Albert Einstein once said, Income Tax is one of the hardest things to understand. Rightly so, we wouldn’t argue with a genius😊
In today’s article we will throw light on Tax Deducted at Source (TDS), when is it applicable to you and what are the various due dates for compliance. This article is written from the point of view of a Businessman and will cover only those instances where you have to deduct TDS as a businessman.
You can contact us here if you have any queries relating to TDS or you want us to file your return!
What is TDS?
TDS or Tax deducted at source is a form of Income Tax which is deducted at the time of payment or at the time of crediting the account (means at the time of receipt of the bill) of the payee itself. So for example, if you want to pay Rs 90,000 to an architect, you have to deduct 10% which is the rate of TDS i.e. Rs 9000 and pay Rs 81000 to him. The amount which you have deducted (Rs 9000) has to be paid on the behalf of that architect to the government. In simple terms, this is TDS. You deduct tax directly at the source of payment and remit that tax to the government.
Why was TDS introduced?
TDS was introduced in 1961 with the Income Tax law to arrest tax evasion. Income tax simple works on the concept that one person’s expense is another person’s income. If I pay a salary to Shyam of Rs 10lacs, I can claim that as a Business expense and Shyam has to show it as an Income and pay tax. But, in 1961 when computers were not present, there was no way to ensure Shyam would actually show that as his Income honestly. Thus, tax was deducted by Shyam’s employer and paid on his behalf to the government. In this way, tax evasion was arrested.
Who is liable to deduct TDS?
The liability of deducting TDS depends on two things. Business structure and Nature of payment. When it comes to Business structures it is applicable from Day 1 to the following structures: –
- Partnership Firm
- Private Limited Company
- Public Company
For individuals (Proprietorships included) and HUFs it is only appliable when in the last year they had a Turnover of Rs 1cr or more as a Business or Rs 50 lacs or more as Professionals. So, for example, Mr. Aryan had a turnover of Rs 1.2 cr in FY 2019-2020 then he is liable to deduct TDS in FY 20-21. For each year’s applicability, you have to check the Turnover of the previous year.
Note: Individuals (Proprietorships included) and HUFs have to deduct TDS on salary and TDS on payments to Non-Residents inspite of they not crossing a turnover of Rs 1 cr in the previous year as mentioned above. For these payments no relaxation is given. So, if Mr. Aryan has a turnover of Rs 89 lacs in FY 19-20 then TDS is not applicable to him in FY 20-21. But, if he pays salary of Rs 7.5lacs to Mr. Shyam in FY 20-21 then he is liable to deduct TDS on that salary payment.
Now that you have understood to which Business structures TDS is applicable, let’s understand to what payments TDS is applicable.
Generally, all kinds of Business payments are classified into three types
- Purchases of all kinds
- Business Expenses
TDS is NOT applicable to Points 1 and 3. Also, TDS is not applicable to ALL kinds of Expenses. Here is an indicative nature of payments on which TDS is applicable: –
Salary, Interest payments, Payments to Contractors, Commission or Brokerage, Rent, Professional Fees, Payments to Non Residents.
There are many other payments on which TDS is applicable but we have covered the major list of expenses and the most common expenses above.
So, to summarise the above, TDS is only applicable to some Business structures and on certain payments.
What are threshold limits?
Once TDS is applicable on a particular transaction, you need to also check whether the threshold limit is exceeded or not. A threshold limit is the amount above which TDS is required to be deducted. For example, the limit for commission is Rs 15000 per person per year. So, only if in a financial year you pay commission to a person exceeding Rs 15000 only then TDS is required to be deducted. You need to also be careful about one more thing. If in one transaction you make a commission payment of Rs 2000 and in the next you make 20000 in you have to deduct TDS on the full amount of 22000 and not Rs 20000. You cannot deduct TDS on 7000 (Rs 22000-Rs 15000 which is the threshold) thinking 15000 which is the threshold has to be first deducted.
When do you have to deduct TDS?
You have to deduct TDS at the time of booking the bill (means at the time of crediting the account of the payee) or at the time of payment whichever is earlier.
What are the due dates of payment?
|April to February||7th of next month|
Any penalties for late payment?
You have to pay an interest of upto 18% PA if you do not deposit TDS in time. The below table will help you with Interest rates on late payments of TDS
|Type of Default||Interest rates|
|TDS Deductible but not deducted||1% per month|
|TDS Deducted but not paid to the government||1.5% per month|
TDS Returns and Due dates
Generally any registration or compliance comes with filing of returns and TDS is no exception. You have to file TWO kinds of TDS returns
- Return for TDS deducted on salary
- Return for OTHER THAN TDS deducted on salary
Below are the due dates for filing BOTH the TDS Returns
|April to June||31st July|
|July to September||31st October|
|October to December||31st January|
|January to March||31st May|
Any penalties for late filing of TDS returns?
There is a Rs 200 per day penalty if you file your TDS returns late. And this penalty is applicable to both TDS returns. There is however an upper limit on the penalty which is the TDS amount shown in the Return.
One needs to be very careful with this and needs to file TDS returns on time. We have ourselves seen businessmen handled by other consultants pay Rs 1-1.5lacs in penalties just for filing their TDS returns late.
Generation of TDS Certificates
Once TDS returns are filed you have to generate TDS certificates from the TRACES (https://www.tdscpc.gov.in/app/login.xhtml) portal within 15 days from the due date of filing returns.
You can find the TDS rates, threshold limits and list of payments on which TDS is applicable below!
Note: From 14/05/2020 till 31/03/2021 there is a 25% reduction of the rate of TDS on account of Covid-19 of Section 193, 194, 194A, 194C, 194D, 194DA, 194EE, 194F (for residents only), 194G, 194H, 194I, 194IA, 194IB, 194IC, 194J, 194K, 194LA, 194LBA, 194LBB, 194LBC, 194M and Section 194-O. From 1st April 2021, normal rates as given below shall apply. For for example, for professional fees, TDS rates from 14/05/2020 till 31/03/2021 shall be 7.5% and from 01/04/2021 it shall be 10%
|Section||Nature of payment||Threshold Limit||Resident||Non resident *|
|Rs.||TDS Rate (%)||TDS Rate (%)|
|192||Salaries||–||At slab rate||At slab rate|
|192A||Premature withdrawal from EPF||50000||10||10|
|193||Interest on securities – 8% Savings (Taxable) Bonds, 2003 or 7.75% Savings (Taxable) Bonds, 2018 during the financial year||10000||10||–|
|193||Interest on securities – Interest on securities for money issued by or on behalf of any local authority/statutory corporation, listed debentures of a company(other than demat form), any other interest on securities||5000||10||–|
|194A||Interest (Banking co., co-operative society engaged in banking, post office)||40000||10||–|
|194A||Interest (Any other person)||5000||10||–|
|194B||Winning from lotteries||10000||30||30|
|194BB||Winning from Horse race||10000||30||30|
If payee is: –
|194C||Contractor – Consolidated Payment During the F.Y. – |
|194D||Insurance commission – |
Other than Company –
|194DA||Maturity of Life insurance policy||100000||5||–|
|194E||Non-resident sportsmen or sports association||–||–||20|
|194F||Repurchase units by MFs||–||20||20|
|194I||Rent of – |
Plant/Machinery /Equipment –
Land and Building/Furniture & Fixture
|194IA||Transfer of certain immovable property other than agriculture land||50 lakh||1||–|
|194IB||Rent by Individual/HUF||50000 per month||5||–|
|194IC||Payment under Joint Development Agreements to Individual/HUF||–||10||–|
|194J||Technical Fees (w.e.f. 01.04.2020)||30000||2||–|
|194J||Payment to call centre operator (w.e.f. 01.06.2017)||30000||2||–|
|194K||Payment of any income in respect of (a) units of a mutual fund as per section 10(23D); or (b) the units from the administrator; or (c) units from specified company (w.e.f. 01.04.2020)||5000||10||–|
|194LA||Compensation on transfer of certain immovable property other than agriculture land (TDS exempted if covered under RFCTLARR Act w.e.f. 01.04.2017)||250000||10||–|
|194LB||Income by way of interest from infrastructure debt fund||–||–||5|
|194LBA||Income from units of business trust – interest received or receivable from a special purpose vehicle; or – |
dividend referred to in sub-section (7) of section 115-O
|194LBA||Distribution of rental income to unit holders –|
Other than Company –
|194LBB||Income in respect of units of investment fund – |
Other than Company –
|194LBC||Income in respect of investment in securitization fund – |
|194LC||Income by way of interest by an Indian specified company to a non-resident/foreign company on foreign currency approved loan / long-term infrastructure bonds from outside India||–||–||5|
|194LC||Income by way of interest by an Indian specified company on rupee denominated bond / any long-term bonds from outside India, which is listed only on a recognized stock exchange located in any International Financial Services Centre||–||–||4|
|194LD||Interest on certain bonds from Govt. securities||–||–||5|
|194M||Certain payments by Individual/HUF||50 lakh||5||–|
|194N||Payment of certain amount in cash||1 Crore||2||2|
|194N||Payment of certain amount in cash (first proviso of section 194N)if- – Amount is more than Rs.20 lakh but up to Rs. 1 crore – Amount exceeds Rs. 1 crore (Applicable from 01.07.2020)||N.A. N.A.||N.A. N.A.|
|194-O||Applicable for e-commerce operator for the sale of goods or provision of services facilitated by it through its digital or electronic facility or platform (Applicable from 01.10.2020)||–||N.A||–|
|195||Income of Investment made by an NRI||–||–||20|
|195||Long-term capital gain – |
Under Section – 115E/ 112(1)(c)(iii)/112A –
Any Other Gains
|195||Short-term capital gain – 111A||–||–||15|
|195||Fees for technical services||–||–||10|
|195||Interest income payable by Govt./Indian concern (other than section 194LB or 194LC)||–||–||20|
|195||Any Other Income – |
Other than Company –
|196A||Income in respect – – of units of a Mutual Fund specified under clause (23D) of section 10; or – from the specified company referred to in the Explanation to clause (35) of section 10||–||–||20|
|196B||Income from units to an offshore fund||–||–||10|
|196C||Income from foreign currency bonds or GDR of an Indian company||–||–||10|
|196D||Income of foreign Institutional Investors from securities (not being dividend or capital gain)||–||–||20|
* TDS rate shall be increased by applicable surcharge and Health & Education Cess.
Note: In case of non-furnishing of PAN/Aadhaar by the person you are paying, TDS will be charged at normal rate or 20% (5% in case of section 194-O), whichever is higher.