Introduction - Tax Deducted at Source-TDS (Section 190 to 206CA i.e. Chapter XVII A & B)

1. Taxes Deducted / Collected or Paid as Advance Tax in the Previous Year [Section 190]

2. Procedure and Scheme of TDS :

3. Assessee to be Deemed as Assessee in TDS Default [Section 201(1)]

4. Penalty payable under section 221 when the payer is an assessee deemed to be in TDS Default under section 201

5. Interest for Late Deposit of TDS [Section 201(1A)]

6. Penalty on TDS (Section 271H)

7. Certificate for TDS [Section 203 and Rule 31]

8. Tax Deduction and Collection (TDS/TCS) Account Number [Section 203A and rule 114A]

9. Time of TDS Payment

10. Forms and Time Limit of issue of TDS Certificate [Rule 31]

11. TDS is 'Income Received' by the Assessee for computing his Income [Section 198]

12. No TDS in case of sum payable to the Government, RBI, etc. [Section 196]

13. Payments/Incomes covered by TDS Scheme

1. Taxes Deducted / Collected or Paid as Advance Tax in the Previous Year [Section 190]

Although regular assessment in respect of any income is to be made in a later assessment year, but tax on such income is payable in the previous year itself in the following manner:

1. Tax deducted at source (TDS): In case of certain incomes/payments, tax is deducted at source by the payer at the prescribed rate at the time of accrual or payment of such incomes to the payee.

2. Tax collected at source (TCS): In certain cases, tax is collected at source by the seller from buyer or a person from his licencee/lessee, etc. at the time of debiting the amount to account of the buyer/licencee/lessee or the receipt of payment whichever is earlier.

3. Advance tax: The assessee, in certain cases, is under an obligation to pay tax in advance in certain installments.

Further, the tax, if paid by the employer under section 192(1A) on the non-monetary perquisites provided to the employee, shall also be one of the mode of collection or recovery of tax under Chapter XVII of the Income-tax Act.

The taxes deducted/collected or paid as advance tax in the previous year itself are known as prepaid taxes. Such pre-paid taxes are deductible from the total tax due from the assessee.

There are 31 items of income/payment from which tax is deductible at source. On the other hand, there are 11 items of receipts for which tax has to be collected at source.

In addition to the above taxes, the assessee has to pay self-assessment tax under section 140A at the time of filing the return, if any tax is still due on the basis of returned income after deduction of the following:

1. Any relief under section 89.

2. Any relief of tax or deduction of tax claimed under section 90, 90A, or 91 on account of tax paid in a country outside India.

3. Any tax credit claimed to be set off in accordance with provisions of section 115JAA (MAT credit).

4. Any tax credit for alternate minimum tax in accordance with the provisions of section 115JD (AMT credit).

5. Any tax deducted or collected at sources.

6. Any advance tax.

7. Any tax paid by the employer under section 192(1A).

2. Procedure and Scheme of TDS :

Under the scheme of tax deduction at source (TDS), persons responsible for making payment of income, covered by the scheme, are responsible to deduct tax at source and deposit the same to the Government’s treasury within the stipulated time. The recipient of income—though he gets only the net amount (after deduction of tax at source)—is liable to tax on the gross amount and the amount deducted at source is adjusted against his final tax liability.

Therefore such person i.e. payer has to follow the procedure for deducting the tax. The main responsibilities and procedure of TDS may be mentioned as under:—

1. W.e.f. 1.10.2004, the payer has to apply for tax deduction and collection account number (TDCAN) in Form No. 49B. Where the payer has already been allotted TAN or TCAN before 1.10.2004, he need not apply for TDCAN. There is no need to obtain TAN if the tax has to be deducted under section 194-IA or 194-IB.

2. He is to deduct tax from the income/payment mentioned in the various sections i.e. section 192 to 196D.

3. The amount so deducted should be deposited in challan No. 281 (except in case of section 194-IA or 194-IB) within the requisite time to the credit of Central Government. Separate challans should be used to deposit tax deducted under each section and the correct nature of payment code in the relevant column in the challan should be indicated.

   For section 194-IA, the TDS is to be deposited electronically within the time specified in Form No. 26QB which is a challan cum statement of deduction of tax under section 194-IA.

   For section 194-IB, the TDS is to be deposited electronically within the time specified in Form No. 26QC which is a challan cum statement of deduction of tax under section 194-IB.

4. Tax is to be deducted at the basic rates prescribed under various sections.

No surcharge, Education Cess or Secondary and Higher Education Cess (SHEC) is to be added to such basic rate except in the following cases:

1. Tax deduction from payment of salary, whether the recipient is resident or non-resident. In this case, surcharge, if applicable, Education Cess and SHEC has to be added to the basic rate.

2. Tax deduction from payment/credit of any sum (other than salary) to a non-resident other than company. In this case also, surcharge, if applicable, Education Cess and SHEC has to be added to the basic rate.

3. Tax deduction from payment/credit of any sum to a foreign company. In this case also, surcharge; Education Cess and SHEC shall have to be added to the basic rate.

   Surcharge at the rate applicable shall be added only when the amount paid/credit exceeds Rs. 1 crore or 10 crores as the case may be.

   As per section 206AA, if PAN is not provided, the rate of TDS shall be the normal rate prescribed or 20% whichever is higher.

5. Payee should be issued certificate of tax deduction at source on or before certain specified date.

6. The payer should prepare such statements for such period as may be prescribed and file the same with the prescribed income-tax authority or the person authorised by such authority in such form and verified in such manner as may be prescribed.

7. Tax has to be deducted at source at the rates specified in the Act or where the rates are not given in the Act, tax shall be deducted at the rates given in Part II of Schedule I of the relevant Finance Act.

   However, in case of salary, it shall be deducted at the slab rates given in Part III of Schedule I of the relevant Finance Act. Rates given in Part III are also the rates applicable for advance income-tax.

3. Assessee to be Deemed as Assessee in TDS Default [Section 201(1)]

Where any person, including the principal officer of a company,—

1. who is required to deduct any sum in accordance with the provisions of this Act; or

2. referred to in section 192(1A), being an employer,

   — does not deduct, or

   — does not pay, or

   — after so deducting fails to pay,

   the whole or any part of the tax, as required by or under this Act, then, such person, be deemed to be an assessee in default in respect of such tax and hence shall be liable to penalty under section 221.

4. Penalty payable under section 221 when the payer is an assessee deemed to be in TDS Default under section 201

When an assessee is deemed to be in default in making a payment of tax, he shall, in addition to the amount of arrears, be liable to pay by way of penalty as the Assessing Officer may direct, and in the case of a continuing default, such further amount or amounts as the Assessing Officer may, from time to time, direct, so, however, that the total amount of penalty does not exceed the amount of tax in arrears.

However, before levying any such penalty, the assessee shall be given a reasonable opportunity of being heard:

Further, where the assessee proves to the satisfaction of the Assessing Officer that the default was for good and sufficient reasons, no penalty shall be levied under this section.

5. Interest for Late Deposit of TDS [Section 201(1A)]

As per section 201(1A), without prejudice to the provisions of section 201(1), if any such person, principal officer or company does not deduct whole or part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest at the rate given in the table below :

6. Penalty on TDS (Section 271H)

1. Penalty for failure to furnish statement or furnishing incorrect information in the statement [Section 271H(1)]:

Without prejudice to the provisions of the Act, a person shall be liable to pay penalty, if, he––

1. fails to deliver or cause to be delivered a statement within the time prescribed in section 200(3) or the proviso to section 206C(3) relating to TCS; or

2. furnishes incorrect information in the statement which is required to be delivered or cause to be delivered under section 200(3) or the proviso to section 206C(3).

2. Quantum of Penalty [Section 271H(2)]:

The penalty for delay in filing quarterly statement of TDS/TCS shall be a sum which shall not be less than Rs. 10,000 but which may extend to Rs. 1,00,000.

3. No Penalty if statement of TDS/TCS filed within 1 year [Section 271H(3)]:

No penalty shall be levied for the failure to file TDS/TCS statement within the time prescribed, if the person proves that after paying tax deducted or collected along with the fee and interest, if any, to the credit of the Central Government, he had delivered or caused to be delivered the statement referred to in section 200(3) or the proviso to section 206C(3) before the expiry of a period of one year from the time prescribed for delivering or causing to be delivered such statement.

4. Penalty applicable only for Tax Deducted/Collected on or after 1.7.2012:

   The provisions of this section shall apply to a statement referred to in section 200(3) or the proviso to section 206C(3) which is to be delivered or caused to be delivered for tax deducted at source or tax collected at source, as the case may be, on or after 1.7.2012.

7. Certificate for TDS [Section 203 and Rule 31]

Every person deducting tax in accordance with the provisions of TDS shall within such period as may be prescribed from the time of credit or payment of the sum, furnish to the person to whose account such credit is given or to whom such payment is made, a certificate to the effect that tax has been deducted, the rate at which the tax has been deducted and such other particulars as may be prescribed.

Further, as per section 203(2), every person, being an employer, referred to in section 192(1A) shall, within such period, furnish to the person in respect of whose income such payment of tax has been made, a certificate to the effect that tax has been paid to the Central Government, and specify the amount so paid, the rate at which the tax has been paid and such other particulars as may be prescribed.

The above provisions shall also be applicable in the case of an employer who has paid the tax on the non-monetary perquisites provided to the employee.

Failure without reasonable cause to furnish a certificate as required by this section attracts penalty under section 272A(2) read with section 273B.

Deliberately furnishing a false certificate, is an offence under section 277 and abatement of that offence is punishable under section 278.

8. Tax Deduction and Collection (TDS/TCS) Account Number [Section 203A and rule 114A]

Every person, deducting tax or collecting tax in accordance with the provisions of this Chapter, who has not been allotted a tax-deduction account number or, as the case may be, a tax-collection account number, shall within one month of the end of the month in which tax was deducted, apply to the Assessing Officer for the allotment of a "tax-deduction and collection-account number".

Where a "tax deduction account number" or, as the case may be, a "tax-collection account number" or a "tax deduction and collection account number" has been allotted to a person, such person shall quote such number—

1. in all challans for the payment of any sum in accordance with the provisions of section 200 or sub-section (3) of section 206C;

2. in all certificates furnished under section 203 or sub-section (5) of section 206C;

3. in all the statements prepared and delivered or caused to be delivered in accordance with the provisions of sub-section (3) of section 200 or sub-section (3) of section 206C;

4. in all other documents pertaining to such transactions as may be prescribed in the interests of revenue.

9. Time of TDS Payment

1. (i) Tax deducted (TDS) by an office of the Government:

   1. on the same day where the tax is paid without production of an income-tax challan; and

   2. on or before seven days from the end of the month in which the deduction is made, where tax is paid accompanied by an income-tax challan.

2. Tax deducted (TDS) In any other case,

   1. on or before 30th day of April where the income or amount is credited or paid in the month of March; and

   2. in any other case, on or before seven days from the end of the month in which the deduction is made.

3. Special cases where TDS Payment can be Deposited Quarterly

In the following cases, the Assessing Officer may with the prior approval of the Joint Commissioner, allow payment of TDS quarterly as under:

10. Forms and Time Limit of issue of TDS Certificate [Rule 31]

The person responsible for deducting the TDS is required to issue a certificate in the prescribed forms to the employee/payee on account of tax deducted at source.

(A) Prescribed forms for TDS Certificate [Rule 31(1)]

(B) What should TDS Certificates Specify ? [Rule 31(2)]

The certificates in Form 16 or 16A shall specify:—

1. Valid permanent account number (PAN) of the deductee;

2. Valid tax deduction and collection account number (TAN) of the deductor;

3. 1. book identification number or numbers where deposit of tax deducted is without production of challan in case of an office of the Government;

   2. challan identification number or numbers in case of payment through bank.

4. 1. receipt number of the relevant quarterly statement of tax deducted at source which is furnished in accordance with the provisions of rule 31A;

   2. receipt numbers of all the relevant quarterly statements in case the statement referred to in clause (i) is for tax deducted at source from income chargeable under the head “Salaries”.

(C) Time Limit for Issue of TDS Certificate [Rule 31(3)]

11. TDS is 'Income Received' by the Assessee for computing his Income [Section 198]

Any tax deducted under the provisions of Chapter XVIIB relating to TDS under sections 192 to 196D shall be deemed to be income received by the assessee for the purpose of computing his income. In other words, for the purpose of computation of total income of the payee, gross salary, gross dividend or gross interest i.e. the amount actually received plus the amount of tax deducted at source will have to be considered. However, the tax paid by the employer under section 192(1A) on the nonmonetary perquisites of the employee shall not be deemed to be income received.

12. No TDS in case of sum payable to the Government, RBI, etc. [Section 196]

No deduction of tax shall be made by any person from any sum payable to:—

1. the Government; or

2. the Reserve Bank of India; or

3. a corporation established by or under a Central Act which is, under any law for the time being in force, exempt from income-tax on its income; or

4. a mutual fund specified under section 10(23D).

Any sum here means such sum as is payable to it by way of interest or dividend in respect of any securities or shares owned by it or in which it has full beneficial interest, or any other income accruing or arising to it.

13. Payments/Incomes covered by TDS Scheme

There are 31 items of income/payment from which tax is deductible at source. On the other hand, there are 11 items of receipts for which tax has to be collected at source.TDS Scheme covers following types of Payments

1. TDS on Salary (Section 192)

2. TDS on Accumulted Balance of the Recognized Provident Fund withdrawn by the Employee (Section 192A)

3. TDS on Interetst on Securites (Section 193)

4. TDS on Devidends (Section 194)

5. TDS on Interest other than Interest on Securites (Section 194A)

6. TDS on Winnings from Lottery, Crossword Puzzle, Card Game, etc. (Section 194B)

7. TDS on Payment to Resident Contractor (Section 194C)

8. TDS on Insurance Commission (Section 194D)

9. TDS on Payment in respect of Life Insurance Policy (Section 194DA)

10. TDS on Payment to Non-Resident Sportsmen or Sports Associations or Non-Resident Entertainer (Section 194E)

11. TDS on Payments in respect of Deposit under National Savings Scheme (NSC), etc. (Section 194EE)

12. TDS on Commission, etc. on Sale of Lottery Tickets (Section 194G)

13. TDS on Commission or Brokerage (Section 194H)

14. TDS on Rent (Section 194-I)

15. TDS on Transfer of certain Immovable Properties (other than Agricultural Land) [Section 194-IA)

16. TDS on Payments of Rent by certain Individuals or HUF (Section 194-IB)

17. TDS on Fees for Professional or Technical Services (Section 194J)

18. TDS on Payments of Compensation on Acquisition of certain Immovable Property (Section 194LA)

19. TDS on Income by way of Interest from Infrastructure Debt Fund (Section 194LB)

20. TDS on Income from Units of a Business Trust (Section 194LBA)

21. TDS on Income in respect of Units of Investment Fund (Section 194LBB)

22. TDS on Income in respect of Investment in Securitisation Trust (Section 194LBC)

23. TDS Deduction by an Indian Specified Company or Business Trust from Interest to a Non-Resident / Foreign Company (Section 194LC)

24. TDS from Income by way of Interest on certain Bonds and Government Securites (Section 194LD)