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All about TDS – Tax Deducted at Source

All about TDS - Tax Deducted at Source

Tax Deducted at Source

Introduction

“Tax Deducted at Source” is a mechanism by which the Income Tax Department can levy and collect Income Tax at that very point of generation of Income. Under this Income tax collection system, tax is deducted at the point where any income originates.

Here in this scenario, you will find two parties let us take an example for understanding the conceptual framework behind the deduction system.

Mr. X has availed the services of a Chartered Accountant (Mr. D). Mr. D has successfully rendered his professional services and raised the invoice on Mr. X. Now, the concept of “Tax Deducted at Source” emerges which says Mr. X being a payer or we can say a deductor who will be going to deduct the Income-tax on the payments made to Mr. D.

One may ask why Mr. X is going to deduct the Income-tax on the payments made to Mr. D. The payments are literally the income of Mr. D, he is supposed to pay the tax on his income. Why should I pay the income tax on behalf of Mr. D?

Here the taxpayer has to understand the concept of income origination and the process of deduction. The very moment Mr. X has paid to Mr. D, his (Mr.D) income originates, and as per the concept of TDS, the tax has to be deducted at the time of origination of income. The government says in case of Mr. D’s income, I will collect the income tax at a specified rate from the deductor which he (Mr. X) is supposed to deduct, and pay to the credit of central government on behalf of Mr. D (Payee/ deductee).

Upon successful payment of Income-tax on the PAN of Mr. D, Mr. D can claim credit of such deducted income tax in his income tax return while discharging his ultimate income tax liability for the respective financial year and Mr. X will claim the expenditure in his profit and loss account.

The provisions of TDS apply on several payments like Salary u/s 192, Interest u/s 193, commission u/s 194H, brokerage u/s 194H, professional fees u/s 194J, etc.

What is TAN?

TAN means “Tax Deduction Account Number” which is a 10-digit alphanumeric unique number issued by the Income-tax Department.  The person responsible for deduction of Tax at source is required to obtain the TAN.

Is there any exception to TAN?

Yes, under the following conditions deductor is not required to apply for TAN:

  • the person responsible for deduction of tax at source under section 194-IA (TDS from payment of consideration for the purchase of an immovable property (other than agriculture land),
  • Section 194-IB (TDS from payment of rent in excess of Rs.50,000/- per month),
  • Section 194M (any sum paid to any resident for carrying out any work (including the supply of labour for carrying out any work) in pursuance of a contract, by way of commission (excluding the commission which is covered under section 194D) or brokerage or by way of fees for professional services.

What does TAN (Tax Deduction Account Number) signifies?

Suppose your TAN is DELM85749L

First Three alphabets of TAN represent the jurisdiction code of the applicant, 4th alphabet is the initial of the name of the TAN holder i.e. the Applicant. The next five digits of the TAN are the system-generated numbers between 00001 to 99999 and the last character in the TAN, i.e., the 10th character is an alphabetic check digit.

Who is liable to apply for TAN?

Every person who is liable to deduct tax at source is required to obtain TAN. However, a person who is required to deduct tax under Section 194-IA, Section 194-IB, Section 194M​ can use PAN instead of TAN as the deductor of these sections are not required to obtain TAN.

TAN to be quoted on which documents?

TAN to be quoted on the below mentioned documents:

  • TDS Statements i.e. the TDS returns
  • TAN to be quoted on the TDS Challans
  • TAN to be mentioned in TDS Certificates
  • And any other documents as prescribed by the prescribed authority.

Is there any penalty for non-compliance?

Yes, if a person fails to apply for TAN or he fails to quote TAN on the requisite documents or quotes incorrect TAN in the requisite documents, then in that case penalty of Rs. 10,000 shall be levied on the defaulter.

What are the due date for payment of TDS?

DeductorOffice of GovernmentOther than office of Government
Due dateWhere tax is paid without production of Income Tax Challan i.e. by making book adjustments in that case tax has to be paid on the same day when the Tax is deducted.Where the amount paid or credit is for the month of March i.e. the last month of the financial year in that case tax need to be paid on or before the 30th April.
 Where tax is supported by the Income Tax Challan in that case tax need to be paid on or before the 7 days from the end of the month in which such deduction is made or income tax is due u/s 192(1A) – i.e. the tax on perquisite paid by the employer.In any other case i.e. except for the month of March, on or before the 7 days from the end of the month in which such deduction is made or income tax is due u/s 192(1A) – i.e. the tax on perquisite paid by the employer.
By CA Devesh Thakur

Note:

  • Section 194-IA: Tax has to be paid within 30 days from the end of the month in which such deduction is made along with the challan cum statement in Form No.26QB.
  • Sec 194-IB: Tax has to be paid within 30 days from the end of the month in which such deduction is made along with the challan cum statement in Form No.26QC.
  • Section 194M: Tax has to be paid within 30 days from the end of the month in which such deduction is made along with the challan cum statement in Form No.26QD.

Is there any consequence for non-deduction of TDS?

Yes, in case of failure to deduct TDS or default in making the payment of TDS to the government after deducting such TDS, deductor has to face the following consequences:

1. Non-Deduction or Non Payment can result in Disallowance of Expenditure:


In case of Payment made to Non-Resident


According to the Section 40(a)(i) of the Income Tax Act, any sum (excluding the salary payments) payable outside India or to a Non-resident, which is chargeable to tax in India in the hands of the recipient, that sum shall not be allowed as an expenditure if the said sum is paid without deducting the TDS or if deducted default in making the payment to the Government on or before the due date of filing of Income-tax return.

In case the tax is deposited in the subsequent financial year then the assessee will get the expenditure allowance in that particular financial year.

In case of Payment made to Resident

Likewise, according to section 40(a)(ia), if any sum payable to a resident is paid without deduction of tax at source or if such tax is deducted by the assessee is not paid to the Government on or before the due date of filing of Income Tax return in that case 30% of such expenditure will be disallowed.

In case the tax is deposited in the subsequent financial year then the assessee will get the expenditure allowance which was earlier disallowed (i.e. 30%) in that particular financial year.

2. Levy of Interest

Section 201 of the Income Tax Act governs the levy of interest in case of defaults. If a deductor fails to deduct the income tax or after deducting such tax fails to deposit it to the Government in that case, he shall be deemed to be an assessee-in-default and liable to pay interest i.e. simple interest:

(a)For Non-Deduction of Tax: 1% for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted and

(b)For Late Payment of Tax: 1.5% for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid.

3. Levy of Penalty

As per Section 271C, the maximum amount of penalty that can be levied is an amount equal to tax not deducted.

If the deductor fails to deduct and pay the required tax to the Government then penalty shall be charged as per Section 221. The penalty, in that case, shall be levied to the extent the A.O (Assessing Officer) directs, however, the amount of penalty that shall be levied in no case exceeds the amount of tax in arrears.

4. Prosecution

Non-payment of taxes can result in the initiation of prosecution against the defaulter i.e. he shall be punishable with rigorous imprisonment for a period which shall not be less than 3 months but which may extend to 7 years and with fine.

Who is liable to furnish TDS Statement?

Every person who is responsible for the deduction of tax at source is required to furnish quarterly statements.

What are the various TDS Statements?

Form No.Particulars
Form 24QTDS Statement in case of Section 192. (In case of Salary)
Form 27QTDS Statement in case of Non-Resident, Foreign Company or Resident but not ordinarily Resident covering Section 193 to 196D.
Form 26QTDS statement in any other case covering Section 193 to 196D.
Form 26QBAs per Section 194-IA, deductor shall furnish Challan-cum-statement within 7 days from the end of the month in which such deduction is made. No separate return is required to be furnished.
Form 26QCAs per Section 194-IB, deductor shall furnish Challan-cum-statement within 7 days from the end of the month in which such deduction is made. No separate return is required to be furnished.
Form 26QDAs per Section 194M, deductor shall furnish Challan-cum-statement within 7 days from the end of the month in which such deduction is made. No separate return is required to be furnished.
By CA Devesh Thakur

What is the due date for filing the TDS Return?

ParticularsDue Date
Quarter ended 30th June31st July of the Financial Year
Quarter ended 30th September31st October of the Financial Year
Quarter ended 31st December31st January of the Financial Year
Quarter ended 31st March31st May of the Financial Year immediately following the Financial Year in which deduction is made.
By CA Devesh Thakur

What is the time limit for the issuance of the TDS Certificate?

Form No.Due Date
Form 16Annually on or before the 15th day of June of the financial year immediately following the financial year in which the tax is deducted.
Form 16AOn Quarterly basis, within 15 days from the due date of filing the TDS Return.
Form 16BWithin 15 days of filing the challan cum statement under Form No.26QB.
Form 16CWithin 15 days of filing the challan cum statement under Form No.26QC.
Form 16DWithin 15 days of filing the challan cum statement under Form No.26QD.

What are the different modes of submission of TDS Statement?

(a)Furnishing the TDS Statement electronically through digital signature

(b)Furnishing the TDS Statement electronically along with the verification of the Statement in Form 27A or verified through an electronic process.

Fees for default in Furnishing Quarterly TDS Statement?

Where the taxpayer/deductor fails to file their Quarterly TDS Statement within the stipulated time period, he shall be liable to pay a sum of Rs.200 for every day during the period of default u/s 234E.

The above-mentioned fee is in addition to other consequences under the Income Tax Act. However, the maximum quantum of late fees shall not exceed the amount of tax-deductible.

What is the TDS Rate applicable for the Current Financial Year?

Relief on TDS Rates not applicable for FY 2021-22, pay TDS on these rates

Concessional TDS rates for the remaining period of Financial Year 2020-21

What if deductee has not provided PAN to the deductor?

In case the deductee has not provided PAN to the deductor, Section 206AA will invoke and tax has to be deducted at a rate higher of the following:

  • Rate specified in the relevant provision of this Act.
  • Rate or Rates in force.
  • At the rate of 20%

How to pay TDS Challan No. 281/ITNS 281 online

CPC (TDS) Reminder Communication to Deductors: Reason for non-filing of TDS Statement.

CA Devesh Thakur

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