What is TDS? Understanding TDS

hsn code gst india

Understand what is TDS and how it is calculated with its meaning, TDS deduction details, due dates, and examples.

Understanding TDS

It stands for ‘Tax Deducted at Source’ and was introduced to collect tax at source from where the individual’s income was generated. It is a type of advance tax and is used as a tool by the Government to collect the tax and minimize tax evasion. It is done by taxing the individual's income (wholly or partially) as soon as it is generated and is deducted irrespective of the mode of payment - credit, cheque or cash - and it is linked to the PAN of both deductee and deductor. It is applicable to a number of incomes such as:
  • Professional fees
  • Rent payments
  • Consultation fees
  • Commission payments
  • Interest payments by banks
  • Salaries
However, it is not applicable to all individuals and their incomes. The Income Tax Act clearly states different rates for different payments and categories of recipients. For instance, you don’t have to deduct Tax Deducted at Source when you pay your lawyer’s fee or pay rent. The concept of Tax Deducted at Source is that every individual making a specified type of payment to another individual shall deduct tax at the prescribed rates and deposit it into the government’s account. The individual who makes the payment (deductor) is responsible for deducting and depositing it with the government. The individual who receives the payment after the deduction is known as ‘deductee.’ It is not applicable to a number of incomes such as:
  1. Co-operative societies or LIC, UTI and other insurance.
  2. Interest earned from a savings account or recurring deposits opened in co-op societies.
  3. Interest earned on NSC, Indira Vikas Patra Scheme or KVP, NRE accounts.
  4. Institutions that are notified under no-TDS.
  5. Interest which is paid to the state or central financial organizations.
 

Prescribed Rates of TDS

The rate of TDS depends on the nature and amount of payments and are as follows:
Nature of Payment Relevant Section TDS Rate
Salaries Section 192 At applicable income tax rates inclusive of cess
Accumulated taxable part of PF Section 192 A 10%
Interest on securities Section 193 10%
Deemed Dividend Section 194 10%
Interest other than interest on securities Section 194 A 10%
Winnings from the lottery, crosswords or any kind of game Section 194 B 30%
Winnings from horse races Section 194 BB 30%
Insurance commission received by an individual Section 194 D 5%
Life Insurance Policies not exempt under Section 10(10)D Section 194 DA 1% in case payment in FY exceeds ₹1 lakh
Commission or brokerage received except for insurance commission Section 194 H 5% in case payment in FY exceeds ₹15,000
Payment made while purchasing property or land Section 194 IA 1%
Payment of rent by individual or HUF exceeding ₹50,000/- per month Section 194 IB 5%
  As a taxpayer, you must be aware of the fact that you are only accountable to pay for TDS if the amount crosses the threshold level. No TDS has to be paid if the payment is within the threshold levels.  

Understanding TDS Return

It is a form that has to be filled and submitted to the Government periodically by the deductor in order to maintain a proper financial record. It has to be filed quarterly and separate forms have to be filed for different kinds of deductions.  

Due Dates of Payment of TDS

If Tax Deducted: During April to February By 7th of the next month
March By 30th April of next F.Y
 

Due Date of TDS Return

Quarter Ended TDS Return Due Date
30th June 31st July
30th September 31st October
30th December 31st January
31st March 31st May
 

How To A File TDS Return

For some taxpayers, navigating through the portal and uploading the TDS statement can be confusing. To ease this process, we bring you step-by-step instructions to help you file a return without any glitches.  

Prerequisites

  1. Please ensure the following points before filing the return:
  2. You have a valid and registered TAN that can be used to e-file the returns.
  3. Your statements are prepared through Return Preparation Utility (RPU) and are validated through File Validation Utility (FVU).
  4. Your DSC registeredis valid for the purpose of e-filing or principal contact’s demat/bank account details.
 

Instructions:

  1. Visit the official government website and fill in the login details.
  2. Go to the TDS tab and click on ‘Upload TDS.’
  3. A form will appear on your screen. Fill in the necessary details before clicking on ‘Validate’.
  4. Validate the return through either of the two methods: Digital Signature Certificate (DSC) or Electronic Verification Code (EVC).
  5. Submit the file and a confirmation email will be sent on the registered e-mail ID.
Note: If you’re using DSC, upload the zip file along with the file with the digital signature. On the other hand, if you don’t have a DSC, you can use EVC. If you’re using EVC, then upload the zip file before clicking on the button ‘click here to e-verify.’ Select one of the options and enter the code before clicking on ‘Submit.’  

Can I Avoid TDS?

Yes, you can. If your expected total income in the given financial year will fall under the exemption limit, then you can submit the Form 15H/15G and avoid TDS.    

Some More Points Related To TDS

Tax is deducted only if the amount is taxable in the hands of the receiver. TDS Requirement arises:
  1. At the time of payment
OR
  1. At the time crediting the A/c of payee - whichever is earlier.
But in the following cases, it is deducted only in the following cases:
  1. Salary
  2. Winnings
  3. Maturity of life insurance policy
  4. Compensation on compulsory acquisition of property
  5. EPF Payment.
  All TDS rates are fixed rates i.e 1%, 2%, 5%, 10%, etc., but if payment is made to Non-Resident/ Foreign Co. or payment of salary, surcharge, and education cess shall be considered.   If Payee does not furnish his PAN to the Payer, the TDS rate shall be:
  1. Rate as per respective section [section 206AA]
OR
  1. Rate @20% - whichever is higher.
  Section 20AA is not applicable if payment made to Non-resident/Foreign company in respect of:
  1. Interest on long-term bonds referred in Sec194LC
  2. Any other payment subject to such conditions may be prescribed.
  TDS is also required to be deducted from personal payments except that referred to in Sec194C and 194J.   Any amount that includes service tax amount then TDS should not be deducted on such service tax amount. It means TDS should be on the net amount.   No TDS if the payee is central Government, State Government, RBI, Statutory Corporation, any mutual fund [Sec 197].   Where total income or receipt of income is not liable to tax or taxable at low rates, then he can apply to A.O. to issue a certificate for No Deduction/lower deduction of TDS. In such cases, the payer shall deduct TDS as per rate specified in certificate [Sec 197]. Where the income of the assessee is less than the Basic Exemption, then in case of Sec 192A/193/194/194DA/194-1, the assessee can give a self-declaration in form No 15G/H to the payer for non-deduction of TDS [Sec 197A]. Under Section 197A, if income [192A/193/194/194DA/194-1] is more than the basic exemption but NTI (total income) is less than the basic exemption, then Sec 197A is not applicable (except in case of Senior citizens).   Example: Rent received by Mr.Kunal is ₹35,000 and he invested ₹120,000 under section 80C. Now his NTI is less than basic exemption. Therefore, tax payable is nil. Now, in this case, Kunal cannot furnish declaration under section 15G.  
Section Nature of Payment Payer Payee Rate Additional Note
192 Salary (TDS deduction on salary) Any Person Employee Slab rate
  1. An employee should consider details of other income and deduction of the employee if furnished by the employee.
  2. An employer shall not consider any loss except loss under the head income from house property.
192 A Accumulated balance of provident fund Any person Employee 10%
  1. TDS applicable only if it is taxable in the hands of the employee.
  2. No TDS if amount upto ₹50,000 w.e.f. 1/6/16
193 TDS on interest on securities Any person Any resident person 10% No TDS if interest
  1. Paid to LIC, GIC, other insurance
  2. Payable on government securities
  3. DMAT securities
194 TDS on deemed dividend Domestic Company Resident 10%
  1. No TDS if company paid DDT u/s 115-0 means this section is applicable only in case of deemed dividend u/s 2(22) (e)
  2. From A.Y. 2016/17 if dividend is taxable u/s 115 BBDA then company is required to deduct TDS.
194 A TDS on interest (other than securities) Any person other than individual/HUF not liable to tax audit in last P.Y. Resident person 10% No TDS if
  1. Interest paid by banks/co-operative banks/post office upto ₹10,000.
  2. In other cases its upto ₹5,000.
  3. Interest paid by firms to partners.
  4. Interest on income tax.
  5. Interest on bank saving a/c.
  6. Interest paid to any bank/LIC/UTI/Any insurer. (Note: Bank opting core banking solutions then, the limit of ₹10,000 will not be per branch but will be per co-op society/bank.
  7. Interest paid by co-operative society (other than co-operative bank) to its members or to any other co-operative society.
  8. Interest paid in respect of certain scheme of post office, Kisan Vikas Patra, India Vikas Patra, National saving certificate, P.O monthly income a/c, P.O. Recurring deposits.
194 B Winning from lotteries, crosswords, puzzles, card games, etc. Any person Any person 30% No TDS if winning is upto ₹1000 per winning
194 BB Winning from horse race Any person Any person 30% No TDS if winning is upto ₹10,000 w.e.f. 1/6/2016 per winning (earlier ₹5000)
194 C TDS on contract Any person (other than individual/HUF not liable to tax audit in last P.Y.) Any resident person If contractor individual/HUF 1% others 2% 1. No TDS if: a. Single payment upto ₹30,000 OR b. Aggregate of payment in P.Y. upto ₹1,00,000 w.e.f. 1/6/16 (earlier 75,000) 2. No TDS if contract is for personal purpose of individual/HUF. 3. For the purpose of contract, work includes: -Advertisement, broadcast, telecast -Catering -Carriage of goods, passenger other than railway -Manufacturing/supplying of any product as per specification of customer out of material purchased/supplied by such customer (job work) 4. No TDS if payment made to transporter and he does not own more than 10 vehicles at any time during the P.Y. and he furnishes a declaration. 5. In case of job work, the TDS shall be deducted: -On the invoice value excluding the value of material, if material value mentioned separately in invoice. -On the whole of the invoice value, if value of material is not mentioned separately in the invoice. 6. Contract act also includes sub contrct. 7. Some issues related to Advt (CBDT circular) -Payment by client to Advt agency it is work contract TDS u/s 194C applicable. -Payment by Advt agency to TV channel/Newspaper Company - no TDS u/s 194C. -Payment made by TV channel/newspaper co. to advertisement agency fro booking/procuring/canvassing for advt- payment is treated as discount and not commission so TDS u/s 194H is not applicable. 8. Payment made by TV channel/broadcasters to production house for production of the content program. -If programme is as per specifications of telecaster and broadcaster and copyright of content also transfer to telecaster/broadcaster: it works contract TDS u/s 194C applicable. -If right of content is already produced by production house is acquired by telecaster or broadcaster: no TDS u/s 194C.
194 D Tax on insurance commission Insurance company Resident agent 10% No TDS if commission is upto ₹15,000 p.a. w.e.f. 1/6/16 (earlier 20,000)
194 DA TDS on maturity proceeds of a life ms policy Any person Any resident person 1% w.e.f. 1/6/16 No TDS if-
  1. Amount exempted u/s 10 (10D)
  2. Amount upto ₹1,00,000)
194 E TDS on payment to NR sportsmen/association/entertainer Any person NR sportsmen NR sports association NR entertainer 20+cess Payment for:
  1. Participation in any game in India i.e. IPL
  2. Advertisement
  3. Contribution of any article in newspaper, etc.
  4. Performance in India.
194G TDS on commission sale of lottery tickets Any person Any person 5% w.e.f. 1/6/16 No TDS if commission upto ₹15,000 p.a. w.e.f 1/6/16 (earlier 1000)
194 H TDS on commission and brokerage Any person (other than individual/HUF/not liable to tax audit in last P.Y.) Any resident person 5% w.e.f 1/6/16
  1. No TDS if commission upto ₹15,000 w.e.f. 1/6/16 (earlier 5,000)
  2. No TDS if commission/brokerage is relating to securities like commission to underwriters, brokerage on public issue, brokerage on stock exchange transaction, etc.
194 I TDS on rent Any person other than individual/HUF not liable to tax audit in last P.Y. Any resident person
  1. Plant and machinery: 2%
  2. Land and building, furniture: 10%
  1. No TDS if rent upto ₹180,000 p.a. (if property is owned by more than one then limit of ₹180,000 applied to each co-owner)
  2. Non refundable deposit, arrears of rent received, advance rent also eligible for TDS.
  3. If rent is paid to business trust (REIT)in respect of rent of real estate assets as it is exempt u/s 10 (23FCA) then TDS is not applicable.
  4. Landing and parking charges paid by airlines company to airport authority - TDS u/s 194C
  5. If rent includes municipal taxes - no TDS on municipal taxes.
  6. The recipient of rent can give declaration u/s 197A in form 15G/15H (amendment)
194 IA TDS on transfer (purchase) of immovable property (other than rural agricultural land) Any person Any resident person 1%
  1. No TDS if consideration is less than ₹50 lakhs (actual consideration and not the SDV)
  2. If consideration is ₹50 lakhs or more and only part payment is made then TDS is applicable on every part payment of consideration.
194 J TDS on professional services Any person (other than individual/HUF not liable to tax audit in last P.Y.) Any resident person 10% 2% cess if call centre No TDS if:
  1. Fees for professional servies is upto ₹30,000
  2. Fees for technical services upto ₹30,000
  3. Royalty is upto ₹30,000
  4. Non-complete fees is upto ₹30,000
  5. In case of director fees - no limit (Note: limit of ₹30,000 applied separately on professional fes, royalty, etc.
194 IB Rent on immovable property Individual/HUF Any resident person 5% If rent >50,000 per month when last month rent is paid/credit.
194 IC Payment under development Any person Any person 10% Consideration paid in cash/bank under 45 (5A)
194 LA TDS on compensation or compulsory acquisition of immovable property Any person Any person 10% No TDS if consideration is upto ₹25,000 p.a. w.e.f. 1/6/16. No TDS if compulsory acquisition of rural agricultural land.  
194LB TDS on interest on infrastructure debt fund Infrastructure debt fund NR or foreign company 5% Infrastructure debt fund referred in Sec 10 (47)
195 TDS on any sum payable to NR or foreign company. Any person NR or foreign company
  1. DTAA rate
OR
  1. Rate in force
Nature of payment
  1. Interest OR
  2. Any other sum which is chargeable to tax in India (except salary u/s 192,194 B, 194BB, 194E, 194LB, 194LBA).
 
Shristi Patni

Shristi Patni is a finance and lifestyle expert and currently works at Merrchant.

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