What is TDS?

For quick and efficient collection of taxes, the Income-tax Law has incorporated a system of deduction of tax at the point of generation of income. This system is called as Tax Deducted at Source, commonly known as TDS. Under this system tax is deducted at the origin of the income. Tax is deducted by the payer and is remitted to the Government by the payer on behalf of the payee.

The provisions of deduction of tax at source are applicable to several payments such as salary, interest, commission, brokerage, professional fees, royalty, contract payments, etc. In respect of payments to which the TDS provisions apply, the payer has to deduct tax at source on the payments made by him and he has to deposit the tax deducted by him to the credit of the Government.

Illustration

Mr. Raja has made a fixed deposit with XYZ Bank. Annual interest on the deposit is Rs. 8,40,000. Will the bank be liable to deduct any tax from the interest paid to Mr. Raja?

Interest on fixed deposit is covered under the TDS mechanism and, hence, the bank has to deduct tax from interest and has to pay the net interest to Mr. Raja.

The rate of TDS on interest is 10% and, hence, the bank will deduct tax of Rs. 84,000 from the interest and will pay the net interest of Rs. 7,56,000 (i.e., Rs. 8,40,000 Rs. 84,000) to Mr. Raja.

The TDS of Rs. 84,000 will be paid by the bank to the Government and Rs. 84,000 will be treated as prepaid tax of Mr. Raja and he can claim tax credit of Rs. 84,000 just like advance tax at the time of filing his return of income.

The above mechanism of deducting the tax at the point of generation of income is called TDS mechanism.

What are the payments covered under TDS Mechanism and what are rates and threshold limits ?

Check the TDS Rates for F.Y. 2017-2018 at below link

http://www.protact.in/application/public/uploads/cms/437/1284/Rates_of_TDS_for_A.Y_2018_19.pdf

Can the payee request the payer not to deduct tax at source and to pay the amount without deduction of tax at source?

A payee can approach to the payer for non-deduction of tax at source but for that they have to furnish a declaration in Form No. 15G/15H, as the case may be, to the payer to the effect that the tax on his estimated total income of the previous year after including the income on which tax is to be deducted will be nil.

Form No. 15G is for the individual or a person (other than company or firm) and Form No. 15H is for the senior citizens.

The following assessee who is in receipt of the specific incomes can approach to the payee for non-deduction of tax at source:-

a) A resident individual who is in receipt of income as referred to in 192A, ?194 or 194EE if the amount of such income does not exceed the maximum amount which is not chargeable to income-tax.

b) Any person (other than a company or a firm) who is in receipt of income as referred to in section 193, 194A, 194DA ?or 194-I if the amount of such income does not exceed the maximum amount which is not chargeable to income-tax.

c) A resident senior citizen ( i.e., an individual resident in India who is of the age of sixty years or more at any time during the previous year) who is in receipt of income as referred to in section 192A?, 193, 194, 194A, 194EE, ?or 194-I or 194D (with effect from 1-6-2017), 194DA ??

Alternatively, a payee who is in receipt of income referred to in section 192, 193, 194, 194A, 194C, 194D, 194G, 194H, 194-I, 194J, 194LA, 194LBB, 194LBC, or 195? can apply in Form No. 13 to the assessing officer to get a certificate authorizing the payer to deduct tax at lower rate or deduct no tax as may be appropriate.

On receiving such an application, the AO may issue appropriate certificate in this regard if he is satisfied that the total income of the payee justifies the deduction of income-tax at any lower rate or nil deduction of income tax.

As per Income-tax (Ninth Amendment) Rules, 2014, Certificate for non-deduction of income-tax shall be issued directly to the person responsible for deducting the tax under an advice to the payee (i.e. who made an application for issue of such certificate).Whereas, certificate of lower deduction of income-tax shall be issued to payee itself.

If AO has issued certificate for no deduction of tax or lower deduction of tax, as the case may be, then payer should deduct tax accordingly.

What are the consequences a deductor would face if he fails to deduct TDS or after deducting the same fails to deposit it to the Governments account?

A deductor would face the following consequences if he fails to deduct TDS or after deducting the same fails to depositit to the credit of Central Governments account:-

a) Disallowance of expenditure
As per section 40(a)(i) of the Income-tax Act, any sum (other than salary) payable outside India or to a non-resident, which is chargeable to tax in India in the hands of the recipient, shall not be allowed to be deducted if it is paid without deduction of tax at source or if tax is deducted but is not deposited with the Central Government till the due date of filing of return.
?However, if tax is deducted or deposited in subsequent year, as the case may be, the expenditure shall be allowed as deduction in that year.
Similarly, as per section 40(a)(ia), any sum payable to a resident, which is subject to deduction of tax at source, would attract 30% disallowance if it is paid without deduction of tax at source or if tax is deducted but is not deposited with the Central Government till the due date of filing of return.
However, where in respect of any such sum, tax is deducted or deposited in subsequent year, as the case may be, the expenditure so disallowed shall be allowed as deduction in that year.
As per Section 58(1A) (as amended with effect from the assessment year 2018-19), the provisions of section 40(a)(ia) and 40(a)(iia) shall also apply in computing the income chargeable under the head Income from other sources.
b) Levy of interest
As per section 201 of the Income-tax Act, if a deductor fails to deduct tax at source or after the deducting the same fails to deposit it to the Governments account then he shall be deemed to be an assessee-in-default and liable to pay simple interest as follows:-
(i) at one per cent 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
(ii) at one and one-half per cent 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.?
c) Levy of Penalty
Penalty of an amount equal to tax not deducted or paid could be imposed under section 271C
What to do if tax is deducted but the ultimate tax liability of the payee is nil or lower than the amount of TDS?
In such a case, the payee can claim the refund of entire/excess amount of TDS (as the case may be) by filing the return of income.??

What are the duties of the person deducting tax at source?
Following are the basic duties of the person who is liable to deduct tax at source.
He shall obtain Tax Deduction Account Number and quote the same in all the documents pertaining to TDS.
He shall deduct the tax at source at the applicable rate.
He shall pay the tax deducted by him at source to the credit of the Government (by the due date specified in this regard*).
He shall file the periodic TDS statements, i.e., TDS return (by the due date specified in this regard*).
He shall issue the TDS certificate to the payee in respect of tax deducted by him (by the due date specified in this regard*).
*Refer tax calendar for the due dates.

How can I know the quantum of tax deducted from my income by the payer?
To know the quantum of the tax deducted by the payer, you can ask the payer to furnish you a TDS certificate in respect of tax deducted by him. You can also check Form 26AS from your e-filing account at https://incometaxindiaefiling.gov.in
You can also use the View Your Tax Credit facility available at www.incometaxindia.gov.in

What to do if the TDS credit is not reflected in Form 26AS?
Non-reflection of TDS credit in Form 26AS can be due to several reasons like non-filing of TDS statement by the payer, quoting incorrect PAN of the deductee in the TDS statement filed by the payer. Thus, in case of non-reflection of TDS credit in Form 26AS, the payee has to contact the payer for ascertaining the correct reasons for non-reflection of the TDS credit in Form 26AS.

TDS Return Last Dates of FY 2017-18

QuarterQuarter PeriodLast Date of Filing
1st Quarter1st April to 30th June31st July, 2017
2nd Quarter1st July to 30th September31st October,2017
3rd Quarter1st October to 31st December31st Jan, 2017
4th Quarter1st January to 31st March31st May, 2017