What is Tax Deduction at source (TDS)
In order to collect quick and frequent collection of tax government has introduced a system of collection tax from the payment made by payer to the payee. Under this system TDS rate is specified and the payer is liable to deduct the TDS at the rate specified under the income tax act.
Tax is deducted by payer and payer is called as deductor and payee is called as deductee. The provisions of TDS are applicable on several payment such as Salary, Interest, commission, brokerage, Professional fees, royalty, contract payments, etc.
Which payments are covered under the TDS mechanism and what are the rates of TDS?
| WHEN RECIPIENT IS RESIDENT | |
| Nature of payment | TDS (SC : Nil, EC : Nil, SHEC : Nil) |
| • Sec. 192 – Payment of salary | Normal or Special Tax Rate plus surcharge
and education cess Surcharge: 10% (if total income exceeds Rs. 50 lakh but doesn’t exceed Rs. 1 crore), 15% (If total income exceeds Rs. 1 crore but doesn’t exceed Rs. 2 crore), 25% (If total income exceeds Rs. 2 crore but doesn’t exceed Rs. 5 crore), 37% (If total income exceeds Rs. 5 crore) HEC : 4% |
| • Sec. 192A – Payment of taxable accumulated balance of provident fund | 10 |
| • Sec. 193 – Interest on securities— | |
| a. interest on (a) debentures/securities for money issued by or on behalf of any local authority/statutory corporation, (b) listed debentures of a company [not being listed securities in demat form], (c) any security of the Central or State Government [i.e., 8% Savings (taxable) Bonds, 2003 or 7.75% savings (Taxable) Bonds, 2018, but not any other Government security] | 10 |
| b. any other interest on securities (including interest on non-listed debentures) | 10 |
| • Sec. 194 – Dividend— | 10 |
| • Sec. 194A – Interest other than interest on securities | 10 |
| • Sec. 194B – Winnings from lottery or crossword puzzle or card game or other game of any sort | 30 |
| • Sec. 194BB – Winnings from horse races | 30 |
| • Sec. 194C – Payment or credit to a resident contractor/sub-contractor— | |
| a. payment/credit to an individual or a Hindu undivided family | 1 |
| b. payment/credit to any person other than an individual or a Hindu undivided family | 2 |
| • Sec. 194D – Insurance commission | 10 |
| – if recipient is a resident (other than a company) | 5 |
| – if recipient is a domestic company | 10 |
| • Sec. 194DA – Payment in respect of life insurance policy | 1 |
| • Sec. 194EE – Payment in respect of deposits under National Savings Scheme, 1987 | 10 |
| • Sec. 194F – Payment on account of repurchase of units of MF or UTI | 20 |
| • Sec. 194G – Commission on sale of lottery tickets | 5 |
| • Sec. 194H – Commission or brokerage | 5 |
| • Sec. 194-I – Rent— | |
| a. rent of plant and machinery | 2 |
| b. rent of land or building or furniture or fitting | 10 |
| • Sec. 194-IA – Payment/credit of consideration to a resident transferor for transfer of any immovable property (other than rural agricultural land) | 1 |
| • Sec. 194-IB – Payment of rent by an individual or HUF not subjected to tax audit under Section 44AB | 5 |
| • Sec. 194-IC – Payment under Joint Development Agreement to a resident individual or HUF who transfers land or building as per such agreement | 10 |
| • Sec. 194J – Fees for professional
or technical services. Note: 2% if payee is engaged in the business of operation of call center | 10 |
| 1. sum paid or payable towards fees for technical services | 2 |
| ii. sum paid or payable towards royalty in the nature of consideration for sale, distribution or exhibition of cinematographic films; | 2 |
| iii. Any other sum | 10 |
| Note: 2% if payee is engaged in the business of operation of call center | |
| • Sec. 194LA – Payment of compensation on acquisition of certain immovable property | 10 |
| • Sec. 194LBA(1) – Payment of the nature referred to in section 10(23FC) or section 10(23FC)(a) or section 10(23FCA) by business trust to resident unit holders | 10 |
| • Sec. 194LBB – Payment in respect of units of investment fund specified in section 115UB | 10 |
| • Sec. 194LBC(1) – Payment in respect of an investment in a securitisation trust specified in clause (d) of the Explanation occurring after section 115TCA (with effect from June 1, 2016) | – |
| section 194M – Payment of contractual work, commission (not being insurance commission referred to in section 194D), brokerage or professional fees, by an individual or a HUF not covered under section 194C, section 194H and 194J | 5 |
| section 194N – Payment in cash by banking company or co-op. bank or post office | 2/5 |
| section 194K – Income in respect of units payable to resident | 10 |
| Section 194P – Deduction of tax by specified bank in case of senior citizen having age of 75 or more | Tax on total income as per rate in force |
| Section 194Q – Payment to resident for purchase of goods of the aggregate value exceeding Rs. 50 lakhs | 0.1 % exceeding Rs. 50 lakhs |
| Section 194R – Deduction of tax in case any benefit or perquisite is provided and aggregate value of such benefit/perquisite exceeds Rs. 20,000 Note: Benefit or perquisite should be arising from business or the exercise of a profession by such resident. | 10% |
| Section 194S – Payment on transfer of Virtual Digital Asset | 1% |
Can I request deductor not to deduct TDS and pay the amount without deduction of TDS?
Yes, You can approach the deductor and file declaration in Form 15G/15H, as the case may be, to the effect that the tax on your estimated income including the income on which tax is required to be deducted will be Nil.
Form 15G is to be filed by a person other than the company or firm and Form 15H is filed by senior citizen to the deductor.
What consequences does deductor face if TDS is not deducted on the payment on which it was required?
As per the section 40(a)(ia), any sum payable to the resident on which tax was required to be deducted but tax was not deducted, then 30% disallowance would attract if it is paid without deduction, however, where tax is deducted in subsequent year, the expenditure shall be allowed in the year of deduction.
What to do if TDS credit is not reflected in Form 26AS?
Non-reflection of TDS in Form 26AS can be due to several reasons like non-filing of TDS returns by deductor, quoting incorrect PAN. In any case you won’t find your TDS credit in Form 26AS, you should contact to deductor for non-reflection of TDS credit in Form 26AS.
At what rate TDS would be deducted if PAN is not furnished?
As per the section 206AA, if deductee does not furnish his PAN, then the deductor shall deduct tax at the higher of the following rates :
- At the rate specified in the relevant provision of the Act.
- At the rate or rates in force, i.e., the rate prescribed in the Finance Act.
- At the rate of 20%.
