What is Tax Deduction at Source (TDS)?
According to Indian Income Tax Act there are some specified payments against which tax is to be deducted at the time of payment or at the time of accrual, is called Tax Deducted at Source. Tax is being deducted by the person who pays the money at prescribed rates and deposited with the authorities within stipulated period.
The purpose of deduction of tax at source is to bring more persons in to net of income tax. The rules for income tax deduction at source have been framed in such a manner so that tax evasion can be controlled. However, if the income of any person is not taxable and the tax has been deducted at source, he can claim for refund against the tax deducted at source from income tax department after filing the annual income tax return.
WHO IS LIABLE TO DEDUCT TAX AT SOURCE
Following persons are liable to deduct the tax at source:-
A) All Individuals (Including sole-proprietorship concerns) and HUF, who are not covered under tax audit, shall deduct TDS against all the specified payments except:-
- Interest paid
- Payment to contractor and sub-contractors.
- Commission paid
- Rent paid
- Professional fees and technical fees paid.
B) Individual/HUF who are covered under tax audit, will deduct tax at source on all specified payments.
C) Partnership firms and Companies and persons other than individuals and HUF, will deduct tax at source on all specified payments.
Tax audit: A person is liable to get its account audited u/s 44AB of Indian Income Tax Act, if the gross receipts or gross turnover exceeds Rs. one crore during financial year 2016-17 in case of a business and in case of profession the gross receipts exceeding Rs.50 lacs in financial year 2016-17.
Note: Payments made by individual/HUF against specified payments, shall not be liable for deduction at source for following purposes:-
- Payment to contractor or sub-contractor, exclusively for personal purpose.
- Payment of professional fees and technical fees exclusively for personal purposes.
- Rent for personal purposes.
FEW IMPORTANT SPECIFIED PAYMENTS ON WHICH TAX IS TO BE DEDUCTED AT SOURCE
For financial year 2016-17 (A.Y 2017-18) following are the details of few important payments against which tax must be deducted at source whether paid or credited during the financial year :-
- Payment of taxable salaries to the employees.
- Interest on listed debentures exceeding 5000/=
- Interest on private loans exceeding Rs.5000/=
- Interest on fixed deposits including recurring deposits in bank exceeding Rs.10000/= (all branches of a bank).
- Interest on 8% Saving (Taxable) Bonds,2003, exceeding Rs.10000/=.
- Interest on deposits with a housing finance company eligible for deduction u/s 36(1)(viii), where interest payable exceeds Rs.5000/= (all branches of a housing company).
- interest on compensation awarded by the Motor Accidents Claims Tribunal, where such interest exceeds Rs.50000/=.
- Winning from lotteries, crossword puzzles or card gain television game shows and other entertainment programmes on which people win prizes etc. exceeding Rs.10000/= (whether in cash or in kind).
- Winning from horse races exceeding Rs.10000/= (5000/= up to 31.05.16)
- Payment to contractors or sub-contractor when single payment exceeds Rs.30000/= or during the year it exceed 100000/= (Rs75000/= up to 31.05.16).
- Commission to insurance agents exceeding Rs.15000/= (Rs. 20000/= up to 31.05.16)
- Commission or prize on lottery tickets exceeding Rs.15000/= (Rs.1000/= up to 31.05.16).
- Commission other than insurance commission exceeding Rs. 15000/= (Rs.5000/= up to 31.05.16).
- Payment of Rent (excluding service tax) paid to a resident under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of land appurtenant to building including factory building or machinery or plant or equipment or furniture or fittings whether separately or together, when such payment made or credited during a financial year exceeds Rs.180000/=.
- Fees for professional services exceeding Rs.30000/=
- Fees for technical services exceeding Rs.30000/=.
- Royalty exceeding Rs.30000/=.
- Payment to non-resident foreigner sportsman.
- Payment on repurchase of units issued under Equity Linked Saving Schemes.
- Payment of any standing to the credit of the assessee in an account under the National Saving Scheme,1987 for Rs.2500/= or more during a financial year.
- Payment to a resident by way of consideration for transfer of any immovable property other than agricultural land where such consideration exceeds Rs. 50 lakhs.
RATES OF TAX DEDCTION AT SOURCE (TDS)
For financial year 2016-17 (A.Y. 2017-18), following are the rates of TDS:-
|SPECIFIED PAYMENTS||RATES OF TAX|
|Salary||Total Tax Divided by 12|
|Interest on personal loan||
|Interest on deposits in bank .||
|Interest on listed debentures||
|Interest on 8% Saving (Taxable) Bonds,2003, exceeding Rs.10000/=||
|Winning from lotteries, crossword puzzles or card gain etc.||
|Winning from horse races exceeding||
|Payment to contractors or sub-contractor :-
– Payment to individuals 1%
|Commission to insurance agents||
|Commission or prize on lottery tickets||
|Commission other than insurance commission||
(10% up to 31.05.16)
|Rent paid for building use exceeding Rs.180000/= per annum||
|Fees for professional services||
|Fees for technical services||
- No Education Cess and Secondary & Higher Education Cess is to be charged on TDS.
- With effect from 01.04.10 all payees/deductees are required to furnish their PAN (Permanent Account Number) to the deductor. Otherwise, the deductor shall deduct TDS at the applicable rate or @ 20%, whichever is higher.
WHEN NOT TO DEDUCT TAX AT SOURCE
Tax shall not be deducted at source in case of payment of (i) interest on securities (ii) time deposits with bank and interest other than interest on securities (iii) dividend (under section 194) (iv) withdrawal from National Saving Scheme,1987, if the deductee furnishes Form 15-G (Form 15-H for senior citizens of 60 years and very senior citizen who is 80 years old or more) that the tax on his estimated total income will be nil during financial year in which the amount is paid or credited subject to the following conditions:-
- Form 15-G is can be submitted by individuals below 60 years.
- 15-H can be issued by senior citizen who is 60 years old and less than 80 years.
- 15-H can also be issued by very senior citizen who is 80 years and more.
- Form 15-G should not be submitted by the deductee if the amount of interest exceeds exemption limit i.e. Rs.250000/= whether his/her income is below taxable limit after deductions claimed under chapter VI-A.
- However, a resident senior citizen can furnish Form 15H even his/her income from interest exceeds exemption limit but after deductions claimed under chapter VI-A, should not be taxable.
Following are the details of Mr. X and Mr. Y for financial year 2016-17:-
|Interest from Fix deposits with bank||
|Less: Deduction under chapter VI-A||
|Total Taxable Income||
In above example Mr. X can not furnish the declaration form 15-G, to bank because his income from interest is more than Rs.250000/= even his taxable income is nil. But being a senior citizen Mr. Y can furnish Form 15-H even his income from interest from bank is more than Rs.300000/= because his taxable income is nil. Exemption limit for Senior citizen is Rs.300000/= for financial year 2016-17 and for other individual the exemption limit is Rs.250000/= for financial year 2016-17.
Now, we take the example of Very Senior Citizen. Suppose in F.Y. 2016-17 the Income from bank interest of Mr. A is Rs.550000/= and income from other sources is Rs.60000/=. Mr. A invests the money in Tax Saving Schemes under Section 80-C Rs.150000/=. Mr. A is 82 years old. In this case the net income of Mr. A shall be Rs.460000/= i.e. (550000+60000-150000). Mr. A can furnish Form 15-H, though his income from bank interest is more than his exemption limit. The exemption limit for Very Senior Citizen is Rs.500000/= for F.Y. 2016-17.
In case of Charitable Trusts/ religious trusts and societies whose income are exempted under section 11 or section 12, can request to Income Tax Officer for Form 197 to claim exemption for unlimited amount of interest. The application is submitted by the trust in form No.13. The Income Tax Officer will issue such certificate if the following conditions are satisfied:-
1. The person concerned has submitted all the income tax or TDS returns for all assessment years before the date of application.
2. The person concerned is approved for the purpose of income tax exemption.
3. The name, addresses, PAN Numbers of the persons from whom the interest is to be received during the financial year. The amount of Interest to be received from them is also to be mentioned during the particular financial year.
4. The certificate given by Income Tax Officer is Valid only for one Financial Year.
The societies/religious trust/ charitable trust can submit Form 15-G up the the interest receivable for Rs.250000/= from a single person. during a financial year 2016-17. For example there are two persons from whom a trust has to receive interest Rs.240000/= and Rs.230000/= during a financial year 2016-17. In this case, the trust can submit separate 15-G forms to different parties.
If the interest amount is more than RS.250000/= then the above mentioned persons have to apply with Income Tax Officer for TDS exemption certificate i.e. Form197. This certificate can be issued any amount of interest to be received during the financial year.
Time Limit For Depositing The TDS
|If the amount is credited in payee’s account in the month of March||On or before 30th April.|
|In any other case||Within seven days from the end of the month in which deduction is made|
PROCEDURE FOR DEPOSITING TDS
- TDS should be deposited within prescribed time along with Challan No. 281 for All type of TDS.
- Separate Challans should be used for TDS deducted from companies and non- Companies.
- TDS amount can be deposited in any authorized bank by Income Tax Department.
Note : With effect from 01.04.2008 All Companies and the assessees under Tax Audit U/s 44AB, are required to pay through Internet Banking (Online Payment) only.
Any person who deducts the tax at source, issues a certificate to the payee which gives all the details in respect tax deducted, deposit particulars of tax etc. With the help of the TDS certificate, the payee can claim the credit of TDS against tax payable by him. TDS certificates are issued in following forms:-
|For salaries||Form 16|
|For all other payments||Form 16-A|
Time Limit Of Issuing TDS Certificates
- Form 16 for salaries, should be issued annually by 31st day of May from the closing date of the financial year.
- Form 16 should be issued on quarterly basis as follows:
|Quarter Ending||Due date of issue of form 16-A|
|30th June||15th August|
|30th September||15th November|
|31st December||15th February|
|31st March||15th June|
FURNISHING OF QUARTERLY STATEMENT FOR TDS (Quartery Return of TDS)
A person who deducts the TDS will have to furnish a quarterly return with Income Tax Authorities or any person authorized by income tax authorities i.e. National Securities Depository Ltd. within prescribed time as under:-
|Purpose||Last date for filing||Form No.|
|TDS on salaries||31st July, 31st Oct, 31st January in respect of first three quarters and 31st May in respect of last quarter||
|TDS in cases, other than above||
– Do –
26Q AND 27Q AND 27EQ
PENALTY FOR NON-DEDUCTION OF TAX AT SOURCE
Failure to deduct/collect tax at source shall result penalty equal to the amount of tax failed to be deducted/collected.
PENALTY FOR NON-DEPOSIT OF TAX DEDUCTED/COLLECTED AT SOURCE
Non-deposit of tax deducted/collected to the Government account, shall invite prosecution.
PENALTY FOR DELAY IN FILING OF QUARTERLY STATMENT IN RESPECT OF TAX DEDUCTED AT SOURCE
Delay in filing of TDS statements shall entail levy of fee or Rs.200/= for each day of default not exceeding amount of tax deductible.
PENALTY FOR NON-ISSUE OF TDS CERTIFICATES
Delay in issue of TDS certificate shall result in penalty of Rs.100/= for each day of default not exceeding the amount of tax deductible/collectible.
If any person wants to confirm that the tax deducted from the payment made to the concern person is being deposited with tax authorities or no, then he can view form 26-AS from the site of Income Tax Department. If the deduction made by the payer are matched with the record of the deductee then there is no need to produce the TDS certificates. If there is a difference in the amount of tax deduction and tax deposits then the deductee must ask for Form 16.
Form 26-AS gives the complete details of Income and the tax deducted thereon by the payers.
Deduction and Collection Account Number (TAN)
Every person who deducts the tax at source must apply for allotment of TAN in form number 49B in duplicate within one month from the end of the month in which tax was deducted. TAN should be quoted on every challan, certificates, returns, statements and other related documents. A penalty can be imposed in case failure to apply for TAN. However, the persons required to deduct TDS on payment of consideration for transfer of an immovable property u/s 194IA shall not be required to obtain TAN.
Notified Deposit Schemes on Which Tax is not Deducted
- Post Office Recurring Deposit Account
- Post Office Time Deposit Account (1 year, 2 years, 3 years and 5 years).
- Post Office Monthly Income Account.
- Kisan Vikas Patras.
- National Saving Certificates (VIII Issue).
- Indira Vikas Patras.
- National Saving Scheme,1992.
(A) Tax Deduction and Collection Account Number (TAN)
- Obtaining and quoting of TAN shall not apply to such deductors as may be notified by the Government with effect from 01.06.15.
- A company which has not been registered under the Companies Act,2013 may apply for TAN in Form number INC-7 of Companies Rules.
- A person who deducts the TDS on transfer of immovable property exceeding Rupees 50 lakhs is not required to obtain TAN.