As a Businessman when is TDS applicable to you?


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: –

  1. Partnership Firm
  2. LLP
  3. Private Limited Company
  4. Public Company
  5. Trusts

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

  1. Purchases of all kinds
  2. Business Expenses
  3. Taxes

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 5000 per person per year. So, only if in a financial year you pay commission to a person exceeding Rs 5000 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 10000 in you have to deduct TDS on 12000 and not Rs 10000. You cannot deduct TDS on 7000 (Rs 12000-Rs 5000 which is the threshold) thinking 5000 which is the threshold has to be first deducted.

What are the due dates of payment?

MonthDue date
April to February7th of next month
March30th April

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 DefaultInterest rates
TDS Deductible but not deducted1% per month
TDS Deducted but not paid to the government1.5% 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

  1. Return for TDS deducted on salary
  2. Return for OTHER THAN TDS deducted on salary

Below are the due dates for filing BOTH the TDS Returns

QuarterDue date
April to June31st July
July to September31st October
October to December31st January
January to March31st 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%

SectionNature of paymentThreshold LimitResidentNon resident *
  Rs. TDS Rate (%)TDS Rate (%)
192SalariesAt slab rateAt slab rate
192APremature withdrawal from EPF500001010
193Interest on securities – 8% Savings (Taxable) Bonds, 2003 or 7.75% Savings (Taxable) Bonds, 2018 during the financial year1000010
193Interest 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 securities500010
194Dividends500010
194AInterest (Banking co., co-operative society engaged in banking, post office)4000010
194AInterest (Any other person)500010
194BWinning from lotteries100003030
194BBWinning from Horse race100003030
194CContractor-
(Single transaction)
If payee is: –
Individual/HUF            
Others
30000




 
1
2
  – –
194CContractor – Consolidated Payment During the F.Y. –
Individual/HUF –
Others
100000

 
1
2
    – –
194DInsurance commission –
Other than Company –
Company
15000


5
10
  – –
194DAMaturity of Life insurance policy1000005
194ENon-resident sportsmen or sports association20
194EENSS25001010
194FRepurchase units by MFs2020
194GCommission-Lottery1500055
194HCommission/Brokerage150005
194IRent of –
Plant/Machinery /Equipment –
Land and Building/Furniture & Fixture
240000

2
10
– –
194IATransfer of certain immovable property other than agriculture land50 lakh1
194IBRent by Individual/HUF50000 per month5
194ICPayment under Joint Development Agreements to Individual/HUF10
194JProfessional Fees3000010
194JTechnical Fees (w.e.f. 01.04.2020)300002
194JPayment to call centre operator (w.e.f. 01.06.2017)300002
194JDirector’s fees10
194KPayment 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)500010
194LACompensation on transfer of certain immovable property other than agriculture land (TDS exempted if covered under RFCTLARR Act w.e.f. 01.04.2017)25000010
194LBIncome by way of interest from infrastructure debt fund5
194LBAIncome 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

10  
10

5  
10
194LBADistribution of rental income to unit holders –
Other than Company –
Company

10
10

30
40
194LBBIncome in respect of units of investment fund –
Other than Company –
Company

10
10

30
40
194LBCIncome in respect of investment in securitization fund –
Individual/HUF –
Company –
Other Person

25
30
30

30
40
30
194LCIncome 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 India5
194LCIncome 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 Centre4
194LDInterest on certain bonds from Govt. securities5
194MCertain payments by Individual/HUF50 lakh5
194NPayment of certain amount in cash1 Crore22
194NPayment 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-OApplicable 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
195Income of Investment made by an NRI20
195Long-term capital gain –
Under Section – 115E/ 112(1)(c)(iii)/112A –
Any Other Gains
    – –
10
20
195Short-term capital gain – 111A15
195Royalty10
195Fees for technical services10
195Interest income payable by Govt./Indian concern (other than section 194LB or 194LC)20
195Any Other Income –
Other than Company                  –
Company
–   –
30  
40
196AIncome 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 1020
196BIncome from units to an offshore fund10
196CIncome from foreign currency bonds or GDR of an Indian company10
196DIncome 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.

Leave a Reply