Tax Deducted At Source is a form of tax that is collected by the Indian Government and is managed by the Central Board Of Direct Taxes(CBDT). According to the Income Tax Act, anyone making a payment for a job or service is required to deduct TDS if the payment crosses the TDS deduction limit which is prescribed by the Income Tax Department.
The person or company who deducts the tax is called a deductor and the company or the person from whom the TDS is deducted is called a deductee. The issuer is required to pay tax to the government and the deductee will be entitled to a tax deduction on the basis of Form 26AS.
Also Read: CBDT No TDS on GST Component
Tax Deducted At Source For Business
- The total income of a person for the previous year is taxable in the relevant assessment year. However, the income tax is recovered from the assessee in the previous year itself through Tax Deduction At Source (TDS).
- The payer is responsible to deduct the tax from the income of the assessee and submit the same to the government within the prescribed time. If he does not deduct the tax or after deducting it, does not pay the whole or any part of the tax, then he will be responsible for interest, penalty, fees in respect of such default.
- TDS should be chargeable under only one section. If the tax becomes deductible under more than one section, then the tax will be deducted under that section that has a better connection with the type of payment.
- In general, tax needs to be deducted at the time of actual payment. But in certain sections, tax needs to be deducted which can either be at the time of crediting the amount to the deductee or when the actual payment is made, whichever is earlier.
TDS on Business Promotion Expenses
According to the Income Tax Appellate Tribunal, TDS on business promotion expenses are not applicable. This is because the IRS considers the cost of promoting a business to be a business cost, as long as it is common and necessary. However, to write off the cost of promotion, companies can only deduct the costs associated with the promotion of goods and services, and not their market value.
Points To Be Kept In Mind Before Deducting TDS
- The person making the payment must have a valid PAN number and they must also have the PAN number of the person receiving the income. If the payee (whether resident or non-resident) does not furnish his PAN to the payer, then the tax will be deducted at the higher of
- TDS is deductible only if the section provides for it. Therefore, there will be no tax deduction if there is no specific section applicable.
- No TDS to be deducted in case the income is exempted under section 10 and Return of income need not be filed. However, if the income is exempt but ROI is required to be filed, or if exemption has been withdrawn, then this benefit is not available.
- No TDS deduction shall be made for any payment to the Government, RBI, Corporation established under a Central Act; or Mutual Fund.
- No tax is deductible if the tax on salary income is NIL.
- The TDS rate should be taken as per the relevant section provided in the Income Tax Act, 1961.
- Various items such as salaries, interest, commission, lottery winners, Dividend, etc., all have different TDS rates.
Some Of The Main TDS Deductions Are:
- Section 192 - TDS on salaries: TDS on salaries is deducted at the rate of the income tax slab for the relevant year. The employer should obtain evidence from the employee regarding the claim of deductions/ exemptions/ set-off of loss.
- Section 193 - Interest on securities: According to Section 193 of the Income Tax Act, TDS on interest on securities shall be deducted at a rate of 10%. No TDS will be deducted in case of interest on Debentures paid to a resident individual/ HUF when debentures are issued by the public company and interest is paid by account payee cheque and interest amount does not exceed Rs. 5000.
- Section 194 - Dividends paid by Domestic company: TDS on dividends paid by domestic company is deducted at a rate of 10%. No TDS shall be deducted if the payee is an individual shareholder, and payment is not made in cash and the amount of dividend does not exceed Rs.5000.
- Section 194B - Winnings from lotteries or crossword puzzles or card games etc.: TDS on winnings from lotteries or crossword puzzles or card games shall be deducted at a flat rate of 30%.
- Section 194BB - Winnings from horse races: TDS on winnings from horse races shall be deducted at a rate of 30%.The minimum amount for TDS deduction under Section 194BB is Rs.10000.
- Section 194EE - TDS on withdrawal of National Savings Scheme: TDS should be deducted at 20% for any withdrawal from NSS if the limit exceeds Rs. 2500
- Section 194I - TDS on rent: TDS applies at 2% on Plant and Machinery and 10% on Land and Building if the amount exceeds Rs. 2,40,000 per annum.
Depositing and Filing TDS Returns
Time period for depositing TDS: As per Rule 30, the payment should be within 7 days from the last day of the month in which the deduction is made. In certain cases, the Assessing Officer may permit the payments on a quarterly basis.
- Filing of Quarterly statement of TDS: Every person deducting the TDS has to submit a quarterly statement containing details of the tax deducted at source. The statement should be submitted latest by the 31st of the month succeeding the relevant quarter but the statement for the quarter ending March can be submitted upto 31st May.
- Tax Deduction Account Number: Every person deducting the TDS has to apply for allotment for Tax Deduction Account Number and the application has to be given in FORM NO. 49B within one month from the end of the month in which tax was deducted for the first time.
- TDS certificates: Form 16 - to those receiving salaries; Form 16A- for persons receiving income from any other source and Form 16B- TDS for the sale of any immovable property.
Also Read: Time Limit To Deposit TDS And File TDS Return
TDS is just one mode of recovery tax and not the final levy of tax. Therefore, there may be some tax still payable, even after deduction of TDS by the payer at the appropriate rate. You need to calculate the tax liability applicable and pay accordingly. If excess TDS is deducted, and you have no other tax liability you can file a claim to get a refund.
1. Can the payee make a request to the payer to not deduct TDS and to pay the amount without deducting TDS?
A payee can ask the payer for non-deduction of tax at source. But they must give notice in Form No. 15G / 15H, as the case may be, to the payer that states their estimated total income of the year after including the income on which TDS is to be deducted is nil.
Form No. 15G is meant for the individual or a person (excluding company or firm) and Form No. 15H is for senior citizens over 60.
2. Under what conditions, if a deductor does not deduct TDS or after deduction fails to deposit it to the Government’s account, he or she would not be considered as an assessee in default?
The following are the conditions:
- Submitted his return of income under section 139;
- Taken into account such amount for computing income in such return of income; and
- Paid the deducted TDS on the salary announced in his return
- The deductor has submitted a certificate of this in Form No.26A from a chartered accountant.
3. How can I know the TDS deduction from my income by the payer?
To know the TDS deduction by the payer, you can ask the payer to issue you a TDS certificate for tax deducted by him. Also, you can use the “View Your Tax Credit” section provided at www.incometaxindia.gov.in
4. What should I do with the TDS certificate?
Download the TDS certificate (Form 16 / 16A / 27D) from the website (www.tdscpc.gov.in) with the unique TDS certificate number and submit it to taxpayers before the due date.
5. What should I do if the TDS credit is not shown in FORM 26AS?
TDS credit not shown in Form 26AS can be due to various reasons like non-filing of TDS statement by the payer, providing incorrect PAN of the deductee in the TDS statement filed by the payer. Thus, the payee has to contact the payer to obtain the relevant reasons for the TDS credit not shown in Form 26AS.