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Introduction
TDS is the abbreviation for Tax Deducted at Source. It is a form of direct tax levied on individual taxpayers. The concept of TDS was introduced with the idea to collect tax at source i.e. the onus of deducting the tax will lie with the person making the payment.
TDS applies to payments like salary, commission, rent, interest, sale of property, etc. Tax is deducted on specified payments at the prescribed rates that are subject to change from time to time by means of a notification or a circular issued by the Central Board of Direct taxes (CBDT). The prime intent of introducing this type of taxation system was to reduce the chances or cases of tax evasion and thereby increase the tax collections.
Incomes Liable for TDS
TDS like any other tax is a direct tax that is levied on the income of a person. There are certain specified incomes that qualify for TDS deductions. Given below are a few examples of such incomes where the person making the payment is liable to deduct a tax at source on applicable rates.
- Salary
- Director’s Remuneration
- Professional Fees
- Consultation Fees
- Commission
- Brokerage
- Rent payments
- Insurance Commission
- Deemed Dividend
- LIC Payments
- Bank Interest
- Interest on securities
- Lottery Winnings, etc.
- Sale of immovable property
- Transfer of immovable property
TDS should be deducted irrespective of the payment method i.e. cheque, cash or credit or online transfer. The TDS deducted should be deposited with the income tax department under the PAN number of the deductee.
TDS rates
Given below are the rates applicable for certain incomes which are liable for deduction of tax at source.
| Type of payment | Applicable section | TDS rate from 1st April to 13th May 2020 | TDS rate post 14th May 2020 |
|---|---|---|---|
Salary | 192 | As per relevant income tax TDS slabs, including cess if any | As per relevant income tax slabs, including cess if any |
Interest earned from securities | 193 | 10.00% | 7.50% |
Accumulated taxable earnings on PF | 192A | 10.00% | 10.00% |
Interest earned from fixed deposit | 194A | 10.00% | 7.50% |
Dividends earned from company-owned shares and mutual funds | 194K & 194 | 10.00% | 7.50% |
Winnings from bets on horse races | 194BB | 30.00% | 30.00% |
Winnings from crosswords, lottery or any other game | 194B | 30.00% | 30.00% |
Insurance commission earned by the individual | 194D | 5.00% | 3.75% |
Contractors and subcontractor payments | 194C | 1% (HUF/Individual), 2% (others) | 0.75% (HUF/Individual), 1.5% (others) |
Payments on deposits made under National Savings Scheme | 194EE | 10.00% | 7.50% |
Taxable Life Insurance Policy as per Section 10(10D) | 194DA | 5.00% | 3.75% |
Commission, prize money, etc. on selling lottery tickets | 194G | 5.00% | 3.75% |
Payments made on UTI or Mutual Funds re-purchases | 194F | 20.00% | 15.00% |
Payment made for buying property or land | 194 IB | 1.00% | 0.75% |
Brokerage or commission received other than an insurance commission | 194H | 5.00% | 3.75% |
Rent payment by HUF or individual exceeding 50,000 every month | 194 IB | 5.00% | 3.75% |
Cash withdrawal of more than 20,00,000 or 1,00,00,000 | 194N | 2.00% | 2.00% |
Payment made to professionals or brokerage or commission of 50,00,000 or above | 194M | 5.00% | 3.75% |
Professional fees payment | 194J | 2% (FTS, call centre, certain royalties), 10% (others) | 1.5% (FTS, call centre, certain royalties), 7.5% (others) |
TDS Returns
After deducting the tax at the source of the payment, it is mandatory for all such persons who have deducted at source to file the TDS returns on quarterly basis. The various details that have to be furnished at the time of filing the return are,
- TAN (Tax Deduction or Collection Account Number)
- Amount of TDS deducted
- Type of Payment
- PAN of Deductee
There are different types of forms that are applicable depending on the purpose of deduction of TDS. Following are the types of forms and the due dates for filing the TDS Return.
| Form No. | Transactions Reported | Due Date |
|---|---|---|
Form 24Q | TDS on Salary | Q1-31st July Q2-31st October Q3-31st January Q4-31st May |
Form 26Q | TDS on all Payments except Salary | Q1-31st July Q2-31st October Q3-31st January Q4-31st May |
Form 26QB | TDS on Sale of Property | 30 days from the end of the month in which TDS is deducted |
Form 26QC | TDS on Rent | 30 days from the end of the month in which TDS is deducted |
TDS Certificate
TDS certificates have to be issued by a person deducting TDS to the assessee from whose income TDS was deducted while making payment. There are various types of TDS certificates that are issued depending on the type of payment.
Given below are the details of the various types of Forms issued to the assessees and the frequency of its issuance.
| Form | Certificate of | Frequency | Due Date |
|---|---|---|---|
Form 16 | TDS on Salary | Yearly | 31st May |
Form 16 A | TDS on all Payments except Salary | Quarterly | 15 Days from Due Date of Filing Return |
Form 16 B | TDS on Sale of Property | Every Transaction | 15 Days from Due Date of Filing Return |
Form 16 C | TDS on Rent | Every Transaction | 15 Days from Due Date of Filing Return |
If a person expects that his total income in a financial year will be below the exemption limit, he can ask the payer not to deduct TDS by submitting Form 15G/15H.
Penalties for Late Filing of TDS Returns
The penalties for not filing a TDS Return or filing the TDS Return after the due date are mentioned below.
Failure to submit your returns
As per section 272A(2) of the Income Tax Act, 1961 a penalty of Rs.100 will be levied for each day that the returns are not submitted, subject to a maximum of the TDS amount.
Failure to file your returns on time
As per section 234E of the Income Tax Act, 1961 a penalty of Rs.200 will be levied for each day that the returns are not filed, subject to a maximum of the TDS amount.
For defaults in the filing of TDS statement
As per section 271H of the Income Tax Act, 1961 a penalty of Rs.10,000 to Rs.1,00,000 will be levied in case the deductor defaults at the time of filing TDS returns within the due date.
For incorrect details
As per section 271H of the Income Tax Act, 1961 a penalty of Rs.10,000 to Rs.1,00,000 will be charged in case the deductor submits incorrect information pertaining to PAN, challan particulars, TDS amount, etc.
For non-payment of TDS
As per section 201A of the Income Tax Act, 1961 interest will also be levied along with the penalty in case TDS is not paid within the due date. In case a part of the tax amount or the whole of it is not deducted at source, interest will be charged at 1.5% every month starting from the date on which the tax was deductible to the date on which the tax is actually deducted.
Non-Applicability of TDS
There are many incomes where the TDS is not applicable. Some examples of such non-applicability of TDS are mentioned below.
- Payment done towards notified mutual funds as per section 10(23D)
- Payment done towards a government body or to the government and Reserve Bank of India.
- If the deductee has a non-deduction certificate as per section 192 of the Income Tax Act
- Payment done towards central or state financial corporations
- Interest paid or credited to:
- A banking company or banks
- National Savings Certificate
- Unit Trust of India, Life Insurance Corporation or different insurance companies
- Banking Co-operative Society
- Kisan Vikas Patra
- Non-Resident External Account
- A notified body for TDS non-deduction
- Savings account deposits, recurring deposits of banks as well as co-operative societies
FAQs on TDS (Tax Deducted at Source)
1. What is the full form of TDS?
The full form of TDS is Tax Deducted at Source.
2. How can a person check if the TDS paid is deposited correctly?
The TDS paid is deposited with the government and is reflected in Form 26AS of the assessee apart from receiving the TDS Certificate.
3. What are the consequences of not deducting or depositing the TDS?
Following are the consequences of not deducting or depositing the TDS as per the rules of the IT Act, 1961.
- In the event of non-deposit or non-deducting of applicable TDS, the deductor or payer is considered to be an assessee in default and is subject to levy of interest at the rate of
- 1% on the tax amount for the month or part of the month from the date of deducting such tax to the date when it was actually deducted, or
- 1.5% on the tax amount for the month or part of the month from the date of deducting such tax to the date when it was actually paid to the department.
- Such defaulters may also be subjected to a penalty to the amount of tax that is unpaid or is not deducted on time.
4. What are some of the advantages of TDS?
TDS is beneficial to both the Government as well as the taxpayer. Some of the major advantages of TDS are,
- Convenience to the assessee
- Reduces chances of tax evasion
- Expansion of tax base
- Timely collection of tax
- Reduction of the authorities in processing as well as collection of tax
5. Will the employee face any penalty in case the employer fails to deduct or deposit TDS?
No. The onus of deducting and depositing the TDS is on the employer and hence the consequence or penalty for non-compliance is also faced by the employer and not the employee.
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