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1. What is 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. The following illustration will explain the TDS mechanism.
Illustration :
Mr. Raja has made a fixed deposit with XYZ Bank. Annual interest on the deposit is Rs. 8,40,000. Will the bank be liable to deduct any tax from the interest paid to Mr. Raja?
**
Interest on fixed deposit is covered under the TDS mechanism and, hence, the bank has to deduct tax from interest and has to pay the net interest to Mr. Raja.
The rate of TDS on interest is 10% and, hence, the bank will deduct tax of Rs. 84,000 from the interest and will pay the net interest of Rs. 7,56,000 (i.e., Rs. 8,40,000 – Rs. 84,000) to Mr. Raja.
The TDS of Rs. 84,000 will be paid by the bank to the Government and Rs. 84,000 will be treated as prepaid tax of Mr. Raja and he can claim tax credit of Rs. 84,000 just like advance tax at the time of filing his return of income.
The above mechanism of deducting the tax at the point of generation of income is called TDS mechanism.
2. What are the payments covered under the TDS mechanism and the rates for deduction of tax at source?
Tax is deductible at source at the rates given in table ( infra ). If PAN of the deductee is not intimated to the deductor, tax will be deducted at source by virtue of section 206AA either at the rate given in the table or at the rate or rates in force or at the rate of 20 per cent, whichever is higher. Further, under section 94A(5) , if payment or credit is made or given to a deductee who is located in a notified jurisdictional area, tax is deductible at the rate given in the table or at the rate of 30 per cent, whichever is higher. TDS rates for the financial year 2016-17 are as follows—
CATEGORY A - WHEN RECIPIENT IS RESIDENT |
|
Nature of payment |
TDS (SC : Nil , EC : Nil , SHEC : Nil ) |
• Sec. 192 - Payment of salary [normal tax rates are applicable – SC : 15% (if net income exceeds Rs. 1 crore), EC : 2% and SHEC : 1%] |
15% |
• Sec. 192A - Payment of taxable accumulated balance of provident fund |
10 |
• Sec. 193 - Interest on securities— |
|
a. interest on ( a ) debentures/securities for money issued by or on behalf of any local authority/statutory corporation, ( b ) listed debentures of a company [not being listed securities in demat form], ( c ) any security of the Central or State Government [ i.e., 8% Savings (taxable) Bonds, 2003, but not any other Government security] |
10 |
b. any other interest on securities (including interest on non-listed debentures) |
10 |
• Sec. 194 - Dividend— |
|
a. deemed dividend under section 2( 22 )( e ) |
10 |
b. any other dividend |
Nil |
• Sec. 194A - Interest other than interest on securities |
10 |
• Sec. 194B - Winnings from lottery or crossword puzzle or card game or other game of any sort |
30 |
• Sec. 194BB - Winnings from horse races |
30 |
• Sec. 194C - Payment or credit to a resident contractor/sub-contractor— |
|
a. payment/credit to an individual or a Hindu undivided family |
1 |
b. payment/credit to any person other than an individual or a Hindu undivided family |
2 |
• Sec. 194D - Insurance commission |
10 |
- payment/credit to an individual or a Hindu undivided family |
5 |
- payment/credit to any person other than an individual or a Hindu undivided family |
10 |
• Sec. 194DA - Payment in respect of life insurance policy (applicable from October 1, 2014) |
2% |
• Sec. 194EE - Payment in respect of deposits under National Savings Scheme, 1987 |
20 |
• Sec. 194F - Payment on account of repurchase of units of MF or UTI |
20 |
• Sec. 194G - Commission on sale of lottery tickets |
10 |
• Sec. 194H - Commission or brokerage |
10 |
• Sec. 194-I - Rent— |
|
a. rent of plant and machinery |
2 |
b. rent of land or building or furniture or fitting |
10 |
• Sec. 194-IA - Payment/credit of consideration to a resident transferor for transfer of any immovable property (other than rural agricultural land) |
1 |
• Sec. 194J - Professional fees, technical fees, royalty or remuneration to a director |
10 |
• Sec. 194LA - Payment of compensation on acquisition of certain immovable property |
10 |
• Sec. 194LBA(1) - Payment of the nature referred to in section 10( 23FC ) or section 10( 23FC)(a) (with effect from June 1, 2016) or section 10( 23FCA ) by business trust to resident unit holders |
10 |
• Sec. 194LBB - Payment in respect of units of investment fund specified in section 115UB |
10 |
• Sec. 194LBC(1) - Payment in respect of an investment in a securitisation trust specified in clause (d) of the Explanation occurring after section 115TCA (with effect from June 1, 2016) |
- |
- if recipient is an individual or a Hindu undivided family |
25 |
- if recipient is any other person |
30 |
3. Is there any minimum amount upto which tax is not deducted?
In respect of various items liable to TDS, the Income-tax Law has prescribed a threshold limit. If the expenditure incurred/payment made during the year is below the threshold limit, then there is no requirement to deduct tax at source. Following list gives the threshold limit in respect of various items covered by TDS provisions:
S.No. |
Particular |
Section |
Threshold limist |
1. |
No deduction of tax at source from salaries |
192 |
If net taxable income is less than maximum amount which is not chargeable to tax (Rs. 2,50,000 for an individual, Rs. 3,00,000 for Senior Citizens and Rs. 5,00,000 for Super Senior Citizens) |
1A. |
No TDS from payment of provident fund account of an employee |
192A |
If amount paid is less than Rs. 30,000. (Rs. 50,000 w.e.f. 1-6-2016) |
2. |
No TDS from interest paid on debentures issued by a company in which public are substantially interested. Provident interest is paid by account payee cheque to resident individual or HUF |
193 |
If amount paid or payable during the financial year does not exceed Rs. 5,000 |
3. |
No TDS from interest on 8% Saving (Taxable) Bonds 2003 paid to a resident persons |
193 |
If amount paid or payable during the financial year does not exceed Rs. 10,000 |
3A. |
No TDS from interest on 6.5% Gold bonds, 1977 or 7% Gold bonds, 1980 paid to resident individual |
193 |
If a declaration is made that the nominal value of such bonds did not exceed Rs. 10,000 at any time during the previous year |
4. |
No TDS from dividend paid by account payee cheque to resident persons |
194 |
If amount paid or payable during the financial year does not exceed Rs. 2,500 |
5. |
No TDS from interest other than on securities paid by a banking company or co-operative bank on time deposits |
194A |
If amount paid or payable during the financial year does not exceed Rs. 10,000 |
6. |
No TDS from interest on deposit with a post office under Senior Citizens Saving Scheme Rules, 2004 |
194A |
If amount paid or payable during the financial year does not exceed Rs. 10,000 |
7. |
No TDS from interest other than on securities (in any other case) |
194A |
If amount paid or payable during the financial year does not exceed Rs. 5,000 |
8. |
No TDS from interest on compensation awarded by Motor Accident Claims Tribunal |
194A |
If amount paid or payable during the financial year does not exceed Rs. 50,000 |
9. |
No TDS from Lottery / Cross Word Puzzles |
194B |
If amount paid or payable during the financial year does not exceed Rs. 10,000 |
10. |
No TDS from winnings from horse races |
194BB |
If amount paid or payable during the financial year does not exceed Rs. 5,000 (Rs. 10,000 w.e.f. 01/06/2016) |
11. |
No TDS from sum paid or payable to contractor |
194C |
a) If sum paid or payable to a contractor in a single payment does not exceed Rs. 30,000
b) If sum paid or payable to contractor in aggregate does not exceed Rs. 75,000 during the financial year (Rs. 1,00,000 w.e.f. 01/06/2016) |
12. |
No TDS from insurance commission paid or payable during the financial year |
194D |
If amount paid or payable during the financial year does not exceed Rs. 20,000 (Rs. 15,000 w.e.f. 01/06/2016) |
12A |
No TDS from sum payable under a life insurance a police (including bonus) to a resident (w.e.f. 01-10-2014) person |
194DA |
If amount paid or payable during the financial year does not exceed Rs. 1 lakh |
13. |
No TDS from payments made out of deposits under NSS |
194EE |
If amount paid or payable during the financial year does not exceed Rs. 2,500 |
14. |
No TDS from commission paid on lottery tickets |
194G |
If amount paid or payable during the financial year does not exceed Rs. 1,000 (Rs. 15,000 w.e.f. 01/06/2016) |
15. |
No TDS from payment of commission or brokerage |
194H |
If amount paid or payable during the financial year does not exceed Rs. 5,000 (Rs. 15,000 w.e.f. 01/06/2016). Further no tax to be deducted from commission payable by BSNL/ MTNL to their PCO Franchisees. |
16. |
No TDS from payment of rent in respect of land &building, furniture or fittings or plant and machinery |
194-I |
If amount paid or payable during the financial year does not exceed Rs. 1,80,000 |
17. |
No TDS from payment of consideration for purchase of an immovable property (other than agriculture land) |
194-IA
|
If amount paid or payable during the financial year does not exceed Rs. 50 Lakhs |
18. |
No TDS from payment of professional fees, technical fees, royalty and directors' remuneration |
194J |
If amount paid or payable during the financial year does not exceed Rs. 30,000 |
19. |
No TDS from payment of compensation on compulsory acquisition of immovable property (other than Agricultural Land) |
194LA |
If amount paid or payable during the financial year does not exceed Rs. 2,00,000 (Rs. 2,50,000 w.e.f. 01/06/2016) |
20. |
Furnishing of quarterly return in respect of payment of interest (other than interest on securities) to residents without deduction of tax |
206A |
If amount paid or payable during the financial year does not exceed:
a) Rs.10,000 where payer is banking company or co-operative society;
b) Rs.5,000 in other case |
4. Can the payee request the payer not to deduct tax at source and to pay the amount without deduction of tax at source?
A payee can approach to the payer for non-deduction of tax at source but for that they have to furnish a declaration in Form No. 15G/15H, as the case may be, to the payer to the effect that the tax on his estimated total income of the previous year after including the income on which tax is to be deducted will be nil.
Form No. 15G is for the individual or a person (other than company or firm) and Form No. 15H is for the senior citizens.
The following assessee who is in receipt of the specific incomes can approach to the payee for non-deduction of tax at source:-
a) A resident individual who is in receipt of income as referred to in 192A , 194 or 194EE if the amount of such income does not exceed the maximum amount which is not chargeable to income-tax.
b) Any person (other than a company or a firm) who is in receipt of income as referred to in section 193 , 194A , 194DA or 194-I if the amount of such income does not exceed the maximum amount which is not chargeable to income-tax.
c) A resident senior citizen ( i.e., an individual resident in India who is of the age of sixty years or more at any time during the previous year) who is in receipt of income as referred to in section 192A , 193 , 194 , 194A , 194EE , or 194-I or 194DA
Alternatively, a payee who is in receipt of income referred to in section 192 , 193 , 194 , 194A , 194C , 194D , 194G , 194H , 194-I , 194J , 194LA , 194LBB , 194LBC , or 195 can apply in Form No. 13 to the assessing officer to get a certificate authorizing the payer to deduct tax at lower rate or deduct no tax as may be appropriate.
On receiving such an application, the AO may issue appropriate certificate in this regard if he is satisfied that the total income of the payee justifies the deduction of income-tax at any lower rate or nil deduction of income tax.
As per Income-tax (Ninth Amendment) Rules, 2014, Certificate for non-deduction of income-tax shall be issued directly to the person responsible for deducting the tax under an advice to the payee (i.e. who made an application for issue of such certificate).Whereas, certificate of lower deduction of income-tax shall be issued to payee itself.
If AO has issued certificate for no deduction of tax or lower deduction of tax, as the case may be, then payer should deduct tax accordingly.
5. What are the consequences a deductor would face if he fails to deduct TDS or after deducting the same fails to deposit it to the Government’s account?
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.
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 .
6. Under what circumstances a deductor would not be deemed as an assessee-in-default even after he fails to deduct TDS or after deducting the same fails to deposit it to the Government’s account?
A deductor who fails to deduct the whole or any part of the tax on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee-in-default in respect of such tax if such resident—
(i) has furnished his return of income under section 139 ;
(ii) has taken into account such sum for computing income in such return of income; and
(iii) has paid the tax due on the income declared by him in such return of income, and the deductor furnishes a certificate to this effect in Form No.26A from a chartered accountant.
7. What to do if tax is deducted but the ultimate tax liability of the payee is nil or lower than the amount of TDS?
In such a case, the payee can claim the refund of entire/excess amount of TDS (as the case may be) by filing the return of income.
8. If the payer does not deduct tax at source, will the payee face any adverse consequences by means of action taken by the Income-tax Department?
It is the duty and responsibility of the payer to deduct tax at source. If the payer fails to deduct tax at source, then the payee will not have to face any adverse consequences. However, in such a case, the payee will have to discharge his tax liability. Thus, failure of the payer to deduct tax at source will not relieve the payee from payment of tax on his income.
9. What are the duties of the person deducting tax at source?
Following are the basic duties of the person who is liable to deduct tax at source.
• He shall obtain Tax Deduction Account Number and quote the same in all the documents pertaining to TDS.
• He shall deduct the tax at source at the applicable rate.
• He shall pay the tax deducted by him at source to the credit of the Government (by the due date specified in this regard*).
• He shall file the periodic TDS statements, i.e., TDS return (by the due date specified in this regard*).
• He shall issue the TDS certificate to the payee in respect of tax deducted by him (by the due date specified in this regard*).
*Refer tax calendar for the due dates.
10. How can I know the quantum of tax deducted from my income by the payer?
To know the quantum of the tax deducted by the payer, you can ask the payer to furnish you a TDS certificate in respect of tax deducted by him. You can also check Form 26AS from your e-filing account at https://incometaxindiaefiling.gov.in
You can also use the “View Your Tax Credit” facility available at www.incometaxindia.gov.in
11. What to do if the TDS credit is not reflected in Form 26AS?
Non-reflection of TDS credit in Form 26AS can be due to several reasons like non-filing of TDS statement by the payer, quoting incorrect PAN of the deductee in the TDS statement filed by the payer. Thus, in case of non-reflection of TDS credit in Form 26AS, the payee has to contact the payer for ascertaining the correct reasons for non-reflection of the TDS credit in Form 26AS.
12. At what rate the payer will deduct tax if I do not furnish my Permanent Account Number to him?
As per section 206AA , if you do not furnish your Permanent Account Number to the payer (i.e., deductor), then the deductor shall deduct tax at the higher of the following rates :
• At the rate specified in the relevant provision of the Act.
• At the rate or rates in force, i.e., the rate prescribed in the Finance Act.
• At the rate of 20%.
13. However, the provisions of section 206AA shall not apply to a non-resident, not being a company, or to a foreign company, in respect of—
i) payment of interest on long-term bonds as referred to in section 194LC; and
ii) any other payment subject to such conditions as may be prescribed.
14. I do not have PAN. Can I furnish Form 15G/15H for non-deduction of TDS from interest?
As per section 206AA , a declaration in Form No. 15G or Form No. 15H is not a valid declaration, if it does not contain PAN of the person making the declaration. If the declaration is without the PAN, then tax is to be deducted at higher of following rates :
• At the rate specified in the relevant provision of the Act.
• At the rate or rates in force, i.e., the rate prescribed in the Finance Act.
• At the rate of 20%.
15. Would I face any adverse consequences if instead of depositing TDS in the government's account I use it for my personal needs?
Yes, failure to remit tax deducted by me in the government’s account within stipulated time-limit would attract interest, penalty and rigorous imprisonment of upto seven years.
16. I have not received TDS certificate from the deductor. Can I claim TDS in my return of income?
Yes, the tax credit in your case will be reflected in your Form 26AS and, hence, you can check Form 26AS and claim the credit of the tax accordingly. However, the claim of TDS to be made in your return of income should be strictly as per the TDS credit being reflected in Form 26AS. If there is any discrepancy in the tax actually deducted and the tax credit being reflected in Form 26AS then you should intimate the same to the deductor and should reconcile the difference. The credit granted by the Income-tax Department will be as per Form 26AS.
17. If I buy any land/building then is there any requirement to deduct tax from the sale proceeds to be paid by me to the seller?
Yes, Finance Act, 2013 has introduced section 194-IA which provides for deduction of tax at source in case of payment of sale consideration of immovable property (other than rural agricultural land) to a resident. Section 194-IA is not applicable if the seller is a non-resident. Tax is to be deducted @ 1%. No tax is to be deducted if the consideration is below Rs. 50,00,000. If the sale consideration exceeds Rs. 50,00,000, then tax is to be deducted on the entire amount and not only on the amount exceeding Rs. 50,00,000.
If the seller is a non-resident then tax is be deducted under section 195 and not under section 194-IA . Thus, in case of purchase of property from non-resident TDS provisions of section 195 will apply and not of section 194-IA
18. What is the difference between PAN and TAN?
PAN stands for Permanent Account Number and TAN stands for Tax Deduction Account Number. TAN is to be obtained by the person responsible to deduct tax, i.e., the deductor. In all the documents relating to TDS and all the correspondence with the Income-tax Department relating to TDS one has to quote his TAN.
PAN cannot be used for TAN, hence, the deductor has to obtain TAN, even if he holds PAN.
However, in case of TDS on purchase of land and building (as per section 194-IA ) as discussed in previous FAQ, the deductor is not required to obtain TAN and can use PAN for remitting the TDS. |
