What is TDS
TDS is Tax Deducted at Source which is a type of advance tax. This means, from the source of the income itself a certain percentage of deduction takes place for paying income tax. Because of the tax evasion, this method serves as a handy tool for corporations while distributing income to their employees. The governing law for TDS is the Income Tax Act, 1961 and Central Goods and Services Tax, 2017. However, the primary governing law remains the Income Tax Act, 1961.
Purpose of TDS
From above it is clear that the introduction of TDS is to avoid tax invasion and other than this there are various other reasons. The reason is to make the tax payment easier. This is because the deduction takes place after its calculation from the source of distribution only and the credit also is issued to the person paying tax.
The Deductor is a person who deducts tax from the income of Deductee (person who is paying the tax). After deduction of tax, the Deductor shall issue a TDS certificate under Form 16/16A under Income Tax Act, 1961. This is because the TDS certificate contains a calculation of the tax and it serves as a receipt.
TDS rates for salary are exempted up to INR(Indian National Rupee(s)) 5,00,000 (Five Lakhs) as per the Budget 2019. And, the tax prescribed for salaries starting from INR 5,00,001 to 10,00,000 per year is 20 %. However, salaries starting from 10,00,001 and above are taxed 30% per annum. The employer generally deducts such amount per month from the source itself after calculating the amount that has to be deducted each month. The whole Income Slab Deduction comes under the purview of Section 192 of Income Tax Act, 1961.
Although the rates for TDS under relevant Sections of the Income Tax Act, 1961 are as follows:
5 Percent and lesser
- Under Section 194C of the Income Tax Act, 1961 Payment under Contract or Sub-contracts:
1. Individuals or HUF shall face a deduction of 1% up to INR 30000; and
2. In the case of Corporate entities, the rate is 2 % up to INR 1,00,000 per annum.
- Under Section 194D of the Act, Commission from Insurance up to INR 15000.
- Per Section 194G of the Act, commission earned from lottery ticket selling up to INR 15000.
- Under Section 194H of the Act, earnings from Brokerage up to INR 15000.
- The rental income derived out of plant and machinery is deducted by 2%. But, the limit remains INR 1,80,000 under Section 194I of the Act.
- Under Section 193, Income Tax Act, 1961 Returns from interest on security investments. Although, the threshold limit is INR 5,000 for debenture payments.
- On Deemed dividends under Section 194 of the Act. However, the threshold for the deemed dividend is INR 2,500.
- In case of the amount earned from interest on investment other than securities under Section 194A.
- The Rental Income derived from land and building under Section 194I of the Act. This is restricted up to INR 1,80,000.
- Per Section 194EE, the deduction in NSS deposits’ expenses. The threshold limit is INR 2500.
- Under Section 194F, the investments in Mutual Funds and other units. However, no limit restricts the deduction.
- Section 194BB prescribes such deduction on prize money won from a horse race.
- Under Section 194B, the deduction on prize money from lottery or money won out of games.
Other Category of Rates under TDS
From the above discussion, it is clear that Insurance Commissions shall have a deduction of 5%. However, if a person does not possess and furnish PAN, then the limit can go up to 20%. The threshold prescribed is INR 15,000 which was INR 20,000 in 2016.
Per Section 194A of the Act, the interest of securities is an area where TDS is applicable. If the person possesses PAN number, then the rate of deduction is 10%. But, if the person does not possess PAN, then the rate is 20%.
Immovable Property Under-Construction
After June 01, 2013, the TDS is applicable on installments for Under-Construction buildings. The rate of deduction is 1% only if the estimated cost of the property exceeds INR 50 Lakhs.
Except for Agricultural Land, on the transfer of land, the TDS is applicable at the rate of 1%.
According to Section 194I of the Act, the deduction on sale of immovable property is 1% of the total amount. If the PAN is not furnished then, the rate of deduction is 20%. Such immovable property includes residential building, land, commercial buildings. But, it does not include notified agricultural lands and portions of building.
If the annual rent for residential premises exceeds INR 1,80,000 in a financial year, TDS shall be applicable at 10%. The Landlord shall provide Form 16 to the tenant. This does not apply to HUF.
For making any payment to the resident who is not an individual or HUF, TDS is applicable. The payment made maybe for professional services, royalty, remuneration or technical services. If the deductee furnishes the PAN then, the deduction is 10%. However, if deductee fails to furnish PAN, then he shall pay 20% or as per the Finance Act or Income Tax Act.
The deduction on Interest on fixed deposits is as per the rate in Form 16A. The limit of deduction is INR 10,000. However, if interest derived is more than the limit from fixed deposits with the same PAN, then the deduction is 10%.
TDS Return is a statement consisting of all transaction relating to TDS, during a quarter. Deductor submits the same summary statement to the Income Tax Department. This statement contains the detail of the entries for TDS collection by Deductor and duly paid to the Income Tax Authority. Details contained in TDS Return are:
- PAN number of Deductor and Deductee.
- TDS paid to the Government.
- TDS Challan Information.
Delay in Filing Returns
From April 01, 2017, the new rules prescribe the penalty of INR 10,000 for late filing of TDS Return. The details of the late filing of TDS Return under Form 26Q are:
- Till August 31, 2018, it is nil for any income range.
- From September 1, 2018, to December 31, 2018, it is INR 1000 (For income below INR 5,00,000) and INR 5,000 (For income above INR 5,00,000).
- From January 1, 2019, to March 31, 2019, it is INR 1000 (For income below and above INR 5,00,000).