No one is unaware of TDS in India. However, it is necessary to know how tax deductions work when TDS is deducted from your payment frequently.In general, the total income of a person is charged on annual basis under the Income Tax Act. The amount of tax determined and to be paid as per the statutory provisions is as follow:
- a) Advance Tax
- b) Self-Assessment Tax
- c) Tax Deducted at Source (TDS)
- d) Tax Collected at Source (TCS) Tax deducted at source (TDS)
How tax deductions work : End of confusion:
We will understand procedure of tax deduction in two parts. IN part A, we will understand how tax is deducted and credited to government and finally you can get it back. In part B, the chart for section ,rate of tds for different payments and threshold limit for deduction are given.
PART A: GENERAL DISCUSSION
TDS & TCS as the names itself imply aims at collection of revenue from the source of Income. It is basically an indirect way of collection of taxes which involves the concepts of “pay as and when you earn” and “collect at the time it is being earned.” Its importance to the central government lies in the fact that it makes the collection of taxes in advance, and provides a regular source of revenue to the government, it also enables for a far reach and wider base for tax collection.At the same point of time, to the income tax payer, it expands the incidence of tax and provides for a easy, simple and convenient way of payment of taxes.
The concept of TDS ensures and requires that the person on whom responsibility for deduction of taxes has been cast, is to deduct tax at the appropriate rates (as given in the separate sections), from the payments of specific nature being made to a specified recipient.
The amount so deducted is required to be deposited or paid to the credit of the Central Government. The person (deductee/recipient) from whose income, taxes has been deducted at source, will be allow the credit of the amount so deducted in his personal income assessment based on the certificate being issued by the deductor of taxes.
It is to be noted that there are various statutory provisions which provides for the deduction of taxes at source on payments being made of different nature.
PART B: SPECIFIC DISCUSSION
Description of Various TDS &TCS Provisions
Although there are many provisions in relation to TDS & TCS, however, only few provisions have been discussed below for the basic understanding of the reader.
Given below are some of the provisions of tax deductions other than salaries and of collection of Taxes at Source:
| Section No. | Name of Section | Description |
| 193 | TDS from Interest on Securities | Deduction is to be done at the rate of 10%.The Exempted securities are listed in the section as given below:(1) National Defense Bonds(2) 7 Year National Saving Certificate
(3) Any Interest Payable on Debentures as notified by the Central Government (4) Gold Bonds (5) Interest on Securities of Central Government or State Government (6) Any Interest Payable to LIC (7) Any Interest Payable to GIC or any of its companies. |
| 194 | TDS from Dividend | Where any amount is payable in the nature of “Dividends”by an Indian Company or a Company that has made arrangement for declaration and payment of dividend within India (including dividend on preference shares ) the said company has to deduct tax at source. The deduction has to be done as per rates in force before the payment is made in cash or issue of cheque or dividend warrant or before making any distribution or payment to the shareholder of any dividend u/s 2(22). Certain exemptions exist which are as given below:(a) -Exemption from T.D.S. is granted in case of a share-holder who is an individual and the company pays dividend of Rs.2500/- or less in one financial year and it is paid by account payee cheque.
(b) Further, if the Assessing Officer gives a certificate in writing in prescribed form that total income of the share-holder is below taxable limit then the person paying the dividend to shareholder is not to deduct tax at source.
(c) Further no TDS to be done in respect of dividends referred to in Section 115-O. |
| 194A | TDS from Interest Other Than Interest on Securities | TDS is to be done on Interest exceeding Rs.5,000/- (in case of Banking Rs. 10,000) w. e.f., in respect of deposit with a banking company or a co-operative society carrying on banking business, TDS is to be made if the interest exceeds Rs.10,000/-.Exempted categories are listed in the section.Deduction are to be doneat rate of 10%. |
| 194B | TDS from Winnings from Lotteries or Crossword Puzzles or card games and other games of any sort. | TDS is to bedone on payment of an amount exceedingRs. 10,000/- at the rate of 30%. TDS is deductible on prize in kind also.Incases where the winnings are wholly in kindor where they are partly in cash and partlyin kind but the part in cash is not sufficientto meet the liability for tax deduction inrespect of the whole of the winnings, theperson responsible for paying shall, beforereleasing the winnings either in cash or inkind, ensure the tax has been paid in respect of the winnings. |
| 194BB | Winning from Horse Races exceeding Rs. 5000 | Section 194BB enjoins any person, who is a bookmaker or a licensee for horse racing in a race course or arranger for wagering or betting in any race course, and is responsible for paying to anyperson the winning from such horse race, to deduct income-tax at source. The deduction is to be done as per rates in force. The only exemption is for winnings of Rs.5000/- or below. |
| 194C | Payments to Contractors & Sub-Contractors exceeding Rs. 30,000 per contract or Rs. 75000 p.a. | For payments to contractors, the rate of TDS is one percent in case of advertising and two percent in other cases. The provision is not applicable in case of payment made by individuals and HUF if the gross receipts or turnover from the business or profession does not exceed the monetary limits specified u/s 44AB clause (a) or (b). |
| 194D | Insurance Commission | TDS on payments above Rs.20,000/-. |
| 194E | Non Resident Sportsmen or Sports Association | TDS shall be deducted at 10%. |
| 194EE | Payments in Respect of NSS | TDS to be done on payment which is above Rs.2,500 – @ 20%. |
| 194F | Payments for Re-purchasing units of Mutual Funds / UTI | TDS shall be deducted at 20% |
| 194H | Commission Brokerage etc. | Above Rs.5000/- deduction @ 10% N.A. when payments are made by Individual /HUF, if their business sales turnover does not exceed the limits specified in 44AB. If the payment made for personal use no deduction. |
| 194I | Rental Income | TDS to be done on payment exceeding Rs.1,80,000/- per annum. The rate of TDS is to be 2% where plant or machinery is rented out, 10% in case of land or building. |
| 194J | Payment to resident of fess for Professional or Technical Services | Exceeding Rs. 30,000/- deduction at the rate of 10%. Not applicable, if payer is individual or HUF and if the business turnover does not exceed the limits mentioned in Section.44AB. |
| 194K | TDS by Mutual Fund / UTI | Income exceeding Rs.2,500/- in respect of units of mutual funds specified under section 10(23D) or f UTI. Qualifying income includes income credited/paid .Rate of TDS is 10%. No deduction is to be made for any such income credited / paid after 1.4.03. |
| 194LA | Payment to Resident compensation/ consideration on account of compulsory/ acquisition under any law of any immovable property (other than agricultural land) | Deduction of tax is to be done @ 10%. No deduction if payment is less than Rs.1 lakh during the financial year. |
| 194IA | Immovable Property other than Agricultural Land | Transfer of Immovable Property exceeding Rs. 50 Lakhs, than TDS shall be deducted at 1%. |
| 195 | Payments to Non-residents | Deduction is to be done as per rates in force. |
Conclusion
The above discussion is for the Tax Deduction to be made by the person making the payment to any person and shall pay the requisite amount to the credit of the central government. Once can certainly (after reading the above sections) can have the basic understanding of TDS deduction in various types of payment being made and can save him / herself from the penal consequences for non-compliance of the same.