TDS: Tax Deducted at Source (TDS) is a mechanism that has been introduced by the Income Tax Department. Under this, the responsible person is supposed to deduct a certain percentage of income as tax before making the payment to the receiver. The payment includes salary, commission, professional fees, interest, rent, etc.

So every person who is responsible for making payment of nature covered under the TDS provisions of Income Tax Act, 1961 shall be liable to deduct tax at source. In case of payments made u/s 194A, 194C, 194H, 194I and 194J, all assesses other than individual and HUF whose accounts are not subject to Tax Audit Under Section 44AB of the Income-tax Act, 1961 during the preceding financial year, is required to deduct tax at source.


A surcharge of 10% is levied if an individual’s income is more than Rs. 50 Lakh and a surcharge of 15% are levied if the individual’s income is more than Rs 1 crore. In the case of companies, it is levied if the income is more than Rs. 1 Crore.


Clarification regarding short deduction of TDS/TCS due to increase in rates of surcharge by Finance (No.2) Act, 2019-reg.

The Finance (No.2) Bill, 2019 was tabled in Lok Sabha on 5th July 2019 which was passed by both the Houses of Parliament and became Finance (No.2) Act, 2019 (the Act) which received the assent of the President on 1st August 2019. The Act provided for an increase in the rate of the surcharge as under:

Income slab Surcharge before the Act An enhanced surcharge as provided by the Act
Less than 50 lakh rupees Nil Nil
50 lakh rupees but less than 1 crore rupees 10% 10%
1 crore rupees but less than 2 crore rupees 15% 15%
2 crore rupees but less than 5 crore rupees 15% 25%
5 crore rupees and above 15% 37%

Several cases have come to the notice of the Central Government wherein deductors/ collectors were held to be an assessee in default for short deduction of TDS/short collection of TCS

The enhanced rates of surcharge were applicable from the day of April 2019 for the previous year 2019-20 relevant to the assessment year 2020-21. Thus, every person as referred to above was required to compute his tax liability after taking into account the enhanced rates of surcharge. Further, TDS/TCS under various provisions of the Income-tax Act is required to be deducted/ collected after taking into account the enhanced rate of surcharge.

The issue has been examined by the Board and in this regard, it is clarified a person responsible for deduction/collection of tax under any provision of the Income-tax Act will not be considered to be an assessee in default in respect of transactions where:—

a) such transaction has been completed and entire payment has been made to the deductee/payee on or before 5th July 2019 and there is no subsequent transaction between the deductor/collector and the deductee/payee in the financial year 2019-20 from which the shortfall of tax could have been deducted/collected by the deductor/collector;

b) TDS has been deducted or TCS has been collected by such deductor/collector on such sum as in force as per the provisions prior to the enactment of the Act;

c) Such tax deducted or collected has been deposited in the account of Central Government by the deductor/collector on or before the due date of depositing the same;

d) TDS/TCS statement has been furnished by such person on before the due date of filing of the said statement.

However, if the person fails to fulfill any of the conditions as laid down above, such a person will, with respect to short deduction/collection, not be eligible for the benefit provided under this

The above relaxation does not absolve the deductee/payee to pay proper tax including enhanced surcharge by advance tax or self-assessment tax and file return of income after paying such tax.

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October 2020