Basic Understanding of Tax Deducted at Source (TDS)

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Deducted at Source (TDS) has been adopted with the purpose of collecting tax from the source of earning of assesse. According to this concept, an individual (deductor) who is liable to make payment of specified nature to some other person (deductee) shall deduct tax at source and remit the same tax to the Central Government.

TDS has been introduced to collect taxes from the source of earning. As per the Income Tax Act, while someone making a payment is required to deduct tax if payment excessed such levels/limit as specified. Limits or rate of TDS is prescribed by the Tax Department. The TDS is administered by the CBDT, which is come in the preview of the Ministry of finance.

TDS is a Kind of advance tax that must be deducted regardless of the method of payment. Because Tax Deducted at Source is a part of the Income Tax Act, both the Deductee and Deductor the person permanent account number (PAN) are linked to it. In such a case the PAN of the deductee is not uploaded, the Deductor Tax Deducted at Source shall deduct at a rate greater than the following:

  • at the rate prescribed in the Finance Act;
  • at 20%.
  • the rate prescribed in the income tax Act;

Tax Deducted at Source (TDS) IS APPLICABLE:

Below are expenditure & source of income falls under TDS-

  • Technical or consultancy fees.
  • Transfer of any immovable property other than agricultural land;
  • Salary Payment ;
  • Contractor payments
  • Payment of Brokerage or commission
  • Transfer of immovable property
  • Compensation on acquiring immovable property
  • Payment of interest by banks.
  • Charge to the contractor/sub-contractor for the success of the work;
  • Rent payment
  • Payments to freelancers and lawyers
  • Lottery etc
  • Insurance Commission
  • LIC maturity amount
  • Interest-free
  • The rise in demand (for TDS)
  • Penalty tax

Tax Deducted at Source (TDS) IS NOT APPLICABLE :

In the following circumstances, TDS is not applicable as per the income tax Act:

  • Where the person has a holder of a certificate of non-deduction u/s 192 of the Income Tax Act.
  • When the sum is paid towards the State Government or Center and RBI.
  • Payment made towards mutual funds specified U/s 10 (23D) income tax Act.
  • Whenever a payment is made to Central Financial Corporations or State Financial Corporations.
  • Interests paid or credited towards :
  • National Savings Certificate
  • Kisan Vikas Patra issued by the Government of India.
  • Non-Resident External Account
  • Banking Co-operative society as per defined under the income tax act
  • Recurring deposits or Savings account of banks & Co-operative society
  • Banking Company or Bank defined as per banking regulation
  • Trust Unit of the Indian or any other insurance company;
  • Notified body for non-deduction of tax

Benefit of TDS

  • It expands the tax collection framework.
  • This is a platform to transfer the accountability for the collection of taxes between the government and the deductors.
  • It helps to stop tax evasion.
  • As TDS deductions take place all throughout the financial year, this is an efficient method of revenue inflows to the government.

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Tax Deducted at Source Payment Due Dates

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www.carajput.com; TDS Compliances

Month-wise TDS due date is as follows:

Month Due date
April On or before the Seventh of May
May On or before the Seventh of June
June On or before the Seventh of July
July On or before Seventh August
Aug On or before Seventh September
Sept On or before Seventh October
Oct On or before the Seventh November
Nov On or before the Seventh December
Dec On or before Seventh January
Jan On or before Seventh February
Feb On or before the Seventh March
Mar
  • On or before Seventh April for government deductors
  • On or before Seventh April for non-government deductors

Normal Tax Deducted at Source Return Filing Due Dates

The Dead Line of Quarterly filing of Tax Deducted at Source Returns are as below:

Quarter Period Quarter Due date to file TDS return
April to June 1st Quarter On 31st July of the same FY
July to September 2nd Quarter On 31st Oct of the same FY
October to December 3rd Quarter On 31st Jan of the same FY
January to March 4th Quarter On 31st May of the next FY

https://carajput.com/blog/warning-due-dates-are-closer-than-they-appear/

The government made the New Deadline for TDS Returns Filing for the FY 2020-21

Quarter Quarter Period Quarter Ending Due Date
First Quarter April 2020 – June 2020 30 June 2020 31 March 2021
Second Quarter July 2020 – September 2020 30 September 2020 31 March 2021
Third Quarter October 2020 – December 2020 31 December 2020 31 January 2021
Fourth  Quarter January 2020 – March 2020 31 March 2020 31 May 2021

How do I deposit TDS?

TDS must be deposited on the government portal using Challan ITNS-281.

What’s a TDS certificate?

Form 16, Form 16A, Form 16 B, Form 16 C are all TDS certificates. TDS certificates must be issued by an individual who deducts TDS from an assessee whose TDS income was deducted at the time of payment.

For example, banks issue Form 16A to the depositor when TDS is deducted from interest on fixed deposits. Form 16 shall be given to the employee by the employer.

Frequency of TDS certificate Form Type Certificate issued for Dead Line
Yearly Form 16 TDS on salary payment 31st May
Quarterly Form 16 A TDS on non-salary payments 15 days from due date of filing return
Every transaction Form 16 B TDS on sale of property 15 days from due date of filing return
Every transaction Form 16 C TDS on rent 15 days from due date of filing return

Key Point to be remembered while deducting TDS

  • According to Sections 192 to 194L of the Income Tax Act provide a complete list of Tax Deducted at Source expenditures and sources of income.
  • If the person does not fall within the scope of the income tax slab, he or she may apply Form 15G or Form 15H to the deductor in advance for non-deduction of tax at source.
  • The Tax Deducted at Source refers to each kind of income that reaches a certain threshold.
  • TDS shall be deducted as per the rate of income tax imposed on employees.
  • For many other deductees, the Tax Deducted at Source shall be deducted at the specified percentage at each type of income.
  • Form 15H is intended for senior citizens.
  • Form 15G is intended for all other persons.

Points to be understood for TDS  

  • Any person who deducts TDS must have a TAN as provided for in Section 203 A of the Income Tax Act 1961.
  • Tax Deduction and Collection Account Number is a required condition for TDS returns to be filed. In addition, it should be included in the tax deduction certificate issued.
  • Deductions for TDS are connected to your Permanent Account Number. It is, therefore, necessary to have Permanent Account Number information of the deductee in order to deduct tax at source.
  • Any deductee must request a Tax Deducted at Source certificate to change the amount of tax deducted against the total amount of tax payable.
  • Tax Deducted at Source information can be reviewed using the Tax Credit Form 26AS, which is open to all PAN holders.
  • This consolidated tax statement gives you specific details of the Tax Deducted at Source withheld for the different forms of payments.

SMS Warnings on Greater Transparency

The revenue tax department has sent a text message to the taxpayer from VK-ITDEFL indicating the amount of tax deducted at source (TDS) against the taxpayer’s PAN (Permanent Account Number). The SMS warning will remind you of the TDS credited on your salary, interest, etc. earnings, per quarter. The sum of TDS will be accrued in your Form 26AS for the various financial year.

This program was initiated by the Ministry of Finance to improve transparency and reduce cases of TDS inconsistencies at the time of income tax filing. Taxpayers should cross-check the details given in the SMS with the payment slip information to ensure that there is no discrepancy. TDS mismatch may be a common explanation for incorrect filing of income tax returns.

Decrease in TDS rates i.e. 25% TDS cut to benefit individuals – Effects and results

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www.carajput.com; TDS

As part of a Special and Detailed Economic Package of COVID-19 Pandemic – Aatmanirbhar Bharat Abhiyaan, the following steps have been taken with regard to TDS and TCS: W.e.f. Fourteen May 2020, the Government has decreased the rate of TDS, dividends, professional fees, rent payments and other non-salary payments (TDS) and the rate of tax collection (TCS) by 25%. These rates shall be effective from 14 May 2020 and shall remain effective until the end of the financial year, i.e. March 2021, please. This action taken by the government would certainly increase the liquidity in the hands of a person who is already struggling with the financial distress caused by this pandemic. Deduction and collection of tax at a lower rate would leave further discretionary income in the hands of the recipient and would have the desired impact of increased cash flows and liquidity in the market. The effect and benefits of the reduction of TDS rates can be understood as follows:

  • NO subsequent reduction of the tax liability:- TDS rates for non-salary payments rendered to residents and TCS rates for defined receipts have been decreased by 25% of current rates.
  • The new rates would only apply to payments other than wages, such as contract payment, professional fees, rent, interest, dividend, commission, brokerage, etc.
  • The TDS, TCS cut does not minimize the tax burden of taxpayers but allows more money in their pockets.
  • Better management of the Fund:
  • Benefits for a particular section of taxpayers:
  • No TDS relief for expenditure booked before 14 May 2020:, The reduced rates will apply to the remaining portion of the 2020-21 fiscal year, i.e. from 14 May 2020 to 31 March 2021.
  • Lower Operational TDS and TCS rates would also benefit those who usually earn tax refunds.
  • Higher prices for non-furnishing of PAN:
  • The step is anticipated to occur in a liquidity increase of Rs. 50,000 crore.

Fines/ Penalties associated with the TDS

The deductor shall be liable for the fine if the TDS deduction and payment deadlines are violated.

  • Non-deduction of the Tax Deducted at Source(TDS) : In case the deductor/collector fails to collect the tax at source, all these expenses may be disallowed from the assessment of the overall revenue by the tax assessor.
  • For the late deduction of the Tax Deducted at Source(TDS): In case the tax at source is deducted within a day or a few days after payment of the profits, simple interest at a rate of One % per month will be charged on the balance of the tax deducted at source.
  • For late payment of the Tax Deducted at Source(TDS): As mentioned above, there is a monthly due date for the TDS to be deposited with the Government. If the deductor fails to do so it must pay simple interest on the amount deducted as tax at a rate of 1.5 percent per month.
  • For late-filing of Tax Deducted at Source(TDS) Returns: In case of deductor fails to furnish the TDS return on or before the specified due date, he shall be liable to pay a penalty of INR 200 per day till the date of default. Please note that the total amount of such penalty cannot exceed the total amount of tax deducted at the source.
  • For non-filing of Tax Deducted at Source(TDS)Returns: in case deductor fails to file TDS return within the due date, then the assessing officer may charge a penalty ranging from INR 10K to 100k.

In the circumstance of a deduction loss at source, the payer would have to relieve his tax liability. To find the total quantum, search Form 26AS from your e-filing account. This is a very well method of tax collection by the Indian government. To learn more about the current assessment year, free to contact us.

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Disclaimer: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; before making any decisions do consult your Professional / tax advisor. For misrepresentation or interpretation of act or rules Author does not take any responsibility. Neither the author nor the firm accepts any liability for the loss or damage of any kind arising out of information in this document or for any action taken in reliance there on. carajput.com is committed to helping entrepreneurs and small business owners to start, manage and grow their business with peace of mind. Our goal is to support the entrepreneur on legal and regulatory requirements and to be a partner throughout the entire business life cycle, offering support to the company at every stage to ensure that it is compliant and consistently growing. Hope the information will assist you in your Professional endeavors. For query or help, contact: info@carajput.com or call at 09811322785/4 9555 5555 480)

New Turnover Threshold for the Purposes of TDS Applicability

New Turnover Threshold for the Purposes of Tax deducted at Source (TDS) Applicability as per the Finance Act 2020.

www.carajput.com;Income TAX and TDS Update

www.carajput.com; Income TAX and TDS Update

 

TDS was applicable to individuals and to HUF if their accounts were subject to audit in Section 44AB of the preceding year. The Finance Act 2020 specifies that All individuals & HUF will be liable to deduct TDS if the revenue exceeds Rs. 1 Crore in the case of corporation and Rs. 50 Lakhs in the case of the profession in the previous year. Such revisions shall take effect from 1 April 2020.

Below is the TDS average for the year 2020-21. In the following table valid from 14th May 2020

o   Individuals include the individual and HUF

o   Company and others include Company, Company, LLP, Co-op Society, Local Authority.

New List of Announcement made under Direct Tax Acts made by the Minister of Finance Smt. N. Sitharaman

The Minister of Finance, Smt. N. Sitharaman conducted a media briefing on 13 May 2020 to make arrangements for the Rs 20 Lakh Crore Economy Plan launched by the P.M Sh. N. Modi.

The FM issued a number of packages for the Micro, Small, and Medium Enterprises Sector to provide a little relief under the COVID-19 disease outbreak. A variety of steps have been declared by the FM, including collateral-free automatic lending, updated description of MSME, etc.

1.      List of notified new rate and announcement 

The Minister of Finance has outlined a series of relief measures under the Income Tax Act, which are set out below:

(a) The TDS/TCS rates for defined payments/receipts shall be decreased by 25%. This reduction in the rate shall be applicable for tax deducted or assessed between 14-05-2020 and 31-03-2021. This provision shall not be made applicable to a salaried and non-resident taxpayer. The TDS and TCS preliminary rates are shown in the chart following.

(b) All unpaid refunds to nonprofit organizations and non-corporate companies and occupations shall be issued shortly.

(c) The due date of all revenue-tax returns for the financial year 2019-20 will be increased from 31 July 2020 and 31 October 2020 to 30 November 2020.

(d) The deadline date for the tax audit referred to in Section 44AB shall be increased from 30 September 2020 to 31 October 2020.

(e) The final date of selecting for the Vivad se Vishwas scheme without paying an extra 10%  of the tax at issue shall be expanded until 31 December 2020.

(f) The deadline of 30-09-2020 for completion of the evaluations shall be extended to 31- 12-2020. If the evaluation is blocked on 31-03-2021, it shall be extended to 30-09-2021.

By lowering the rate of TDS/TCS, the Government. It allows taxpayers to have much more money in their hands. In this tough moment, this declaration would help self-employed employees, professionals and senior citizens receiving interest income or rental income. It does not offer any comfort to employees. But it should be remembered that the relaxation of the TDS/TCS rate would have no effect on the final tax liability of the taxpayer. As a result, any shortfall in tax liability due to a decreased rate of TDS/TCS should be payable by advance tax installment payments. Any deficit in the deposit of advance tax would draw interest under Sections 234B and 234C. The first payment of the advance tax is due on 15 June 2020. A taxpayer can recalculate his advance tax obligation to be deposited next month in order to postpone any charge of interest.

1.       Rates of TDS FY 2020-21

 

Section

 

Nature of Income

Rate of TDS applicable for the period Threshold

Limit for deduction tax

01-04-2020 to 13-05-2020 14-05-2020 to 31-03-2021
193 Interest on Securities 10% 7.50%
194 Dividend 10% 7.50% Rs. 5,000 in

case of Individual

194A Interest other than interest on Securities 10% 7.50% Rs. 5,000 to

Rs. 50,000

194C Payment to Contractors –   1%: If deductee is an individual or HUF

–   2%: In any other case

–   0.75%: If deductee is an individual or HUF

–   1.50%: In any other case

–   Single payment : Rs. 30,000

–   Aggregate

payment: Rs. 100,000

194D Insurance Commission –   10%: If deductee is domestic Company

–   5%: In any other case

–   7.50%: If deductee is domestic Company

–   3.75%: In any other

case

15,000
194G Commission and other payments on sale of lottery

tickets

5% 3.75% 15,000
194H Commission and

Brokerage

5% 3.75% 15,000
194-I Rent –  10%: If rent pertains to hiring of immovable property

–  2%: If rent pertains to hiring of plant and machinery

–  7.50%: If rent pertains to hiring of immovable property

–  1.50%: If rent pertains to hiring of plant and

machinery

2,40,000
194-IB Payment of Rent by Certain Individuals or

HUF

 

5%

 

3.75%

50,000

 

194J Royalty and Fees for Professional or Technical Services –  2%: If royalty is payable towards sale, distribution, or exhibition of cinematographic films

–  2%: If the recipient is engaged in business of operation of call Centre

–  2%: If sum is payable towards fees for technical services (other than professional services)

–  10%: In all other cases

–  1.50%: If royalty is payable towards sale, distribution, or exhibition of cinematographic films

–  1.50%: If the recipient is engaged in business of operation of call Centre

–  1.50%: If sum is payable towards fees for technical services (other than professional services)

–  7.50%: In all other

cases

–  Director’s fees: Nil

–  Others: Rs. 30,000

194M Payment to contractor, commission agent, broker or professional by certain Individuals

or HUF

5% 3.75% 50 lakhs
194N Cash withdrawal –  2%: In general if cash withdrawn exceeds Rs. 1 crore

–  2%: If the assessee has not furnished return for the last 3 assessment years and cash withdrawn exceeds Rs. 20 lakhs but does not exceed Rs. 1 crore

–  5%: If the assessee has not furnished return for last 3 assessment years and cash withdrawn exceeds Rs. 1 crore

–  1.50%: In general if cash withdrawn exceeds Rs. 1 crore

–  1.50%: If the assessee has not furnished return for the last 3 assessment years and cash withdrawn exceeds Rs. 20 lakhs but does not exceed Rs. 1 crore

–  3.75%: If the assessee has not furnished return for last 3 assessment years and cash is withdrawn exceeds Rs. 1

crore

–  If a person defaults in the filing of return: 20 lakhs

–  If no default is made in the filing of return: Rs 1 crore

  1. Tentative rates of TCS
Section GST liable to TCS Rate of TDS applicable for the period
14-05-2020 to 31-03-

2021

14-05-2020 – 31-03-

2021

Section 206C(1) Alcoholic liquor for human

consumption

1% 0.75%
Section 206C(1) –           Timber obtained under Forest lease

–           Timber obtained by any mode other than under a forest lease

–           Any other forest produce not being timber or tendu

leaves

2.50% 1.875%
Section 206C(1) Tendu leaves 5% 3.75%
Section 206C(1) Minerals, being coal or ignite or iron ore 1% 0.75%
Section 206C(1) Scrap 1% 0.75%
Section 206C(1C) Parking Lot 2% 1.50%
Section 206C(1C) Toll Plaza 2% 1.50%
Section 206C(1C) Mining & quarrying 2% 1.50%
Section 206C(1F) Motor Car 1% 0.75%
Section 206C(1G) Overseas tour travel package 5% 3.75%
Section 206C(1G) Remittance of Forex under LRS of Rs. 7 lakh or more in a financial year 0.5%: Where remittance is a repayment of loan obtained for the purpose of pursuing any education

5%: In any other case

0.375%: Where remittance is a repayment of loan obtained for the purpose of pursuing any education

3.75%: In any other case

Section 206C(1H) Sale of goods in excess of Rs.

50 lakh

0.10% 0.075%

Interest in delayed payment and late deduction of TDS:

As per section 201(1A), Interest at the rate of 1 % per month or part of the month on the balance of TDS deductible from the date of tax before the date of the tax finally deducted shall be paid for the late deduction.

In addition, interest for late payment at a rate of 1.5 percent per month or half of the month on the number of TDS withheld from the date of tax to the day on which the tax is collected shall be levied.

Profit in late payment of TDS: amendments made pursuant to the Taxes and Other Laws (Relaxation of Other Provisions) Order 2020 of 24 March 2020:

For late fees payable on self-assessment tax; advanced tax, income tax, TDS, TCS, equalization cessation, STT, CTT made between 20 March 2020 to 30 June 2020, the interest rate will be decreased by 9% instead of 12%/18% per year (i.e. 0.75% per month instead of 1/1.5% per month).  No late fee/penalty shall be paid for any delay in respect of that time.

Default fees for the TDS / TCS return file:

Fees are payable at Rs. 200 a day for each day on which the loss continues. The amount of the fees can not exceed the value of the TDS.

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Disclaimer: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; before making any decisions do consult your Professional / tax advisor. For misrepresentation or interpretation of act or rules Author does not take any responsibility. Neither the author nor the firm accepts any liability for the loss or damage of any kind arising out of information in this document or for any action taken in reliance there on. carajput.com is committed to helping entrepreneurs and small business owners to start, manage and grow their business with peace of mind. Our goal is to support the entrepreneur on legal and regulatory requirements and to be a partner throughout the entire business life cycle, offering support to the company at every stage to ensure that it is compliant and consistently growing. Hope the information will assist you in your Professional endeavors. For query or help, contact: info@carajput.com or call at 09811322785/4 9555 5555 480)