TDS stands for tax deducted at source.

 For quick and efficient collection of taxes, the Income-tax Law has incorporated a system of deduction of tax at the point of generation of income. This system is called as “Tax Deducted at Source”, commonly known as TDS. Under this system tax is deducted at the origin of the income. Tax is deducted by the payer and is remitted to the Government by the payer on behalf of the payee. 

The provisions of deduction of tax at source are applicable to several payments such as salary, interest, commission, brokerage, professional fees, royalty, contract payments, etc. In respect of payments to which the TDS provisions apply, the payer has to deduct tax at source on the payments made by him and he has to deposit the tax deducted by him to the credit of the Government.

As per the Income Tax Act, any company or person making a payment is required to deduct tax at source if the payment exceeds certain threshold limits. TDS has to be deducted at the rates prescribed by the tax department.

The company or person that makes the payment after deducting TDS is called a deductor and the company or person receiving the payment is called the deductee. It is the deductor’s responsibility to deduct TDS before making the payment and deposit the same with the government. TDS is deducted irrespective of the mode of payment–cash, cheque or credit–and is linked to the PAN of the deductor and deductee.

Consequences for not deducted tax at source.

A deductor would face the following consequences if he fails to deduct TDS or after deducting the same fails to deposit 
it to the credit of Central Government’s account:-
a)  Disallowance of expenditure
 
As per section 40(a)(i) of the Income-tax Act, any sum (other than salary) payable outside India or to a non-resident, which is chargeable to tax in India in the hands of the recipient, shall not be allowed to be deducted if it is paid without deduction of tax at source or if tax is deducted but is not deposited with the Central Government till the due date of filing of return.
However, if tax is deducted or deposited in subsequent year, as the case may be, the expenditure shall be allowed as deduction in that year.
Similarly, as per section 40(a)(ia), any sum payable to a resident, which is subject to deduction of tax at source, would attract 30% disallowance if it is paid without deduction of tax at source or if tax is deducted but is not deposited with the Central Government till the due date of filing of return.
However, where in respect of any such sum, tax is deducted or deposited in subsequent year, as the case may be, the expenditure so disallowed shall be allowed as deduction in that year.

As per Section 58(1A) (as amended with effect from the assessment year 2018-19), the provisions of section 40(a)(ia) and 40(a)(iia) shall also apply in computing the income chargeable under the head “Income from other sources”.

b)  Levy of interest

As per section 201 of the Income-tax Act, if a deductor fails to deduct tax at source or after the deducting the same fails to deposit it to the Government’s account then he shall be deemed to be an assessee-in-default and liable to pay simple interest as follows:-
(i) at one per cent for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted; and
(ii) at one and one-half per cent for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid.​
 
c)  Levy of Penalty
Penalty of an amount equal to tax not deducted or paid could be imposed under section 271C​.

TDS is deducted on the following types of payments:

  • 1*Salaries

  • 2*Interest payable by assessee

  • 3*Rent payments

  • 4*Consultation fees

  • 5*Professional fees

  •  

The assesse is mandatorily required to deduct tax at source (“TDS”) in applicable cases on various payments (by way of salaries, payment to vendors, rent, etc.) and deposit the same with the Government, within the stipulated time. A short deduction of TDS or non-deduction results in the Assessee being treated as an ‘assessee-in-default’ and consequently, the Assessee is liable for payment of interest on TDS, penalty, etc. Also, such payments are disallowed as a deduction under the Income-tax Act, 1961 where there is a default in deduction and/or deposit of TDS.

Finance Act, 2018 has brought some minor changes in the TDS provisions. For your ready reference, TDS rate chart for FY 2018-19 is provided below:

TDS Rate Chart for FY 2018-19

  •  

1. Commonly used TDS Provision for payments made to persons resident in India (Individuals, Firms, Companies, etc.):-

Section

Nature of Payment for Domestic Transactions

Threshold Limit

Individual / HUF

Others

15G-15H

 

 

Rs.

TDS Rate (%)

Allowed

192

Salaries (Annexure-I)

As per income tax slabs

NO

193

Interest on Securities

10000

10

10

YES

194A

Interest to other than Resident Senior Citizen

10000

10

10

YES

194A

Interest to Resident Senior Citizen

50000

10

10

YES

194C

Contractor – Single Transaction

30000

1

2

NO

194C

Contractor – Aggregated Transaction during the F.Y.

100000

1

2

NO

194H

Commission / Brokerage

15000

5

5

NO

194I

Rent of Land and Building – F&F

180000

10

10

YES

194I

Rent of Plant / Machinery / Equipment

180000

2

2

YES

194IA

Transfer of certain immovable property other than agriculture land

5000000

1

1

NO

194J

Professional Fees / Technical Fees / etc.

30000

10

10

NO

194J

Payment to Call Centre Operator (w.e.f. 01.06.2017)

30000

2

2

NO

Conditions for being a resident senior citizen:

  • Individual of 60 years or more at any time during the year

  • An individual is said to be resident in any previous year if he satisfies any one of the following conditions:

  • He stays in India in the relevant previous year for a period of 182 days or,

  • He stays in India for at least 60 days during the relevant previous year and at least 365 days for 4 years preceding that previous year.

  • Other TDS Provision for payments made to persons resident in India (Individuals, Firms, Companies, etc.)

Section

Nature of Payment for Domestic Transactions

Threshold Limit

Individual / HUF

Others

15G-15H

 

 

Rs.

TDS Rate (%)

 

Allowed

192A

Premature withdrawal from EPF

5000

10

 –

YES

194

Dividends

2500

10

10

YES

194B

Winning from Lotteries

10000

30

30

NO

194BB

Winning from Horse Races

10000

30

30

NO

194D

Insurance Commission

15000

5

10

YES

194DA

Life insurance Policy

100000

1

1

YES

194E

Non-Resident Sportsmen or Sports Association

 

20

20

NO

194EE

NSS

2500

10

10

YES

194F

Repurchase Units by MFs

 

20

20

NO

194G

Commission – Lottery

15000

5

5

NO

194IB

Rent by Individual / HUF (w.e.f. 01.06.2017)

50000/PM

5

 –

NO

194LA

Compensation on transfer of certain immovable property other than agricultural land

250000

10

10

NO

194LA

Immovable Property (TDS exempted under RFCTLARR Act (w.e.f. 01.04.2017)

 –

 –

 –

NO

194LB

Income by way of interest from infrastructure debt fund (non- resident)

 –

5

5

NO

194LC

Income by way of interest by an Indian specified company to a non-resident / foreign company on foreign currency approved loan / long-term infrastructure bonds from outside India (applicable from July 1, 2012)

 –

5

5

NO

194LD

Interest on certain bonds and Govt. Securities (from 01-06-2013)

 –

5

5

NO

 Notes:

a) No TDS on Goods & Service Tax: As per circular no. 23/2017 dated 19.07.2017 of CBEC, TDS is not applicable on Goods and Service Tax (GST) where GST is shown separately.

b) No Surcharge, Health & Education Cess is not deductible on payments made to residentsother than salary

c) Deduction of TDS at a lower rate or non-deduction of TDS:

i) Deduction of TDS at a lower rate:

In case where a certificate for deduction of TDS at a lower rate u/s. 197 is obtained from the customer/ vendor, it should be confirmed whether the amount of payment is within the limit and valid for the period specified in the certificate u/s. 197 along with the certificate no. using the ‘197 Validation’ facility on the TRACES website.

ii) Non-deduction of TDS:

Please note that Form No. 15G can be accepted by the Assessee only when the total interest amount payable is less than the minimum exemption limit, which is Rs. 2,50,000 for financial year 2018-19. In case the same exceeds the above limit, then TDS is to be deducted as per the applicable provisions.

In case of Form No. 15H, the same is not acceptable if the total taxable income of the customer/ vendor including the interest income after claiming deductions under chapter VI(A) exceeds the minimum exemption limit, which is Rs. 3,00,000 for senior citizen/ Rs. 5,00,000 for super senior citizen for financial year 2018-19.

d) TDS at higher rate: If a person fails to furnish PAN to the Assessee whose receipts are subject to TDS, then, the TDS is to be deducted at higher of the following rates”

i) The rates in force or

ii) 20%

Exemption for deduction of TDS at a lower rate or non-deduction of TDS as discussed in Point 1-C is not admissible in case of Invalid PAN/ No-PAN.

e) TDS on Good Transport: TDS shall be applicable on payment to transporters, i.e., contractors in the business of plying, hiring or leasing goods carriages. However, TDS exemption will be available to transporter owning 10 (ten) or less goods carriage at any time during the previous year. For claiming such exemption, transporter would also need to furnish a declaration to the Assessee along with a copy of PAN. For transporter not covered above, TDS is to be deducted at normal rates as given in above table.

f) TDS on interest u/s 194A paid to resident senior citizen: Finance Act, 2018 has increased the threshold limit u/s section 194A of the Income Tax Act, 1961 for “resident” Senior Citizens to Rs. 50,000/-.

2) Due dates for deposit/remittance of TDS to Central Government
 

Other than Section 194IA/194IB

  • For the months of April to February (Monthly) – on or before 7th day from the end of the month in which tax is deducted.

  • For the month of March – 30th April

Section 194IA/194IB

  • For any month – on or before 30th day from the end of the month in which tax is deducted.

3)  Interest on non-deduction/ non-payment of TDS
 

As per Sec. 201(1A) of the Income-tax Act, 1961, if the Assessee does not deduct the whole or any part of the TDS or after deducting fails to pay the TDS as required by or under the Act, then the Assessee is liable to pay simple interest on the amount of such TDS, for every month or part of a month, at the rate of:

  • 1% from the date on which such TDS was deductible up to the date on which such TDS is deducted; and

  • 5% from the date on which such TDS was deducted up to the date on which such TDS is paid

4)  Fees for Late filing of TDS Return
 

As per Sec 234E of Income tax Act 1961, where a person fails to deliver or cause to be delivered a statement within the time prescribed in sub-section (3) of section 200 or the proviso to sub-section (3) of section 206C, he shall be liable to pay, by way of fee, a sum of two hundred rupees for every day during which the failure continues, maximum to the amount of tax deducted.

5) Due dates for filing of e-TDS returns & issue of TDS certificates

a) In respect of any other TDS (other than TDS u/s. 194-IA):

Quarter

Period

Due Date for filing of e-TDS Return

Due Date for issuing TDS certificate [in Form no. 16A]

Q-1

1st April to 30th June

31st July

15th August

Q-2

1st July to 30th September

31st October

15th November

Q-3

1st October to 31st December

31st January

15th February

Q-4

1st January to 31st March

31st May

15th June

b) In respect of TDS u/s 194IA

i) A challan-cum-statement in Form No.26QB is to be filed within 30 days from the end of the month in which the deduction is made

ii) TDS certificate in Form no.16B is to be issued to the payee within 15 days from due date of furnishing statement in Form no. 26QB

c) In respect of TDS u/s 194IB

i) A challan-cum-statement in Form No.26QC is to be filed within 30 days from the end of the month in which the deduction is made

ii) TDS certificate in Form no.16C is to be issued to the payee within 15 days from due date of furnishing statement in Form no. 26QC

Annexure-I

TAX SLABS FOR FY 2018-19 AY 2019-20

1. Income Tax Slab for Individual Tax Payers & HUF (Less Than 60 Years Old)

Income Tax Slab

Tax Rate

Income up to Rs 2,50,000

No tax

Income from Rs 2,50,000 – Rs 5,00,000

5%

Income from Rs 5,00,000– 10,00,000

20%

Income more than Rs 10,00,000

30%

Surcharge: 10% of income tax, where total income exceeds Rs.50 lakh up to Rs.1 crore.

Surcharge: 15% of income tax, where the total income exceeds Rs.1 crore.

Health & Education Cess: 4% of Income Tax.

2. Income Tax Slab for Senior Citizens (60 Years Old or More but Less than 80 Years Old)

Income Tax Slab

Tax Rate

Income up to Rs 3,00,000

No tax

Income from Rs 3,00,000 – Rs 5,00,000

5%

Income from Rs 5,00,000– 10,00,000

20%

Income more than Rs 10,00,000

30%

Surcharge: 10% of income tax, where total income exceeds Rs.50 lakh up to Rs.1 crore.

Surcharge: 15% of income tax, where the total income exceeds Rs.1 crore.

Health & Education Cess: 4% of Income Tax.

3. Income Tax Slab for Senior Citizens (80 Years Old or More)

Income Tax Slab

Tax Rate

Income up to Rs 5,00,000

No tax

Income from Rs 5,00,000– 10,00,000

20%

Income more than Rs 10,00,000

30%

Surcharge: 10% of income tax, where total income exceeds Rs.50 lakh up to Rs.1 crore.

Surcharge: 15% of income tax, where the total income exceeds Rs.1 crore.

Health & Education Cess: 4% of Income Tax.