Author: Khushi J Prajapati
In India, TDS is a way for the government to collect taxes in accordance with the Income Tax Act of 1961. The payer has to take out a portion from any payment made to an individual or organization and send that sum to the government instead of the one who receives it. This system aims to ensure continuous flow of tax money in order to minimize as well as avoid tax evasions by capturing levies while they are being made. The various forms of income it covers include salaries, interest rates, rent and professional fees with different sections indicating particular rates and conditions.
Key Elements Known by Layman
It has been concluded that TDS must be deducted when remitting certain types of payments such as interested, salaries or rent as per the Income Tax Act, 1961 However if you’re an individual as well as Hindu Undivided Family (HUF) whose business or professional income does not go beyond ₹1 crore and ₹50 lakhs respectively generally; they would never have to pay taxes on these deductions.
No tax audit is required either” says its provisions for those who are not subject to it. The relevant threshold above which TDS is required by law includes rent paid by an individual or Hindu Undivided Family (HUF) exceeding ₹50,000 per month attracting a 5% tax deduction at source (TDS) regardless of whether they fall under tax scrutiny or not. Simply put, this does not need a Tax Deduction and Collection Account Number (TAN).
For other payments, Act has prescribed rates of TDS – employers deduct such levies based on relevant income tax slabs while in case of banks usually deducting at a rate of 10% (or even 20% in the absence of PAN).
Sponsored by this limit, you can give investment proof to your employer or Form 15G/Form 15H to bank for avoiding TDS. If TDS had already been deducted, you could claim it back by filing a return.
Applicability Of TDS In Day To Day Life
TDS is a normal segment of financial transactions for the common man, usually without them even realizing it. The employer withholds TDS when an employee gets his or her salary and before paying out his net income. Moreover, according to this policy, banks take away TDS on interest accrued on savings or fixed deposits. When tenants pay their landlords who fall under these regulations, he or she will have TDS deducted from rent too. Therefore every point in time they have been paying these taxes, such that it becomes easy to comply with them throughout the year and manage budget as well. Thus, TDS assumes great significance in everyday finances through which various streams of income become perfectly integrated with taxation.
TDS on Salary u/s 192
Section 192 of the Income Tax Act, 1961 specifies that employers are to deduct taxes from employee salaries depending on the applicable income tax slab rates at the time of disbursing these amounts. The amount withdrawn should be deposited with the government and it is required for employers to provide Form 16 to employees consisting of details regarding deductions of taxes and salaries accordingly. TDS returns should also be submitted in form 24Q by employers for each quarter. Timelines differ for submitting and remitting TDS every quarter.. Non-compliance attracts penalties which include; a late fee of ₹200 per day (for not filing returns) together with an interest of 1% monthly on all overdue TDS deductions or 1.5% per month for late payments’ contributions.
TDS on cash withdrawal u/s 194N
The Cash Withdrawal Act, 2019 enforced on September 1, 2019. According to Section 194N of the Income Tax Act, TDS is deducted from cash withdrawals that exceed a given threshold limit. Banks, postal services and certain financial entities must deduct TDS when a person withdraws cash in excess of ₹20 lakh during a financial year provided that no income tax returns are filed for any of the last three assessment years or ₹1 crore depending upon whether any ITRs were filed for such years. If they did file ITRs then it firms up at 2% for withdrawals exceeding ₹1 crore while in case of non-filing ITRs it stands at 2% for withdrawals greater than ₹20 lakh or 5% for such amounts more than ₹1 crore. Of every 100 rupees that you have withdrawn your worth would be reduced by 2-5 percent depending on whether you have submitted your income tax return within last three years or other wise.The shutting off of TDS does not apply to certain persons like government institutions and banks.
TDS on Rent u/s 194I
Tenants are required by Section 194I of the Income Tax Act to deduct TDS at 10% from their monthly rent for land, buildings, plant and machinery, if the total of annual rent exceeds ₹2.40 lakh per landlord. Businesses and firms fall under this section but individuals or HUFs must fall under it only when they carry on businesses or professional activities that require audit accounts. If TDS is not deducted then a penalty of 1% per month is imposed until it is paid out.TDS for non-resident landlords will be deducted under Section 195 at a rate of 30%. Payments can be done online via TIN-NSDL website, as for rent above ₹50,000 per month starting from 2024 only individuals/HUF tenants must deduct TDS. TAN is mandatory for entities while PAN is used by individuals/HUFs to deduct TDS.
TDS for Professional or Technical Services u/s 194J
According to Section 194J within the Income Tax Act, TDS is mandated to be deducted on various payments made to professionals and technical service providers. Such payments include 2% TDS on technical services fees, contractor payments, and some royalty payments with a higher 5% rate for total payments exceeding ₹50 lakh in one financial year. In respect of director salaries or employee remuneration above ₹15,000 monthly; it is at a 10% rate for royalty payments. If the payee doesn’t give their PAN then this rises up to 20%. Payments that are immune from TDS entail certain reimbursements as well as expenses. Failure to comply results in penalties, interest charged for late payment and possible disallowance of deductions. The sum must be deposited before the seventh day of the month subsequent to its withdrawal, whereas a submission for reduced TDS rates may be made via form 13.
TDS on Interest other than Interest on Securities u/s 194A
Under section 194A of the Income Tax Act, TDS is applicable on interest other than on securities like fixed deposit and loan and advances interest. For residents TDS is deducted at10% if payee provides PAN or 20% if they do not. For non-bank entities, the TDS deduction threshold is ₹5,000 whereas it is ₹40,000 (₹50,000 for senior citizens) for banks and post offices respectively. TDS without fail should be deducted during either when making a payment or in accordance with an earlier credit, and it must subsequently be sent over to the authorities by the 7th of the following month that comes after actually making such payment or on April 30th if it was deducted during March month. Individuals and registered entities whose annual turnover exceeds ₹1 crore (in case of business) or ₹50 lakh (in case of services) are subject to these regulations while others are exempted from them.
TDS on Sale of Property u/s 194IA
Section 194-IA of the Income Tax Act specifies that immovable property buyers in India must deduct TDS at 1% of the property’s sale price when buying a piece of land worth more than ₹50 lakh, but agricultural land is excluded. It’s the buyer who cuts such TDS off the payment and the seller’s credit amounts; this has to be sent to the government within a time frame of 30 days post the month that saw TDS cuts take place.. The buyer should say it through filing hereof Form 26QB and on this ground he will give form 16B to seller as evidence. If not done, fine will have to be paid, and those non-resident Indians who sell their properties should follow special guidelines along with tax rates.
TDS for Purchase of Goods u/s 194Q
Section 194Q of Income Tax act, applicable on and from July 1, 2021 requires the buyer to deduct TDS at 0.1% on any value of purchases which exceed ₹50 lakh made by a resident seller in one financial year; provided however that the turnover of the purchaser in the previous year surpassed ₹10 crore. If in case the seller does not provide PAN then TDS rate increases to 5%. TDS should be deducted when a payment is made or credited whichever comes first; and must be deposited by seventh day of next month (with respect) with regard to March deposit due by April 30. Quarterly TDS returns must be filed using Form 26Q; however section 194Q does not apply if TDS is deducted under other provisions like section 194O or if TCS is applicable under section 206C(1H). Compliance is important for preventing penalties; moreover GST must be excluded from total calculated for TDS amount
TDS on Insurance Commission u/s194D
Section 194D of the Income Tax Act requires TDS to be deducted from the insurance commissions paid to agents and brokers, at a limit of ₹15,000. Individuals and HUFs are subject to a TDS rate of 5%, while domestic enterprises are charged 10%. In contrast, payees who do not submit their PAN are charged a higher rate of 20%.. This deduction should happen when income is credited or payment is made, whichever comes first. Agents can apply for lower rate of tax deduction at source (TDS) payment with Form 13. In case of late payment it attracts penalty of one percent per month. Certain LIC policy proceeds as well as keyman insurance policies are exempt from taxation under section 10(10D) depending on certain conditions & premium amounts.
TDS on Payment to E-Commerce Operator u/s 194O
The Income Tax Act’s Section 194O makes it mandatory for e-commerce companies to deduct TDS at a rate of one percent for each payment made to e-commerce participants (sellers or service providers) whose total payments exceed ₹5 lakh in any financial year. This is meant to help in taxing revenue generated through electronic transactions. It is important to note that e-commerce operators need to deduct TDS out of gross sales/service figures and remit them to the government by the 7th day of the month following that in which such deductions were made. Various forms of digital platforms fall within this provision including online marketplaces, retail sites and application based services. Such compliance entails among other things monitoring all transactions, obtaining PAN or Aadhaar details, making timely remittance of TDS and submitting accurate quarterly returns using Form 26Q. The challenges faced include management of huge transaction volumes, different tax statuses of sellers and routine changes in regulations; however they can be minimized through use automated systems regularly updated but also best seller communication practices.
TDS on Commission and Brokerage 194H
As enshrined in Section 194H of the Income Tax Act, it denotes that the Tax to Be deducted at Source (TDS) payable on commission or brokerage remuneration is commonly described as 5%; however, this amount was reduced by 3.75% due to COVID-19-related alleviation measures taken between May 14, 2020 and March 31 2021. The TDS rate is raised to 20%, if the payee doesn’t have a PAN. TDS is only applicable if the overall commission or broking amount goes past ₹15,000 in one financial year. The tax should be deducted when an individual makes a payment or credits their account and deposited with government authorities no later than the seventh day of the subsequent month; however, for March the due dates stretch up to April 30. Exemptions include instances where payment lies below set limits, or when the deductor possesses either NIL or lower TDS certificate. Thus accurate compliance entails timely deductions, deposits, issuance of TDS certificates besides quarterly return filing within valid PAN also addressing any disputes that may arise from rotors/main contributors.
