The Most Comprehensive Guide on TDS in India


Containing All the Updated TDS Sections that You Should Know for current FY 2018-19(AY 2019-20)

”When it comes to tax deduction at source, there are lot of confusions. The first question being, what exactly is TDS? And when we understand that, the next question which pops-up, how many times do I have to pay tax? Why TDS is deducted from my salary? How the amount of TDS deduction on salary is calculated? What is the need of TDS and the list is, literally endless!

So, to clear all your queries and provide you with all the possible solutions, we bring you a series on Tax Deducted at Source or TDS. In this series, we will explain all the income tax laws related to TDS which hits our life in a daily manner.

But before that, let us beat the heat out of some TDS basics!

 

What is TDS?


TDS is Tax Deducted at Source. The meaning of TDS is clear from its name i.e. income is taxed at the point of it’s generation itself. In simple words, TDS is retaining a part of income (which you receive) as tax and depositing it with the Income Tax Department on your behalf. So, it’s like pay as and when you earn. TDS can also be commonly said as Withholding Tax.

Further, it is to be noted that deduction of TDS doesn’t exempt you from the requirement of filing of ITR. If your income exceeds the basic exemption limit then

irrespective of the fact whether TDS has been deducted or not you have to file ITR. Let us understand it with the help of below example where TDS is calculated on salary income.

 

For e.g. Let’s say you earn a total salary of Rs.6,00,000 (i.e. Rs.50,000 per month) and have no other income in F.Y 18-19. Now, as your GTI exceeds basic exemption limit (of Rs.2,50,000), tax liability will occur at the time of filing of your return. Now, to understand the concept of TDS, we will consider 2 cases: One when TDS is deducted and one without TDS u/s 192.

Note : Since, the income source is “Salary “ so in this case TDS will be deducted under Section 192. Further, Tax Calculation is done without giving the benefit of standard deduction of Rs. 40,000.

 

Without TDS (Situation 1)

With TDS (Situation 2)

    

Salary Income

6,00,000

Salary Income

6,00,000

    

Total Income

6,00,000

Total Income

6,00,000

    

Gross Tax Liability

32,500

Gross Tax Liability

32,500

  • Cess @ 4%

         1300

  • Cess @ 4%

      1300

  

Less: TDS deducted

33,800

    

Tax Payable at the time of filing the return

33,800

Tax Payable at the time of filing the return

  

Tax Refund

    

   

In Situation 2 (when TDS is deducted), your employer will deduct the TDS as Rs.3800/12 months, which comes to Rs.2817 (round-off) per month. This is how TDS is calculated on salary. So, every month Rs. 2817 is deducted from your salary income and deposited to the government as the tax by your employer.

So from the above example, you can easily understand that how TDS helped to evenly spread your total income tax liability during the year. And even in some cases, makes you eligible for a refund.

 

  • What is the need of tax deduction/implementing the system of TDS?

The need for implementing the system of TDS is because of various benefits it possesses. They have been summarized as below:

From the government’s point of view, the need for implementing TDS arises in order to avoid tax evasion. As per the TDS scheme, the liability to deposit the tax is on payer of income and not the receiver. Thus, it becomes easy for government to collect taxes and keep a check on payers rather than controlling a large number of receiver’s of income.

Other one being that government gets the steady source of revenue round the year rather than waiting till the time of filing returns.

From a common man’s point of view like you and me, under the system of TDS the tax is deducted at various point when you receive income during the year itself. Therefore, you don’t need to pinch your pocket and pay the tax in one go.   



  • Who is required to deduct TDS and Who is the TDS Deductor and TDS Deductee?

There are basically two parties involved in any transaction one is the person making payment and other being the person receiving the payment. The government has covered certain categories of persons making the payment under TDS Scheme. As per this scheme the person making the payment is required to deduct the tax at a specified rate and deposit it with the government.

So we can say –

  • TDS Deductor: Is the one who deducts a specified amount as TDS from the amount which is to be given to the receiver/ payee/ deductee. Deductor is also referred as Payer (because he/she deposits this part of tax to the government on payee’s behalf)
  • TDS Deductee: Is the one whose money is deducted and deposited on his/her behalf to the government by the Deductor. Deductee is also commonly referred as Payee.

Now, as per the Income Tax Act, Person means Individual or HUF or Firm or AOP or BOI or Company or Corporation or Government or any local authority or Non-Resident etc. The deductor/deductee can be any of the person depending on the section and rules applicable on that transaction.



  • What type of payments are covered under the TDS scheme?

There are various types of payments defined under the Income Tax Act on which tax deduction provisions are attracted like salary payments (to residents/non-residents), other than salary payments like interest, dividends, rent, commission, lottery winnings, royalty etc.

For your better understanding, we have made a summary table of all the sections with their number, name, rate of tax deduction and the threshold limit (which simply means that upto this limit there is no requirement for deducting TDS).

In the below table, you can simply click on the relevant section to know more about it in-detail.

 

Brief Overview of all the TDS Provisions for F.Y 2018-19 (AY 2019-20)

 

S.No.

TDS Section

Nature of Payment

Payer

(Deductor)

Payee

(Deductee)

Rate of TDS

Exemption Limit (No TDS to be Deducted upto threshold limit mentioned)

1

Section 192

TDS on Salary

Any Person

Employee(R or NR)

Applicable Income Tax Slab Rates

Basic GTI exemption limit of Rs.250000 or Rs.Rs.00000 or Rs.500000 as the case may be.

2

Section 192A

TDS on Premature Withdrawal from Provident Fund

Any Person

Employee

10% (If no PAN then MMR i.e. 35.535%)

Amount is less than Rs.50000

3

Section 193

TDS on Interest on Securities

Any Person

Any Resident Person

10%

Upto Rs.5000 in a financial year (FY) for Individual/HUF in the case of Debentures.

4

Section 194

TDS on Dividends

Domestic Company

Resident

Person

10%

Upto Rs.2500 in a FY (for Individual)

5

Section 194A

TDS on Interest (Other than Interest on Securities)

Any Person(Other than Individual/HUF not liable to tax audit in last PY)

Resident Person

10%

Up to Rs.10,000 (for payments made by banks, cooperative banks or on post office deposits) and up to Rs.5000 (for other cases).

[In case of a senior citizen, the limit of Rs 10,000 shall increase to Rs. 50,000 w.e.f. 1.4.2018]

6

Section 194B

TDS on Winnings from Lottery or Crossword Puzzles

Any Person

Any Person

30%

Up to Rs.10000

7

Section 194BB

TDS on Winnings from Race Horses

Any Person

Any Person

30%

Up to Rs.10000

8

Section 194C

TDS on Payment to Contractors

Any Person(Other than Individual/HUF not liable to tax audit in last PY)

Any Resident Person

1% (for Individual/HUF)


2% (other person)

Up to Rs.30000 for individual payment.


Up to Rs.100000 for total amount during a FY.


Payment to a contractor in course of business where he declares through a PAN that he owns 10 or less good carriages during the year.

9

Section 194D

TDS on Insurance Commission

Insurance Company

Resident Agent

5% (for Individual/HUF)


10% (other person)

Up to Rs.15000 during FY

10

Section 194DA

TDS on Payment in Respect of Life Insurance Policy

Any Person

Any Resident Person

1%

Less than Rs.100000

11

Section 194E

TDS on Payments to Non-Resident Sportsmen or Sports Association

Any Person

NR-

-Sportsmen

-Sports Association

-Entertainer

20%

No exemption limit.

12

Section 194EE

TDS on Payment for Deposit Under NSS

Any Person

Any Person

10%

Upto Rs.2500

13

Section 194G

TDS on Commission on Sale of Lottery Tickets

Any Person

Any Person

5%

Upto Rs.15000

14

Section 194H

TDS on Commission or Brokerage

Any Person(Other than Individual/HUF not liable to tax audit in last PY)

Any Resident Person

5%

Up to Rs.15000

15

Section 194I

TDS on Rent

Any Person(Other than Individual/HUF not liable to tax audit in last PY)

Any Resident Person

2% (on rent paid for use of machinery, plant or equipment)


10% (other cases)

Up to Rs.180000 during the FY



16

Section 194IA

TDS on Payment on Transfer of Immovable Property (Not Being an Agricultural Land)

Any Person (Other than person referred to in section-194LA)

Any Resident Person

1%

Less than Rs.50,00,000

17

Section 194IB

TDS on Payment of Rent by Certain Individuals or HUF

Individual & HUF(Other than covered u/s 194 I)

Any Resident Person

5%

Upto Rs.50000 per month

18

Section 194 IC

TDS on Payment Made Under Specified Agreement

Any Person

Any Resident Person

10%

No exemption limit

19

Section 194J

TDS on Fees for Professional or Technical Services

Any Person(Other than Individual/HUF not liable to tax audit in last PY)

Any Resident Person

10%


2% (in case of payment made to the business of operating a call centre).

Up to Rs.30000 during FY (the separate limit for each kind of payment)

20

Section 194LA

TDS on Payment of Compensation on Acquisition of Certain Immovable Property

Any Person

Any Resident Person

10%

Upto Rs. 2,50,000

21

Section 194LB

TDS on Income by way of Interest from Infrastructure Debt Fund

Infrastructure Debt Fund

NR or Foreign Co.

5%

No exemption limit

22

Section 194LBA

TDS on Certain Income from Units of a Business Trust

Business Trust

Unit Holder being Resident or Non resident

10% (for resident)

5% ( for non-resident).

No exemption limit

23

Section 194LBB

TDS on Income in Respect of Units of Investment Fund

Investment Fund

Unit Holder being Resident or Non resident

10% (for resident)

For non-resident  person the tax rate will be as per the rates in force during FY.

No exemption limit

24

Section 194LBC

TDS on Income in Respect of Investment in Securitisation Trust

Securitisation Trust

Investor being Resident or Non resident

25%(for individual or HUF) or 30% (for any other person)

No exemption limit

25

Section 194LC

TDS on Income by way of Interest from Indian Company

Specified Indian company or Business Trust

Non -resident

5%

No exemption limit

26

Section 194LD

TDS on Income by way of Interest on Certain Bonds and Government Securities

Any Person

Foreign Institutional Investor or Qualified Foreign Investor

5%

No exemption limit

27

Section 195

TDS on Other Payments Made to NR (Not Company) or Foreign Company

Any Person

NR or Foreign Company

Rate as specified in Act or DTAA

No exemption limit

*R means Resident and NR means Non-Resident

**Note: In the above table, unless other rate like MMR is specified, if PAN is not available then TDS rate will become 20%.

Also, now you can easily compute actual TDS for many sections using our Online TDS Calculator Tool, that too for FREE.

  • When TDS is to be deducted?

There are majorly 2 situations when the deductor (payer) is required to deduct tax, which are:

  • At the time of making payment, or
  • At the time of credit of income to the account of payee (receiver) or actual payment (in cash, cheque, draft or other mode),

whichever happens earlier.

It is to be noted that in some sections, TDS liability arises only at the time of payment and in the rest it happens according to the payment or credit whichever is earlier  . For example, u/s 192 i.e. TDS on salary, TDS is deducted at the time of payment . Whereas u/s 194J i.e TDS on professional services, TDS is deducted at the time of credit or payment whichever is earlier.

Therefore, to know about respective section, please refer the detailed discussion of each section by clicking on the relevant section  in the summary table above.


  • What happens after TDS deduction?

As soon as your TDS is deducted, an entire chain of process starts which is described briefly below:

What happens after TDS deduction?

  • Deposit TDS with Government: After deducting TDS, the deductor is required to deposit it with the government within the specified time period(7th day of the next month, 30th April incase of March).
  • File TDS Return: The deductor is also required to file TDS returns (quarterly) where he declares the financial details of all the deductee for whom TDS has been deducted during the quarter.
  • Updation of 26AS:When the government receives the amount of TDS, Form 26AS of the deductee gets updated with Tax deposited details.
  • Issue of TDS Certificates & ITR Filing: After that, when the deductee (or payee) files ITR in the relevant financial year, he/she considers his Form 26AS and claim the credit of TDS available in it.

Which ultimately reduces his total tax liability to be paid via income tax return (and in some cases result in tax refund/TDS refund as well).

Now you must be having many question regarding the process discussed above. Just relax! The next set of questions will solve all your queries.

  • What is the due date of depositing TDS amount with the government?

After deducting the TDS amount, the deductor is required to deposit this amount with the government within a specified time and this is called making TDS payment.

The amount of TDS is deposited by using TDS Challan No. 281. You can visit the link to see where this payment is made.

The due dates for depositing TDS (or making TDS payment) are as follows:

 

Month of Deduction

Due Date for Making Payment Through Challan for both Government or any other deductor

April

7th May

May

7th June

June

7th July

July

7th August

August

7th September

September

7th October

October

7th November

November

7th December

December

7th January

January

7th February

February

7th March

March

30th April for deductors other than government and 7th April for government deductors.

 

  • How to deposit TDS?

The procedure for payment of TDS is almost same as payment of income tax with some minor changes. To know the process click here. The TDS amount is required to be paid online through Challan No. 281 at the Online e Tax website. Click here to visit.

 

  • What is the Penalty on default in making TDS payment?

Now, when the deductor does not comply with the above provisions of TDS payment, some penalties are levied on him/her which are discussed as below:

 

  • When TDS is not deducted (either in whole or in part)?

In such case, late deposit interest @ 1% per month or part of month is levied on the TDS amount from the date when tax was required to be deducted till the date of actual deduction.[Section 201(1A)(i)]

For example Date of:

  1. Payment/credit is 16.08.2017
  2. Deduction is 30.04.2018
  3. Deposit of tax is 05.05.2018

the interest would be payable for 9 months i.e. from 16.08.2017 to 30.04.2018 @ 1% pm.

 

  • When TDS is deducted but not deposited with the government

For Example :

a.Date of payment/credit is 16.08.2017

b.Date of deduction is 16.08.2017

c.Date of deposit of tax is 31.07.2018

then interest would be payable for 12 months i.e. from 16.08.2017 to 31.07.2018 @ 1.5% pm.

  • Prosecution under Section 276B

As per this section, any person who fails to deduct/collect TDS or does not deposit to the government after deducting. The IT Officer can punish the defaulter with an imprisonment of minimum 3 months or maximum 7 year along with fine.

 

  • What is a TDS return?

TDS return is a summary statement of all tax deductions made during the quarter by the person deducting tax to the Income Tax Department.

It contains the entries of TDS collected by the deductor and deposited with the government. This statement include various details like PAN of the deductor & the deductees, detailed particulars of all the TDS paid to the government and the TDS Challan information.

Some TDS Return Forms are as follows:

 

Form No

What it represents?

Frequency of Submission

Form 24Q

Statement for TDS from salaries

Quarterly

Form 26Q

Statement for TDS on all payments other than salaries.

Quarterly

Form 27Q

Statement for TDS on income received from interest, dividends, or any other sum payable to non residents.

Quarterly

Form 26QB

Statement of TDS on Payment on Transfer of Immovable Property (Not Being an Agricultural Land).

Within 30 days from the end of the month in which deduction is made.

Form 26QC

Statement of TDS on Payment of Rent by Certain Individuals or HUF.

Within 30 days from the end of the month in which deduction is made.

 

  • What is the due date of filing TDS return?

As we said above, all the people who are required to deduct TDS are also mandatorily required to file TDS return.The due date of filing quarterly return other than Form 26QB or Form 26QC are as follows:

 

Month of Deduction

Quarter

Due Date for Filing of Return for All Deductors

April

1st Quarter

31st July of F.Y

May

June

July

2nd Quarter

31st October of F.Y

August

September

October

3rd Quarter

31st January of F.Y

November

December

January

4th Quarter

31st May of F.Y immediately following the F.Y in which TDS has been deducted

February

March



  • What is the Penalty on making default in filing TDS return?

In case of non-compliance with the above TDS return filing provisions, the following penalty late fees or penalty will be levied:

 

  • Section 234E: Late fees on Delay in Filing TDS Return

The tax deductor will be liable to pay a late filing fees of Rs.200 per day for the period till TDS return is not filed. However, the total amount of fees will not exceed the amount of TDS required to be deducted.

 

  • Section 271H: Penalty on Non-Filing of TDS Return

The A.O. may ask the TDS deductor to pay a minimum penalty of ₹10,000 which may extend to ₹1,00,000 for not filing TDS return within the due date.

It is important to note that penalty u/s 271H is in addition to penalty u/s 234E.   

 

  • What is a TDS certificate?

A person who deducts tax (TDS) is required to issue an acknowledgement( ‘form’ )to the person whose TDS is being deducted(deductee) that tax has been deducted and deposited with the government by him.This Form/Acknowledgement is known as TDS certificate.It contains the particulars of payment,deductor , deductee details, the date of tax deduction and the date of its credit to the government .

Using this certificate, the taxpayer (or deductee) can claim the credit or the refund (if any) of taxes while filing his/her income tax return.

  • What are the different types of TDS certificates?

As discussed above, different TDS return forms have different TDS certificates which are as follows:

Respective TDS Certificate

TDS Return Form No

Due Date

Time of Issue

Form 16
(For TDS on Salary)

Form 24Q

By 15th June of the F.Y immediately following the F.Y in which tax is deducted.

Annually

Form 16A
(For TDS on other income)

Form 26Q

Within 15 days of furnishing Form 26Q

Quarterly

Form 16B
(For TDS on purchase of immovable property)

Form 26QB

Within 15 days of furnishing Form 26QB

Monthly

Form 16C
(For TDS on payment of rent)

Form 26QC

Within 15 days of furnishing Form 26QC

Monthly



  • What is Form 26AS?

Form 26AS is simply a summarized annual statement which contains tax credit information of each taxpayer against his PAN. This form is maintained and updated by the income tax department.

If you have paid any tax (like self assessment tax, advance tax) or any tax has which has been deducted and deposited with government on your behalf (like various TDS) then all such details will be available on Form 26AS.

This form helps you to claim credit of all the taxes you have paid (plus paid on your behalf-TDS ) while filing income tax return. Therefore, it becomes very important that details mentioned here are correct and they match with relevant TDS certificates.

If you want to about Form 26AS further in detail like how to download? It’s importance? etc then you can refer to our detailed guide.

 

  • What is TAN?

TAN means Tax Deduction/Collection Account Number. It is a 10 digit alphanumeric number required to be obtained by every person, who is responsible for either deducting or collecting the tax. It is issued by the Income Tax department to all such persons.



  • What is the difference between TAN and PAN?

TAN is given to a person who is liable to deduct or collect tax at source. Whereas, PAN is issued to a person who is involved in the financial transaction exceeding a particular threshold limit. (Basically, the one from the whose income tax is being deducted).



  • What to do in case of mismatch of TDS details in Form 26AS and actual TDS deducted?

As we said above that it’s important for Form 26AS details to match with the actual TDS deducted, the reason being, in case of any mismatch you will not be able to claim benefit of taxes paid or you may claim excess credit which will lead to penalty being imposed you. So what to do in such case?

Well, the biggest reason for such mistakes is the wrong updation of information in the TDS return forms by the deductor. As information in Form 26AS is updated by ITD using the filed TDS return, so wrong information at that place impacts your 26AS which in turn will impact your ITR.

Hence, in such case, you need get in touch with the TDS deductor and get all the corrections/updations done and then file ITR (or revised in some cases).



  • How to claim credit of TDS?

It is very simple to claim the benefit of TDS while filing Income Tax Return. Simply download your Form 26AS, consider all the details which it shows and update them in your return and this will reduce your total tax liability (and it may also make you eligible for the income tax refund, if your TDS, advance tax etc exceeds total tax liability).



  • How can one get the exemption from TDS?

Well, the liability for TDS can be avoided only when your income is below the basic exemption limit. There are 2 forms which can help a resident citizen to avoid TDS liability on interest income. These are:

 

  • Form 15G (for Resident Citizen below 60 years & HUF)
  • Form 15H (for Resident Senior Citizens who are 60 years or above)

 

You need to use these forms when although a particular income is exceeding than the threshold limit specified in individual section but your overall limit is within basic exemption limit. To know about these forms in detail, refer to our guide.

 

Further, if the income of non-residents is also less than the basic exemption limit then for avoiding the TDS liability they need to file an application u/s 195(3) of the IT Act to the jurisdictional tax officer to obtain a certificate of non-deduction or lower deduction of taxes.

 

Author


Team Tax2Win