TDS is one of the modes of collection of taxes, by which a certain percentage of amounts are deducted by a person at the time of making/crediting certain specific nature of payment to the other person and deducted amount is remitted to the Government account. It is similar to "pay as you earn" scheme also known as Withholding Tax in many other countries, one of the countries is USA. The concept of TDS envisages the principle of "pay as you earn". It facilitates sharing of responsibility of tax collection between the deductor and the tax administration. It ensures regular inflow of cash resources to the Government. It acts as a powerful instrument to prevent tax evasion as well as expands the tax net.
Objectives of TDS
Tax Deducted at Source was introduced in India to facilitate the payment of tax while receiving the income and it follows the concept of “Pay as you earn”. However, the purposes of tax deducted at source is changing slowly. Now, the objectives of tax deducted at source are: • To enable the salaried people to pay the tax as they earn every month. This helps the salaried persons in paying the tax in easy instalments and avoids the burden of a lump sum payment. • To collect the tax at the time of payment of income to various assessees such as contractors, professionals etc. • Government requires funds throughout the year. Hence, advance tax and tax deducted at source help the government to get funds throughout the year and run the government smoothly. • It helps to spread the tax net wide enough to include persons who might otherwise have evaded taxes. The minimum thresholds are raised and the rates are reasonable and comparable with the rates prevailing in other countries. Hence, it is very vital to make all the persons earning the taxable income pay the tax. But, the best way to make them pay is to deduct tax at source.
Who shall deduct tax at source?
Every person responsible for making payment of nature covered by TDS provisions of Income Tax Act shall be responsible to deduct tax. However in case of payments made under sec. 194A, 194C, 194H, 194I and 194J in respect of individual and HUF, only if the turnover or professional receipt exceeds sum of Rs. 100 lakh or Rs. 25 lakh respectively in previous year, he is required to deduct tax at source. Example: Tax Audit is applicable in FY 2013-14 so TDS required to be deducted from FY 2014-15.
These persons are mainly:
- Principal Officer of a company for TDS purpose including the employer in case of private employment or an employee making payment on behalf of the employer. - DDO (Drawing & Disbursing Officer), In case of Govt. Office any officer designated as such. - In the case of "interest on securities" other than payments made by or on behalf of the Central govt. or the State Government, it is the local authority, corporation or company, including the Principal Officer thereof.
Such person is called Deductor while the person from whom the tax is deducted is called Deductee. Tax must be deducted at the time of payment in cash or cheque or credit to the payee's account whichever is earlier. Credit to payable account or suspense account is also considered to be credit to payee's account and TDS must be made at the time of such credit.
What a deductor must do?
1. Obtain TAN Every deductor is required to obtain a unique identification number called TAN (Tax Deduction Account Number) which is a ten digit alpha numeric number e.g.DELH90468K. This number has to be quoted by the deductor in every correspondence related to Income Tax matters concerning TDS. 2. He/She should obtain PAN of the deductee. 3. He/She should deduct the tax at correct rate. For TDS Rates see: Annexure-I 4. The tax deducted has to be deposited in the designated banks within specified time. (Govt. deductors shall transfer the tax deducted through book entry in Government account).This is detailed below: ▬ By or on behalf of the Government : on the same day, ▬ By or on behalf of any other person : On or before the 7th of the following month. However, for the month of march the tax should be remitted by 30th April. (Prior to FY 10-11, if the amount is credited in the books on 31st March then the tax had to be remitted by 31st May and if TDS deducted on payment on 31st March due date remained 7th April) Note: w.e.f., 01.04.2008 electronic payment of tax has to be done by all corporate assesses and all persons whose cases are auditable under section 44AB. 5. Use challan no. 281 for depositing TDS amount. Use Form 26QB for Payment of TDS on Sale of Immovable Property. 6. File statements of tax deduction in the prescribed time. The due dates for filing of TDS/TCS statement are: 15th of July for Quarter 1, 15th of October for Quarter 2, 15th of January for Quarter 3 and 15th May for last Quarter
7. Use correct form to file TDS/TCS Returns. They are: Form 24Q - for salaries Form 26Q - for non salaries Form 27Q - For Non Resident (TDS deducted u/s 195) Form 27EQ - for TCS Form 26QB - Challan –cum-Statement for TDS deducted on Sale of Immovable Property u/s 194IA. Form 27A/27B Control sheet for electronic TDS/TCS
It may be noted that the following persons have to compulsorily file e-TDS /e-TCS statements • All government offices/Departments • All companies /corporations • All persons whose cases are auditable • All persons whose TDS statements contain more than 50 deductees. Dos & Dont's for filing TDS Returns
Dos • Ensure that TDS return is filed with same TAN against which TDS payment has been made & TDS certificate is issued. • Ensure that correct challan particulars including CIN and amount is mentioned. • Correct PAN of the deductee is mentioned. • Correct section is quoted against each deductee record. • Correct rate is quoted against each deductee record. • File correction statement as soon as discrepancy is noticed • Retain the original FVU file to enable future corrections • Make use of free of charge RPU provided through TIN-NSDL.com • Download details of challan from challan status enquiry (TAN based view) from TIN-NSDL.com • Registration of TAN at TRACES (tdscpc.gov.in) is a MUST. • Always verify status of TDS returns from TRACES to ascertain the discrepancy, if any, and/or whether your TDS return stands accepted with or without default by the system. • Mention the details of Transporter in your Return and maintain the records of Transporter and obtain a copy of their PAN card. • Deduct TDS @ 20% if PAN not provided by Deductee (U/s 206AA)
Dont's • Don't file late returns as it affects deductee tax credit. It also attract late fee of Rs 200 per day u/s 234E. • Don't quote incorrect TAN vis-à-vis TDS payments. • Don not late deposit TDS as it attracts penal interest (Raised from 1% to 1.5% per annum w.e.f. 01.07.2010) as well as penalty us/ 221. • Do not quote incorrect PAN.
CAclubindia
