]:
Deductor: Any Person excluding Ind/HUF (but Including 44AB Ind/HUF)
Deductee: Any Person (Resident Only)
When to Deduct: At the time of Credit OR Payment; whichever is Earlier.
Rate of TDS: For Rent of Plant & Machine = 2%; For Land & Building = 10% [If amount up to Rs. 1,80,000 in aggregate during the F.Y. then NO TDS; If Exceeds then TDS on the whole amount].
Important Note:
14. TDS on Certain Immovable Property [u/s 194-IA]:
Deductor: Any Person
Deductee: Any Person (Resident Only)
When to Deduct: At the time of Credit or Payment; whichever is Earlier.
Rate of TDS: 1% [If the Immovable Property Value Up to Rs. 50 Lakhs = NO TDS; If exceeds then TDS on the whole amount].
Important Note:
15. Payment of Rent by Ind./HUF (non-audit) [u/s 194-IB]:
Deductor: Ind./HUF (who are not covered for tax audit) responsible for paying rent exceeding Rs. 50,000/- or more AT ANY TIME DURING THE YEAR.
Deductee: Any Person (Resident Only)
When to Deduct: ONLY AT THE END OF THE YEAR (i.e. March) OR At the time of VACATING the property [it need to be deducted once and not every month]
Rate of TDS: 5%
Important Note:
16. Payment under Specified Agreement [u/s 194-IC]:
Deductor: Any Person (responsible for paying any sum under Joint Development Agreement)
Deductee: Any Person (Resident Only)
When to Deduct: At the time of Credit OR Payment; whichever is Earlier.
Rate of TDS: 10%
Note: TDS shall be deducted on Monetary consideration only. Non Monetary considerations shall not be considered for TDS under this Section.
17. TDS on Professional or Technical Services [u/s 194J]:
Deductor: Any Person excluding Ind/HUF (But including 44AB Ind/HUF)
Deductee: Any Person (Resident Only)
When to Deduct: At the time of Credit OR Payment; whichever is Earlier.
Rate of TDS: 10%; If Payee is engaged only in Business of Operation of Call Center = TDS 2% [If Amount paid is up to Rs. 30,000/- then NO TDS; If exceeds then TDS on the whole amount]
Important Note:
18. Payments to Non-Residents [u/s 195]:
Deductor: Any Person
Deductee: Any Non-Resident or Foreign Company
When to Deduct: At the time of Credit OR Payment; whichever is Earlier;
Rate of TDS: As per the relevant rates in force for Non-Residents.
D. SOME IMPORTANT POINTS:
These were the Relevant Section as per the most recent updates till date. In the Part-II of this Article, we would cover the various procedural parts related to TDS concepts e.g. Due Date of Payment of TDS, Due Date of TDS Returns, TDS Certificate Issue, Penalty for Non-Deduction/Non-Payment or Late Payment/Late Deduction of TDS, Form 15G/15H etc. I believe this summary would be helpful for the all stakeholders especially for all my CS Student friends’ whose exams are just to start.
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