Tax Deducted at Source

Tax Deducted at Source (TDS) is a taxation mechanism in India where a specified percentage of tax is deducted by the payer at the time of making payments such as salary, rent, interest, commission, or professional fees to the payee. The deducted tax is then deposited with the Income Tax Department of India. TDS ensures that tax collection is a continuous process and reduces tax evasion by collecting tax at the source of income.

TDS provisions are governed by the Income Tax Act, 1961 and are applicable to individuals, businesses, and entities making payments that exceed certain thresholds. It applies to both residents and non-residents, with rates and conditions varying based on the type of payment.

Key Features of TDS

1. Deduction at Source:

   • Tax is deducted at the time of payment or credit, whichever is earlier.

2. Applicable Payments:

   • Includes salary, rent, interest, commission, professional fees, contract payments, and more.

3. Specified Rates:

   • TDS is deducted at rates specified under various sections of the Income Tax Act.

4. Threshold Limits:

   • No TDS is deducted if the payment is below the prescribed threshold.

5. PAN Requirement:

   • Deduction at higher rates (20%) applies if the deductee does not provide their PAN.

Common TDS Sections

1. Section 192:

   • TDS on Salary.

2. Section 194A:

   • TDS on Interest (other than on securities).

3. Section 194C:

   • TDS on Payments to Contractors/Sub-contractors.

4. Section 194H:

   • TDS on Commission or Brokerage.

5. Section 194I:

   • TDS on Rent.

6. Section 194J:

   • TDS on Professional/Technical Services.

7. Section 195:

   • TDS on Payments to Non-Residents.

TDS Deduction Process

1. Determine Applicability:

   • Identify if TDS is applicable based on the nature of the payment and its threshold.

2. Calculate the TDS Amount:

   • Deduct the tax as per the applicable rate specified in the Income Tax Act.

3. Deposit TDS:

   • Deposit the deducted tax with the Income Tax Department using Challan ITNS 281.
   • Due Date:
     • For most payments, by the 7th of the following month.
     • For payments in March, by April 30th.

4. File TDS Returns:

   • File quarterly TDS returns using Forms 24Q (Salary), 26Q (Other Payments), or 27Q (Non-Residents).
   • Due Dates:
     • Q1: July 31
     • Q2: October 31
     • Q3: January 31
     • Q4: May 31

5. Issue TDS Certificates:

   • Provide TDS certificates to the deductee (Form 16 for Salary, Form 16A for other payments).

Exemptions and Non-Deduction of TDS

1. Threshold Limits:

   • TDS is not deducted if the payment amount is below the prescribed threshold.

2. Form 15G/15H:

   • Individuals can submit these forms to avoid TDS if their total income is below the taxable limit.

3. Exempt Payments:

   • Certain payments, such as dividends covered by specific exemptions, are not subject to TDS.

Consequences of Non-Compliance

1. Interest:

   • 1% per month for delayed deduction.
   • 1.5% per month for delayed deposit of TDS.

2. Penalty:

   • Penalty equal to the amount of TDS not deducted or deposited.

3. Disallowance of Expenses:

   • Failure to deduct/deposit TDS may lead to the disallowance of such expenses under income tax assessment.

Benefits of TDS

1. Continuous Revenue Collection:

   • Ensures a steady flow of revenue to the government.

2. Minimizes Tax Evasion:

   • Reduces instances of tax evasion by collecting tax at the source of income.

3. Convenience for Taxpayers:

   • Individuals and entities need not pay large sums of tax at the end of the year.

4. Transparency:

   • Ensures proper accounting of payments and taxes deducted.

Documents Required for TDS Compliance

1. PAN and TAN (Tax Deduction and Collection Account Number) of the deductor.
2. PAN of the deductee.
3. Details of payment and applicable TDS section.
4. Proof of TDS deposit (Challan ITNS 281).
5. Acknowledgment number of TDS returns filed.

How to Register for TAN

1. Step 1: Visit NSDL Website

   • Access the TAN application page on the NSDL website.

2. Step 2: Fill Form 49B

   • Provide the required details such as deductor type, name, and address.

3. Step 3: Submit Application

   • Pay the applicable fee and submit the form.

4. Step 4: Receive TAN

   • The TAN is issued and sent to the deductor's registered address.