What is TDS?

TDS or Tax Deducted at Source is the tax levied by the Government of India on the income of Indian individuals. According to the Income Tax Act, the payer or employer or the firm must deduct TDS at source before paying the fee to the payee or employee, if their annual income is likely to cross the minimum threshold of the tax exemption.

It is, then, the responsibility of the deductor (payer or firm) to deposit the deducted TDS amount with the Income Tax Department as TDS payment in favour of the deductee (payee or employee).

The TDS system of tax collection was introduced by the Government of India with the idea to collect tax at the very source of income to prevent tax evasion. TDS is applicable to different types of payments, which includes:

  • Salaries
  • Bank interest payments
  • House rent payments
  • Payment of commission
  • Professional fees
  • Consultation fees

TDS should be deducted, regardless of the payment method, viz. cheque, cash or credit, and should be deposited with the Income Tax Department under the PAN number of the deductee.

TDS types and TDS rates

Mentioned are the different types of TDS and the corresponding rates for TDS, as per the Income Tax Department:

Type of payment Applicable section TDS rate from 1st April to 13th May 2020 TDS rate post 14th May 2020
Salary 192 As per relevant income tax TDS slabs, including cess if any As per relevant income tax slabs, including cess if any
Interest earned from securities 193 10.00% 7.50%
Accumulated taxable earnings on PF 192A 10.00% 10.00%
Interest earned from fixed deposit 194A 10.00% 7.50%
Dividends earned from company-owned shares and mutual funds 194K & 194 10.00% 7.50%
Winnings from bets on horse races  194BB 30.00% 30.00%
Winnings from crosswords, lottery or any other game  194B 30.00% 30.00%
Insurance commission earned by the individual  194D 5.00% 3.75%
Contractors and subcontractor payments 194C 1% (HUF/Individual), 2% (others) 0.75% (HUF/Individual), 1.5% (others)
Payments on deposits made under National Savings Scheme 194EE 10.00% 7.50%
Taxable Life Insurance Policy as per Section 10(10D) 194DA 5.00% 3.75%
Commission, prize money, etc. on selling lottery tickets 194G 5.00% 3.75%
Payments made on UTI or Mutual Funds re-purchases 194F 20.00% 15.00%
Payment made for buying property or land 194 IB 1.00% 0.75%
Brokerage or commission received other than an insurance commission 194H 5.00% 3.75%
Rent payment by HUF or individual exceeding 50,000 every month 194 IB 5.00% 3.75%
Cash withdrawal of more than 20 lakhs or 1 crore 194N 2.00% 2.00%
Payment made to professionals or brokerage or commission of 50 lakhs or above 194M 5.00% 3.75%
Professional fees payment 194J 2% (FTS, call centre, certain royalties), 10% (others) 1.5% (FTS, call centre, certain royalties), 7.5% (others)

 

Rent for machinery and plant 194- I(a) 2.00% 1.50%
Rent for immovable property 194- I(b) 10.00% 7.50%
TDS for e-commerce participants (w.e.f 01.10.20) 194O 1.00% 0.75%

Challan for TDS payment

In the year 2004, the manual tax collection process was replaced with the Online Tax Accounting System (OLTAS). The technology was introduced to minimise human intervention and to bring in more efficiency and transparency into the tax collection process. The online process not just reduces errors but facilitates online tax collection, deposit and refund, etc. The OLTAS system issues a challan on the same day when the tax gets deposited to the corresponding PAN number. This single copy challan helps taxpayers track their e-challan or challan status.

Depending on the category of the taxpayer, challan is divided into the following three types:

  • Challan ITNS-280: Issued on depositing the income tax TDS (including Advance Tax, Self-Assessment Tax, Regular Assessment Tax, Surcharge, Tax on income or Distributed Profits and others). This challan can be filed online or offline.
  • Challan ITNS-281: Issued on depositing Tax Collected at Source (TCS) and Tax Deducted at Source(TDS). This challan is mainly issued by corporate or non-corporate entities. TDS or TCS is mainly collected by the seller from the buyer while processing the sale of the specific goods. The TDS challan 281 can be filed online as well as offline. Challan Identification Number (CIN) will be issued after the TDS payment is done online or through the bank.
  • Challan ITNS-282: Issued on depositing, wealth tax, gift tax, Securities Transaction Tax(STI) and other direct taxes.

The due date for TDS payment

Ideally, the TDS collected or deducted by the payer or employer or deductor must be deposited with the Income Tax Department by the 7th of the next month. However, due to the COVID-19 pandemic, companies are under constant pressure to meet the compliance requirements of the Income Tax Act. The Finance Ministry of the Government of India has made certain changes to the TDS payment due date, keeping in mind the struggles companies are facing due to the pandemic and the lockdown. Thus, the government has reintroduced new dates for TDS payments for FY 2020-21. They are as outlined below.

The month of TDS deduction TDS payment due date with challan for Govt deductor TDS payment due date with challan for other deductors
April 7th May 7th May
May 7th June 7th June
June 7th July 7th July
July 7th August 7th August
August 7th September 7th September
September 7th October 7th October
October 7th November 7th November
November 7th December 7th December
December 7th January 7th January
January 7th February 7th February
February 7th March 7th March
March 7th April 30th April

What is TDS returns?

The payer or deductor or employer must file a TDS return after depositing the tax with the Income Tax Department for the given PAN number.

TDS return is essentially a quarterly statement that must be provided to the IT department by the payer or employer. It is mandatory for TDS deductors to submit the TDS return by the prescribed due date. The details needed to file the TDS return include:

  • PAN of deductee and deductor
  • The amount paid as tax to the Income Tax Department
  • TDS challan
  • Other details, if any

How to file TDS return online?

  • Step 1: Go to the TIN portal of the Income Tax Department and select the appropriate section for which you need to fill a TDS/TCS return, along with the file format.
  • Step 2: The TDS/TCS return as per the file format must be filled in clean text ASCII format. The file name extension should be ‘txt’. The TDS/ TCS return form can be filled by using Return Preparation Utility software offered by NSDL or from any other third-party software.
  • Step 3: After the TDS return has been filled according to the prescribed file format, it must be verified with the File Validation Utility (FVU) offered by NSDL.
  • Step 4: If the return form contains errors, then the FVU will provide a report of the errors. Rectify the inaccuracies and verify the form again with FVU.
  • Step 5: The successfully generated FVU file could be submitted at TIN-FC, or you can upload it on the e-filing website.

What is the TDS certificate?

Every employer or payer, who deducts tax at source, has to provide a TDS certificate to the employee or payee.

TDS certificate is essentially a certificate that provides all details about TDS/RCS deductions done by the deductor on the deductee’s income. A TDS certificate is generally known as Form 16/ Form 16A.

When is TDS not applicable?

While TDS is applicable to most types of income earned by the individual, there are certain scenarios where TDS deduction rules are not applicable to the income. They are:

  • When the payment is done towards notified mutual funds as per section 10(23D)
  • When the payment is done towards a government body or to the government and Reserve Bank of India.
  • If the deductee has a non-deduction certificate as per section 192 of the Income Tax Act
  • When payment is done towards central or state financial corporations
  • Interest paid or credited to:
  • A banking company or banks
  • National Savings Certificate
  • Unit Trust of India, Life Insurance Corporation or different insurance companies
  • Banking Co-operative Society
  • Kisan Vikas Patra
  • Non-Resident External Account
  • A notified body for TDS non-deduction
  • Savings account deposits, recurring deposits of banks as well as co-operative societies

    TDS deduction limit on salary

    According to the Income Tax Act, the employer can deduct tax at source at the time of salary paying salary to their employee. The employer can deduct tax only while making the payment if the total annual salary of the employee goes beyond the minimum tax exemption limit. This means that if the total salary income of the employee is above 2,50,000/-, then the employer is liable to deduct tax as per the TDS slab rates specified by the Income Tax Department. The TDS slab rates or tax slab rates are applicable for both men as well as women below 60 years of age.

    Income tax slab Tax rate
    Up to 2.5 lakh Nil
    2.5 lakh to 5 lakh 5% (Tax rebate of 12,500 is available as per section 87A)
    5 lakh to 7.5 lakh  10%
    7.5 lakh to 10 lakh 15%
    10 lakh to 12.5 lakh 20%
    12.5 lakh to 15 lakh 25%
    15 lakh and above 30%

    Note: 4% as health and education cess over and above the tax slabs.


    Frequently Asked Questions

    1. Can a payee ask the payer to not deduct TDS and pay the entire amount without any tax deduction?
      The payee can ask the payer to not deduct any taxes at source from the income. But for this to materialise, the payee has to submit a declaration in Form 15G/15H, to the payer. The declaration should state that the estimated total annual income of the payee for the previous year, including the income on which the payer was supposed to deduct the tax, is below the minimum tax threshold, thus the taxes applicable will be nil. 

      • Form 15G is applicable for a person or individual below 60 years of age.
      • Form 15H is applicable to senior citizens above 60 years of age.
    2. If the payer does not deduct TDS from the payee’s income, will the payee face any consequences or actions from the Income Tax Department?It is the payer’s responsibility and duty to deduct tax before making the payment to the payee. If the payer does not deduct tax at source or fails to do so, then the payee won’t face any consequences from the IT department. In this situation, the payee has to exercise its duty and report their tax liability. Therefore, the payer’s failure to deduct taxes doesn’t relieve the payee off their tax liability on their income.
    3. If the deductor fails to deduct TDS or fails to deposit the TDS with the income tax department after deducting the same, what action will be taken on the deductor?
      Mentioned below are the list of consequences the deductor would face if they fail to deduct the TDS or fail to deposit after deducting TDS:

      • Levy of simple interest on TDS
        According to the section 201 of the Income Tax Act, if the payer or deductor does not deduct TDS before making the payment or does not deposit the deducted amount with the Income Tax Department, then the payer or deductor will be deemed as an assessee-in-default. They will be responsible for paying simple interest as mentioned below:

        • One percent interest for each month or part of each month on the sum of the tax amount from the tax-deductible date to the date in which the tax amount was actually deducted by the payer. 
        • One-and-a-half per cent for each month or part of the month on the tax amount from the date when the tax was deducted to the date when the tax amount was actually paid to the IT department.
      • PenaltyAccording to Section 271C of the Income Tax Act, the penalty of a sum equal to the unpaid or not deducted tax amount can be imposed on the payer or deductor.Note: The CBDT vide the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 dated 31-03-2020 has extended all respective due dates, falling during the period from 20-03-2020 to 29-06-2020, till 30th June 2020.This extended due date benefit is not applicable to income tax payment. However, any income tax payment delay during the period of 20.03.20 to 29.06.20 will attract a lesser rate of interest on TDS at 0.75% for each month or part thereof, if the tax sum is paid to post the due date but before 30.06.20.

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    Subin

    One of the prime contributors for this blog. I have 5 years of experience in SEO, Digital Marketing, Content Marketing, and have knowledge in topics like Tax, HR, Recruitment & Staffing. A free-spirit with a passion for travelling & music.

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