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).
- In case of Resident Payee: TDS shall be deducted WITHOUT ANY SURCHARGE/EC/SHEC which means TDS shall be deducted at applicable rates only. Except for the case of Salary i.e., while deducting TDS on salary then Surcharge, EC & SHEC shall be deducted at normal slab rates. e.g if the salary exceeds Rs. 50 Lakhs then SC and EC & SHEC shall also be calculated and deducted.
- In case of Non-Resident Payee: TDS shall always be deducted inclusive of the respective Surchage, EC & SHEC with the rates of TDS.
(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:
- In the case of Non-Monetary Perquisites, Employer instead of deducting TDS could directly pay the tax him/herself. But tax rate shall be the same average rate which would have been charged on the total salary of the employee including this non-monetary perquisite.
- If the employee is working under more than one employer OR has worked under more than one employer during the previous year (i.e. left the job at one place and join somewhere else) then the employee MAY (at his option) could provide any employer (if simultaneously working)/last employer (if left and join another employer) his other employment details and the Employer would calculate TDS after considering the entire salary including which he is receiving from other employers as well and deduct the TDS on such salary.
- If Employee is having incomes from other heads as well (any other heads) or Loss (ONLY under House Property) then Employee may give such details to his Employer and Employer would consider such income/loss (from house property) while calculating TDS.
- [Section 192A] TDS on Accumulated Balance of Recognised Provident Fund (RPF): While paying the amount accumulated in RPF account of Employee, Employer would Deduct TDS @10% (at MMR i.e. 35.535% if PAN not provided) if the RPF balance is Above Rs. 50,000/- & Employee has withdrawal it pre-maturely (e.g. Before completion of 5 years of continuous service). Also, If form 15G/15H provided by Employee then, No Deduction at all.
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:
- When Interest on Debentures is being paid by Widely Held Company to Resident Individual/HUF through A/c Payee Cheque and Such Interest amount is Up to Rs. 5,000/- only.
- If Debentures has been issued by Listed Company; but Debenture is in Physical form then, No TDS if Interest is Up to Rs. 5,000/-.
- If Debentures has been issued by Listed Company; but Debenture is Not Listed (whether Physical form or Demat Form) then, No TDS if Interest is Up to Rs. 5,000/-.
[In all the above 3 cases if Interest amount exceeds Rs. 5,000 then TDS would be on entire Amount]
- If Any Securities (Share, Debenture, Bonds etc.) is in Demat form & Listed then there would be NO TDS at all (i.e. without any threshold).
- No TDS at all in any manner on Govt. Securities.
- When the Interest On Securities is being received by the Insurance Company then, No TDS at all.
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:
- Here Deduction would be made only in case of Dividends which are covered u/s 2(22)(e) & u/s 115BBDA. Because on rest all the other dividends Company itself pays the DDT and they are exempt in the hands of the Shareholders.
- If Dividend is being received by the Insurance Company then, No TDS at all.
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:
- When the Payer is Banking Co., Co-Operative Society Bank, Post Office; & Interest is being Paid on Time Deposit (i.e. FD/RD) up to Rs. 10,000/- (but if amount Exceeds Rs. 10,000/- then TDS on the whole amount). No TDS at all on Interest on Saving Accounts.
- In any other type of Interest; Up to Rs. 5,000/- = No TDS (if exceeds then on the whole amount)
- When interest is being paid to Co-Op Society/Insurance Co./Financial Corporation/UTI.
- When Interest is paid by Firm to its partner (e.g. Interest on Loan/Capital etc.)
- No TDS on Interest on Refund of Income Tax.
- Interest on ZCB.
- Interest is paid by Co-Operative Society--> to its Member/Another Co-Operative Society.
- Interest is Paid on Compensation of Motor Accident Claim Tribunal if Interest is up to Rs. 50,000/- (if exceeds then TDS on the whole amount).
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:
- TDS u/s 194B shall be deducted on Lottery, Crossword Puzzles, Card games or any other games of any sort. TV Programmes e.g. Kaun Banega Crorepati, Dance India Dance etc. shall also come under its purview and program organizer has to deduct TDS before releasing the Award money/Prize.
- TDS shall be deducted even if the Prize is not wholly in money. The FMV of the Prize shall be considered for TDS deduction.
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:
- When Invoice separately shown the Amount Charged by Job worker and Value of Material = Then TDS shall be deducted on Amount Charged only.
- When there is no such separation then TDS shall be charged on the entire amount (including Value of material)
(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;
- Underwriting commission paid to Underwriters
- Brokerage or Sub-Brokerage paid to Stock Exchange Transaction.
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:
- Where there is more than one owner (i.e. co-owner) then limit of Rs. 1,80,000/- shall be allowed for each such co-owner separately.
- TDS on Deposit: TDS shall not be deducted on Refundable Deposits. If the Deposit is Non-Refundable then TDS has to be deducted. Further, If Deposit was Refundable initially but later on such deposits has been adjusted then on such adjustment TDS shall be deducted.
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:
- TDS under this section is deducted when payment is made towards any immovable property Other than Agriculture Land (i.e. No TDS at all in case of Agri. land) and the sale price exceeds Rs. 50 Lakhs.
- No TDS when the property is being purchased from Non-Resident.
- For Deducting TDS under this Section, Purchaser is not required to obtain TAN.
- IF PAYMENT HAS BEEN MADE IN INSTALLMENTS THEN TDS NEED TO BE DEDUCTED ON EVERY INSTALLMENT.
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:
- If the Tenant has paid rent of Rs. 50,000/- at any time during the Previous year (even in any single month) then TDS shall be deducted on the entire amount paid during the whole previous year.
- TAN is not required for deducting TDS under this Section.
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:
- Any amount paid as a remuneration etc. or by any name to DIRECTOR of a Company then TDS shall be deducted irrespective of the amount. i.e. Even Rs. 1,000/- is paid, TDS shall be deducted.
- No TDS shall be charged on the amount paid by Individual/HUF for any services taken Exclusively for Personal Purposes.
- No TDS on Professional Fees paid by Non-Resident to the CAs, Lawyers, Advocates, solicitors in India if such payment is made through banking channel and such non-resident does not have any agent or business connection in India.
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:
- Whenever any threshold limit is given then as soon as the payment would cross that threshold then TDS would always be deducted on the Entire amount.
- Whenever the Deductee does not Furnish his PAN then TDS shall be deducted at the rates which are HIGHER of the Rates in force (as per the Relevant section/Finance Act) OR 20%.
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.
The author can also be reached at niteshkbind@gmail.com.
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