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TDS Deduction

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What is TDS Deduction?

Tax Deducted at Source (TDS) is a system introduced by the Income Tax Department to collect tax at the source of income generation. Under this mechanism, a person (deductor) responsible for making specified payments, such as salary, rent, professional fees, etc., is required to deduct tax at a prescribed rate before making the payment to the recipient (deductee). The deducted tax is then deposited with the government, ensuring tax collection at the time of transaction.

Who is Responsible for TDS Deduction?

TDS deduction responsibility lies with entities making specified payments. The following are required to deduct TDS:

  • Employers paying salaries to employees
  • Companies and individuals (if subjected to tax audit) making payments like rent, interest, professional fees, etc.
  • Banks deducting TDS on interest earned on fixed deposits (FDs)
  • Purchasers of immovable property exceeding prescribed limits
  • Tenants paying rent above specified thresholds
  • Businesses making contract payments exceeding specified limits

Process of TDS Deduction

  1. 1Determine Applicability
    • Identify if the payment falls under TDS provisions.
  2. 2Deduct Tax
    • Calculate and deduct TDS at the applicable rate at the time of payment/credit.
  3. 3Deposit TDS
    • Submit the deducted amount to the government using Challan ITNS-281 within the due date.
  4. 4File TDS Returns
    • File quarterly TDS returns (Form 24Q, 26Q, 27Q, 27EQ) online.
  5. 5Issue TDS Certificates
    • Provide Form 16/16A to the deductee, allowing them to claim credit in their income tax returns.
  6. 6Ensure Compliance
    • Maintain accurate records to avoid penalties for incorrect deductions.

Penalty for Non-Compliance

Failure to comply with TDS provisions results in penalties and interest charges:

  • Late Deduction: Interest at 1% per month from due date to actual deduction date.
  • Late Payment to Government: Interest at 1.5% per month till payment.
  • Late Filing of Returns: Penalty of Rs. 200 per day, capped at TDS amount.
  • Non-Deduction or Short Deduction: Penalty equivalent to TDS not deducted or short deducted.
  • Prosecution: In extreme cases, imprisonment from 3 months to 7 years along with a fine.

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Tabular Summary of TDS Applicability, Limit, and Rate of Deduction

SectionPayment TypeThreshold LimitTDS Rate
192SalaryAs per income tax slabAs per slab
194AInterest (Banks/FD)Rs. 40,000 (Rs. 50,000 for senior citizens)10%
194CContractor PaymentsRs. 30,000 (single payment) / Rs. 1,00,000 (aggregate)1% (individual/HUF), 2% (others)
194HCommission/BrokerageRs. 15,0005%
194IRentRs. 2,40,0002% (plant & machinery), 10% (land/building)
194JProfessional FeesRs. 30,00010%
194IAPurchase of Immovable PropertyRs. 50,00,0001%
194IBRent by Individuals/HUFRs. 50,000 per month5%
194MContractual/Professional Payments by IndividualsRs. 50,00,0005%
206CTCS on sale of goodsRs. 50,00,0000.1%

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Point-Wise Detailed TDS Applicability for Each Section

Section 192: TDS on Salary

  • Applicable to employers paying salaries exceeding taxable limits.
  • TDS is deducted based on income tax slab rates.
  • Form 16 is issued as proof of deduction.

Section 194A: TDS on Interest (Banks/FDs)

  • Applicable to banks, post offices, and financial institutions.
  • TDS at 10% if interest exceeds Rs. 40,000 (Rs. 50,000 for senior citizens).
  • Not applicable to savings account interest.

Section 194C: TDS on Contractor Payments

  • Applicable if a single payment exceeds Rs. 30,000 or Rs. 1,00,000 annually.
  • 1% for individual/HUF and 2% for others.

Section 194H: TDS on Commission/Brokerage

  • Applicable if commission or brokerage exceeds Rs. 15,000 annually.
  • Deducted at 5%.

Section 194I: TDS on Rent

  • Deducted at 2% for plant/machinery and 10% for land/building.
  • Applicable if rent exceeds Rs. 2,40,000 per year.

Section 194J: TDS on Professional Fees

  • Applicable if professional/technical fee exceeds Rs. 30,000.
  • Deducted at 10%.

Section 194IA: TDS on Sale of Property

  • Buyers must deduct 1% TDS if property value exceeds Rs. 50,00,000.
  • Payment is done using Form 26QB.

Section 194IB: TDS on Rent by Individuals

  • Applicable for individuals/HUFs paying rent over Rs. 50,000 per month.
  • TDS deducted at 5%.

Section 194M: TDS on Payments by Individuals/HUFs

  • TDS at 5% on contract or professional payments exceeding Rs. 50,00,000.

Section 206C: TCS on Sale of Goods

  • Seller collects TCS at 0.1% on sales exceeding Rs. 50,00,000.
  • Applicable to businesses with over Rs. 10 crore turnover.

Conclusion

Understanding and complying with TDS provisions is crucial to avoid penalties. Businesses and individuals must ensure timely deduction, deposit, and filing of TDS to remain compliant. Platforms like One Call Tax can help simplify TDS compliance, ensuring hassle-free tax management.

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