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Tax Deduction at Source (TDS)

Mr. C.S. Sudheer | Posted On Wednesday, January 14,2009, 11:24 PM

Tax Deduction at Source (TDS)

 

 

Tax deduction at source is very common for salaried people, but still we fight with our HR or accounts department if they deduct TDS from our monthly salary. Especially in the last six months of every financial year we get in to many arguments with our HR and accounts department without understanding the need of paying TDS. Most of us are paying TDS since years, but still we are not clear with its definition, need, process and the importance. Therefore in this article I am trying to explain the concept of TDS in a broad way.

TDS is final tax payable- at the time of filling his returns; the assessee pays the balance if any or asks for refund, as the case maybe. Ergo, it behooves the Department to have a standard uniform rate -convenient both for itself as well as the taxpayers.

Types of TDS:

SI No

Nature of TDS

Person Responsible for deduction of tax at source

TDS necessary when payment is made to

1

Salary and all positive incomes under any head on income but not including loss under the head income under the House property (Sec 192)

All Governments, Companies, Co operative societies, Local authorities, University, Institutions, Associations or Body , Trustees of a recognized Provident Fund or Superannuation Fund

Any individual having taxable salary during the previous year from any number of employers

2

Interest on Securities (Sec 193)

Any person

Any person

3

Dividend from Domestic Companies or companies which have made prescribed arrangement for declaration/payment of dividend within India (Excluded from TDS w.e.f. 1.6.97 by Finance Act, 97) (Sec 194)

Principal Officer of a Domestic Company.

A resident shareholder when total dividend paid exceeds Rs 2,500/-

4

Interest other than interest on securities (Sec 194A)

Any person other than individual or HUF

A resident

5

Winnings from Lottery or crossword puzzles (Sec 194B)

Any person

Any person

6

Winnings from horse races (Sec 194BB)

Book maker or person holding a licence for horse racing, wagering or betting in any race course

Any person

7

i.                    Payment to Contractors in pursuance of any work of contract including supply of labour contract (Sec 194C)

ii.                 Payment to sub-contractors (Sec 194C)

i.                    Central, State Government, local authority; Central, State or provincial Corporation; Company ; Co-operative Society; trust; University; a constituted authority engaged in housing and planning & development of Cities,Towns and Villages; and firm (firm included w.e.f. 1.7.95 vide Finance Act, 1995)

ii.                 Any Contractor other than individual or HUF

i.                    Any resident person

ii.                 Any resident person

8

Insurance Commission covering all payments for procuring Insurance business(Sec 194D)

Insurance Commission covering all payments for procuring Insurance business(Sec 194D)

A resident

9

Payment to non-resident sportsman (including athlete) or sports association or institution. In case of non-resident sportsman, it includes payments in respect of advertisements as well as articles on any game or sports in India in newspapers, magazines etc. (194E)

Any person responsible for payment

Any non-resident sportsman who is not a citizen of India and any non-resident sports association or institution

10

Payments in respect of deposits under NSS (194EE)

Person responsible for making payment in respect of amount referred to in Section 80CCA (2)(a).

Any person except when the payment is made to the heirs.

11

Payment on account of repurchase of Units by Mutual Fund or UTI (194F)

Person responsible for making payment in respect of amount referred to in Section 80CCB (2).

Any person

12

Commission to Stockists, distributors, buyers and sellers of Lottery tickets including remuneration or prize on such tickets (sec 194G)

Person responsible for making payment to such agent

Any person

13

Commission brokerage (sec 194H)

Not applicable w.e.f. 1.6.92

-

14

Payment of rent (sec 194I)

Any person responsible for making payment excluding individual & HUF.

Any person

15

Fees for professional & technical services; professional services include legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, advertising & any profession notified under Section 44AA ; Technical fees mean any consideration for rendering any managerial , technical or Consultancy service including provision of services of technical or other personnel(sec 194J)

Any person responsible for making payment except an individual & HUF.

A resident.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TDS rates as per Indian Tax Laws:

Nature of payment

Rate of deduction of tax(as percentage of payment made)

Surcharge

Total

A. Salary to an employee                                      

At regular tax rates in force See sub-module Tax Rates

 

B. In the case of payment to a resident other than a company:

1. interest other than interest on securities

10

1

11

2. winning from lotteries and crossword puzzles

40

4

44

3. winning from horse races

40

4

44

4. insurance commission

10

1

11

5.interest on debentures or securities other than a security of the Central or a State Government for money issued by or on behalf of a local authority or a statutory corporation or listed debentures of a company

10

1

11

6.rent to an individual or a Hindu undivided family

1.5

1.5

16.5

7.rent to a person other than an individual or a Hindu undivided family

20

2

22

8.payment in respect of deposit under National Savings Scheme, 1987

20

2

22

9.payment on account of repurchase of units by Mutual Fund of UTI [section 80CCB(2)

20

2

22

10.commission on sale of lottery tickets

10

1

11

11.payment to contractor ( in the case of advertising contracts : 1 per cent)

1

0.1

1.1

11A. Payment to a contractor other than an advertising contract

2

0.2

2.2

12.payment to sub contractor

1

0.1

1.1

13.fees for professional or technical services

5

0.5

5.5

14. Payment exceeding Rs. One lakh of compensation/consideration or enhanced compensation/consideration on account of compulsory acquisition of any capital asset (applicable upto May 31st 2000)

10

1

11

15.any other income

20

2

22

 

C. In the case of payments to a domestic company:

1.interest other than interest on securities

20

2

22

2.winning from lotteries and crossword puzzles

40

4

44

3.winning from horse races

40

4

44

4.commission on sale of lottery tickets

10

1

11

5.payments to a contractor ( in the case of advertising contracts : 1 per cent)

1

0.1

1.1

5A. Payment to a contractor other than an advertising contract

20

0.2

20.2

6.payments to sub-contractor

1

 

 

7.rent

20

2

22

8.fees for professional or technical services

5

5

0.5

9 Payment exceeding Rs. One lakh of compensation/consideration or enhanced compensation/consideration on account of compulsory acquisition of any capital asset (applicable upto May 31st 2000)

10

1

11

10.any other income

20

2

22

 

D. In the case of payment to a non-resident other than a company

1.income from foreign exchange assets payable to an Indian citizen

20

2

22

2.income by way of long-term capital gains referred to in section 115E

10

1

11

3.income by way of interest payable by Government/Indian concern on money borrowed or debt incurred by Government or Indian concern in foreign currency

20

2

22

4.rent to an individual or a Hindu Undivided Family

15

-

15

5.rent to a person other than an individual or a Hindu Undivided Family

20

-

20

6.winnings from lotteries and crossword puzzles

40

4

44

7.winnings from horse races

40

4

44

8.payments referred to in section 115BBA

10

-

10

9.payments in respect of National Savings Scheme, 1987

20

-

20

10.payments on account of repurchase of units by Mutual Fund/UTI [section 80CCB(2)]

20

-

20

11.income by way of interest/dividends [not being dividends referred in section 115-O] payable in respect of bonds/shares referred to in section 115AC or by way of long-term capital gain arising from transfer of such bonds

10

-

10

12.commission on sale of lottery tickets

10

-

10

13.income in respect of units referred to in section 115AD(1)(a) payable to foreign Institutional Investor (other than capital gain)

20

-

20

14.income by way of long-term capital gain

20

2

22

16.any other income [see Note 2]

30*

 

 

 

E. In the case of payments to a non-domestic company

1.winning from lotteries and crossword puzzles

40

-

40

2.winnings from horse races

40

-

40

3.interest payable by Government or an Indian concern on money borrowed or debt incurred in foreign currency

20

-

20

4.royalty payable by Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern after March 31, 1976, where such royalty is in consideration for the transfer of all or any rights ( including the granting of a licence) in respect of copyright in any book on a subject referred to in the first proviso to sub-section (1A) of section 115A of the Act, to the Indian concern or in respect of computer software referred to in the second proviso to section 115A(1A), to a person resident in India :-

 

 

 

--where the agreement is made before June 1, 1997

30

-

30

--where the agreement is made after May 31, 1997

20

-

20

5.royalty [not being royalty of the nature referred to in (d) supra] payable by Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern and where such agreement is with an Indian concern, the agreement is approved by the Central Government or where it relates to matter included in the industrial policy, the agreement is in accordance with that policy:-

 

 

 

--where the agreement is made after March 31, 1961 but before April 1, 1976

50

-

50

--where the agreement is made after March 31, 1976 but before June 1, 1997

30

-

30

--where the agreement is made after May 31, 1997

20

-

20

6.fees for technical services payable by Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern and where such agreement is with an Indian concern, the agreement is approved by the Central Government or where it relates to matter included in the industrial policy, the agreement is in accordance with that policy

 

 

 

--where the agreement is made after February 29, 1964 but before April 1976

50

-

50

--where the agreement is made after March 31, 1976 but before June 1, 1997

30

-

30

--where the agreement is made after May 31, 1997

20

-

20

7.rent

20

-

20

8.long-term capital gains

20

-

20

9.payments referred to in section 115BBA

10

-

10

10.commission on sale of lottery tickets

10

-

10

11.payments to overseas financial corporation covered by section 115AB or by long-term capital gains arising from transfer of such units

10

-

10

12.income by way of interest/dividend [not being dividend referred in section 115-O] in respect of bonds/shares referred to in section 115AC or by way of long-term capital gain arising from transfer of such bonds

10

-

10

13.income (other than capital gain) in respect of units referred to in section 115AD(1)(a) payable to Foreign Institutional Investor

20

-

20

14.on any other income

48

-

48

Annual TDS Returns to be filed

S No

Nature of payment

Form No.

Section

Due date of filing in the next financial year

1.

Payment of salary

24

Section 192

31st May

 

Interest on securities

25

Section 193

30th June

2.

Payment of dividend or income in respect of Units u/s194K

26

Section 194
Section 194K

30th April

3.

Interest other than Interest on securities

26A

Section 194A

30th June

 

Winning from lotteries

26B

Section 194B

31st May

 

Winning from horse races

26BB

Section 194BB

-do-

4.

Payment to Contractors & Sub-Contractors

26C

Section 194C

30th June

5.

Insurance Commission

26D

Section 194D

-do-

6.

Insurance Commission paid/credited without deduction of tax

26E

Section 206

Omitted w.e.f. 19.3.1997

7.

Payments from deposits under NSS

26F

Section 194EE

30th June

8.

Payments on account of repurchase of Units

26G

Section 194F

-do-

9.

Payments regarding Commission on sale of lottery tickets

26H

Section 194 G

-do-

11.

Payment of rent

26J

Section 194I

-do-

12.

Payment of Professional fees or technical fees

26K

Section 194J

-do-

TAN (Tax Deduction Account Number)
Every person deducting tax in accordance with the provisions of sections 192 to 194, section 194A, section 194B, section 194BB, section 194C, section 194D, section 194E, section 194EE, section 194F, section 194G, section 194H, section 194I, section 194J, section 194K, section195, section 196A, section 196B, section 196C and 196D, if he has not been allotted any tax deduction account number, shall, within such time as prescribed under Rule 114A of the Income Tax Rules, 1962, apply in Form No. 49B to the Assessing Officer for the allottement of Tax Deduction Account Number. This number is known as TAN and has to be quoted in all TDS challans, TDS Returns and in all certificates issued pertaining to TDS.

How to Deposit In TDS
Challan in which payment is to be made to Govt. Account

Sr. No

Challan No

Nature of payment

1.

Challan No 9-ITNS 191

Where tax is deducted from salaries

2.

Challan No 8-ITNS 39/ ITNS 271(Computerised)

Where tax is deducted at source (other than salaries) on payment made to persons other than Companies.

3.

Challan No 2-ITNS 39A/ ITNS 269(Computerised)

Where tax is deducted at source from payments made to Companies.

Important points to be kept in mind while filling TDS Challan:
In case of TDS pertaining to item other than salaries, the deductor must indicate the nature of payment by ticking the relevant item. Two counterfoils will be returned by the bank- 4th counterfoil is required to be attached with the return of income and 3rd counterfoil is required to be retained by the deductor for his record as indicated on the top of the challan.

Exemption from TDS
Circumstances in which tax is not to be deducted at source or is to be deducted at a lower rate:

S.No

Type of Income

Form No in which application to be made

Certificate to be issued by the Assessing Officer

Period of validity

1.

Salary (sec192)

Form No 13 (see rule 28)

Form No 15AA (see rule 28AA). The certificate is issued to the deductor under advice to the applicant

Valid for the period specified in the certificate (see Rule 28AA) Fresh application required after expiry of validity period.

2.

Interest on securities (Section 193)

-do-

-do-

-do-

3.

Interest other than interest on Securities (Section 194A)

-do-

-do-

-do-

4.

Insurance Commission (Section 194D)

-do-

-do-

-do-

5.

Rental Income (Section 194I)

-do-

-do-

-do-

6.

Income in respect of Units (Section 194K)

-do-

-do-

-do-

7.

Payment to non-residents (Section 195)

-do-

-do-

-do-

8.

Payment to Contractors or Sub-Contractors (Section (194)

Form No.13C
(See Rule 28)

No prescribed form. The certificate can be issued by the Assessing Officer on a plain paper

For the relevant FY.

9.

Commission on sale of lottery tickets (sec 194G)

Form No 13D (applies to lottery agents and not prize winners)

-do-

-do-

10.

Payment of fees for professional or technical services (sec 194J)

Form No 13E

-do-

-do-

11.

Payment to non-resident banking company (sec 195(3))

Form No 15C (see rule 29B)

Form No 15E

For the FY specified in the certificate

12.

Payment to non-resident company carrying on business or profession in India through a branch (not being interest or dividend)-sec 195(3)

Form No 15D (see rule 29B)

-do-

For the relevant FY

Types of income/payment where the above benefit is not available under the Act:
1. Winning from Lottery or Crossword puzzles Section 194B
2. Winning from horse race Section 194BB
3. Payments to non-resident Sportsmen or Association Section 194E
4. Payments in respect of NSS deposits Section 194EE
5. Payments on account of repurchase of units issued by Mutual funds Section 194F
6. Income in respect of units of non-residents, Off-shore Funds; foreign currency bonds; (FIIs) Section 196A,196B, 196C & 196D

TDS Exemption for Individuals
The Act, vide Sec 197A, for the convenience of an individual payee, allows the benefit of non-deduction of tax at source on filing of declaration in the prescribed form with the payer. The details are given below (Sec 197A read with Rule 29C. Also see Circular No.351 dated 26.11.82)

S.No

Types of Income

Prescribed form (in duplicate)

Payee who can file declaration

Period of validity

1.

Interest on securities Section 193

Form No 15F in duplicate. One copy to be sent by the Payer to Chief Commissioner/ Commissioner within seven days of the succeeding month.

By an individual resident in India.

Declaration valid for one previous year.

2.

Interest other than interest on securities - Section 194A.

Form No.15H

-do-

Any payee other than Company or firm.

3.

Payment of NSS deposit – section 194EE

Form No.15I

-do-

Any individual resident in India

4.

Income in respect of Units Sec 194K

Form No 15H

-do-

Any payee other than a company or a firm

Deduction of Tax at Source in the case of Non-Residents and No Objection Certificate for Foreign Remittance (Sec. 195):
1. Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being interest on securities) or any other sum chargeable under the provisions of this Act (not being income chargeable under the head ''Salaries'' ) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force: Provided that in the case of interest payable by the Government or a public sector bank within the meaning of clause (23D) of section 10 or a public financial institution within the meaning of that clause, deduction of tax shall be made only at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode.

2. Where the person responsible for paying any such sum chargeable under this Act (other than interest on securities and salary) to a non-resident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application to the Assessing Officer to determine, by general or special order, the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted under sub-section (1) only on that proportion of the sum which is so chargeable.

3. Subject to rules made under sub-section (5) of Sec.195 , any person entitled to receive any interest or other sum on which income-tax has to be deducted under sub-section (1) may made an application in the prescribed form to the Assessing Officer for the grand of a certificate authorising him to receive such interest or other sum without deduction of tax under that sub-section, and where any such certificate is granted, every person responsible for paying such interest or other sum to the person to whom such certificate is granted shall, so long as the certificate is in force, make payment of such interest or other sum without deducting tax thereon under sub-section (1).

4. A certificate granted under sub-section (3) of Sec.195 shall remain in force till the expiry of the period specified therein or, if it is cancelled by the Assessing Officer before the expiry of such period, till such cancellation.

Certificate of TDS
1. Salary (sec 192) :

Form No.16 (Rule 31 (1)(a). The certificate should be issued by the deductor within one month of the close of the financial year in which deduction is made.

2. In all other cases :
Form No 16A (Rule 31(1) (b)).
1. General time limit for issuing certificates in all other cases is within one month from the end of the month during which the credit is given or sum paid.

2. Rule 31(3), first proviso, gives further option to the payer to issue certificate within one week after the expiry of two months from the month in which income is credited. This option is available where the amount is credited to the account of the payee on the last day of the accounting period of the payer. This option is available in respect of payments except sec 192-salary, 194B-winning from lotteries, 194BB-winning from horse races, 194EE-payments from NSS deposits, 194F-payments in respect of repurchase of units, 194K-income in respect of units.

3. Where payment in respect of TDS is permitted quarterly under rule 30(1) i.e. income from interest, insurance commission, the certificate is to be issued within 14 days of the payment of Income Tax.
Note : Where more than one certificate is required to be furnished to the payee during the financial year, then on the request of the payee, one consolidated certificate may be issued within one month from the end of such financial year vide new proviso to Rule 30 inserted vide notification dated 2.7.1996

Special Cases in TDS
1. Return regarding deduction of tax from non-residents – Rule 37A:
Returns in respect of T.D.S. under Section 193, 194, 194E, 195,196A, 196B, 196C & 196D from any payment made to a non resident or to a resident but not ordinarily resident assessee (not being a company) or from any company which is neither a Indian Company nor a company which has made the prescribed arrangement for the declaration of and payment of dividend within India have to be filed within14 days from the end of the quarter in Form No 27 to the designated officer as per Rule 36 A.

However, where T.D.S. is pertaining to interest on securities under Sec.193, or payment to non-resident sportsmen or sports associations under Sec.194E, or of interest or any other sum referred to in Sec.195, or income from units of UTI to a non resident Indian or a non resident HUF where the assets were acquired out of funds from a NR(E) account or by remittance of foreign currency as referred to in Section 196A(2) , or income from units referred to in section 196B, or income from foreign currency bonds or shares of an Indian Company referred to in Section 196C at the income of FIIs from securities referred in Section 196D then the return is to be filed in Form No. 27 within 14 days after the expiry of two months from the month in which the income was so credited.

2. Return of deduction of tax from contribution paid by Trustees of approved Superannuation Fund-Rule 33:
Return to be filed in Form No 22 within 2 months from the end of the financial year.

 

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