Tax Deducted at source

Presented by :-

Mohit Rastogi

(2K91A70)

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Introduction

What is Tax Deducted at source ?

Income – Tax is Collected/recovered at two stages, namely pre-assessment stage and post assessment stage. The method by which pre-assessment tax are collected is in the following manner at different stages namely,

• Advance Tax.• Tax Deducted at source.• Tax Collected at Source.

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Objectives of introduction of Tax Deducted at Source.

• It helps in reporting the correct Incomes.• It helps in checking Tax evasion.• Early collection of revenue by the Government.• It is the cheapest mode of collection of tax.• It helps to widen the tax base as more and more people

are covered.

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Important Provisions of TDS

SectionSection Type of PaymentType of Payment

192192 Payment of Salaries.Payment of Salaries.

193193 Interest on SecuritiesInterest on Securities

194194 DividendsDividends

194A194A Payment of Interest ( other than interest on Payment of Interest ( other than interest on securities).securities).

194B194B Winning from Lottery or Crossword puzzlesWinning from Lottery or Crossword puzzles

194C194C Payment to any contractor or Sub-Contractor.Payment to any contractor or Sub-Contractor.

194D194D Insurance commissionInsurance commission

194E194E Payment to Resident Sportsman or Sports Payment to Resident Sportsman or Sports AssociationAssociation

194EE194EE Payment in respect of deposits under N.S.SPayment in respect of deposits under N.S.S

194F194F Payment on Account of repurchase of Units by Payment on Account of repurchase of Units by National Funds or U.T.I National Funds or U.T.I

194G194G Commission etc. on Sale of LotteryCommission etc. on Sale of Lottery

194H194H Payment of Commission or Brokerage.Payment of Commission or Brokerage.

194I194I Payment of Rent.Payment of Rent.

194J194J Payment of any Professional fees.Payment of any Professional fees.

195195 Payment to Non Residents.Payment to Non Residents.

196196 Non – Deduction of TDS in certain cases.Non – Deduction of TDS in certain cases.

197197 Obtaining a certificate of Lower rate from the Obtaining a certificate of Lower rate from the Assessing OfficerAssessing Officer

206AA206AA Requirement to furnish PAN for TDS eligible Requirement to furnish PAN for TDS eligible payments.payments.

201 & 276B201 & 276B Consequences of DefaultConsequences of Default

278B278B Offences by CompaniesOffences by Companies

Rule 30Rule 30 Due date for payment of TDS.Due date for payment of TDS.

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203 & Rule 31203 & Rule 31 Certificate of Tax Deducted at source to the Certificate of Tax Deducted at source to the payeepayee

203A Read with 203A Read with Rule 114ARule 114A

Tax Deduction Account Number – (TAN)Tax Deduction Account Number – (TAN)

Sec. 206 & Rule Sec. 206 & Rule 31A31A

Filing of Returns of tax deducted at SourceFiling of Returns of tax deducted at Source

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TDS RATES CHARTTDS RATES CHART

SectioSectionn Nature of paymentsNature of payments

up to up to 30.06.130.06.1

00

w.e.f w.e.f 01.07.101.07.1

00

Rate in %Rate in %

IndividualIndividuals& HUFs& HUF OthersOthers

194194 Deemed DividendDeemed Dividend 25002500 25002500 1010 1010

194A194A Interest From BankInterest From Bank 1000010000 1000010000 1010 1010

194A194A Other InterestOther Interest 50005000 50005000 1010 1010

194B194BWinning from Winning from LotteriesLotteries 50005000 1000010000 3030 3030

194BB194BBwinning from Horse winning from Horse racesraces 25002500 50005000 3030 3030

194C194C

Payment to Payment to Contractors, Pay to Contractors, Pay to Sub Contractor , Sub Contractor , Payment to Payment to TransporterTransporter

20000 20000 (50000 (50000

in a in a year)year)

30000 30000 (75000 (75000 in year)in year) 11 22

194D194DInsurance Insurance CommissionCommission 50005000 2000020000 1010 1010

NOTE 1. Payment made to transporter *, TDS is not required if PAN is provided by the Transporter.

NOTE 2. Surcharge and Cess is not applicable on TDS from 1.04.09 on any payment made to resident.

NOTE 3. If PAN is not provided by the deductee then rate as per above table or 20% whichever is higher is to be charged (effective from 1.04.10 section 2006AA)

SectioSectionn Nature of paymentsNature of payments

up to up to 30.06.130.06.1

00

w.e.f w.e.f 01.07.101.07.1

00

Rate in %Rate in %

IndividuIndividuals& als& HUFHUF

OtherOtherss

194H194HCommission/Commission/BrokerageBrokerage 25002500 50005000 1010 1010

194I194I Rent-propertyRent-property 120000120000 180000180000 1010 1010

194I194I Rent-Plant/ Rent-Plant/ MachineryMachinery

120000120000 180000180000 22 22

194J194J Professional FeesProfessional Fees 2000020000 3000030000 1010 1010

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TIME OF TAX DEDUCTION

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TAX DEDUCTEDTAX DEDUCTED SECTIONSSECTIONSAT THE TIME OF AT THE TIME OF PAYMENTPAYMENT

192,194,194B,194BB,194EE,192,194,194B,194BB,194EE,

194F194F

AT THE TIME OF AT THE TIME OF PAYMENT OR CREDITPAYMENT OR CREDIT

193,194A,194C,194D,194E,194193,194A,194C,194D,194E,194G, 194H, 194I,194J,195G, 194H, 194I,194J,195

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Sec. – 192 – Payment of Salaries• Tax is to be deducted on income chargeable under Salaries and

paid by the employer

• The liability to deduct the tax arises only at the time of payment of salary. It means if provision for salary has been made and the same has not been paid then deduction of tax does not arise*.

• Any person responsible for payment of salary, is liable to deduct the tax. The status of the employer is not relevant for deduction of tax. The liability to deduct the tax arises even if the person carries on business or not.

• Where an employee is in employment of more than one employer, tax will be deducted at source by the employer, which the employee chooses or the present employer.

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The employee may furnish to the employer details of income chargeable to tax under other heads of income (not being loss except loss under the head Income from House Property and tax deducted on the same). In such a case employer shall deduct tax due on total income. However, total amount of tax deducted should not be less than the amount of tax deductible from salary except where the loss under the head Income from House Property has been taken into account.

Section 193 – Interest on Securities

(A.) Any person responsible for paying an interest on securities to a resident is required to deduct tax at source at the rates in force on amount of interest payable.

(B.) The Tax is required to be deducted at the time of credit of such income to the payees account or at the time of payment of interest on securities whichever is earlier.

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Section 194 – Dividends

The Principal Officer of the Indian Company or a company, which has made prescribed arrangements for declaration and payment of dividend in India is responsible for deducting tax at source from dividend payable to a shareholder, who is resident in India.

No tax is to be deducted at source u/s 194 from Dividend payable to any individual shareholder if the dividend is paid by the company by an account payee cheque and the aggregate amount of dividend distributed/paid or likely to be distributed/paid during the financial year does not exceed Rs.2,500/.

Dividend paid by domestic companies u/s 115O are exempt from tax in the hands of the recipients’ w.e.f. April 1, 2003.

Deemed dividend under section 2(22)(e) is taxable at the rate of 10% in the hands of shareholders. 13

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Sec 194A – Interest other than Interest on Securities Any person (except on individual or a HUF) responsible for paying

interest other than interest on securities to a resident is required to deduct tax at Source at the rate of 10% for the Financial year 2010-11.

However, w.e.f. 1st June, 2002, an Indian or a HUF whose total sales, gross receipts or turnover from business or profession exceeds Rs. 40 lakhs (Rs. 60 lakhs w.e.f. 01.04.2011) or Rs.10 lakhs (Rs. 15 Lakhs w.e.f. 01.04.2011) respectively, during the financial year immediately preceding the financial year in which such interest is credited or paid shall be liable to deduct tax at source.

TDS is required to be deducted either at the time of credit of such income to the payees account or at the time of payment, whichever is earlier.

No tax is deducted in case where the aggregate amount of interest does not exceed Rs.5,000/-. In case of term deposits with banks or Cooperative Society and Housing Finance Companies, no tax is required to be deducted upto an aggregate interest of Rs.10,000/-.

No tax is required to be deducted in case of interest paid/credited to any banking company/financial corporation, LIC, UTI, etc

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Section 194B – Winning from Lottery or Crossword Puzzles

Any person responsible for paying income by way of winning from Lottery/crossword puzzle or card game or any other game is required to deduct tax at source at the rate of 30%.

No tax is deductible if the amount of payment is Rs.5,000/- (Rs. 10,000 from July 1,2010) or less.

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SECTION 194BB – WINNING FROM HORSE RACES

Any person responsible for paying income by way of winning from Horse Races is required to deduct tax at source at the rate of 30%.

No tax is deductible if the amount of payment is Rs.2,500/- (Rs. 5,000 from July 1,2010) or less.

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Sec. 194C – Payment to Contractors Any person (other than individual and HUF) paying any sum to any

resident contractors for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the resident contractor and specified person is required to deduct tax at source.

TDS rate is 1% if recipient is individual/ HUF or 2% for any other person.

No Tax is deducted on credit or payment on account of contractor during the course of business of plying, hiring or leasing goods carriages on furnishing PAN to the person paying or crediting such sum.

However, an individual or a HUF whose total sales or gross receipts or turnover from business exceeds Rs. 40 lakhs (60 Lakhs w.e.f. 1.04.2011) or whose gross receipts from profession exceeds Rs.10 lakhs (15 Lakhs w.e.f. 1.04.2011) during the financial year immediately preceding the financial year which such sum is credited or paid to the account of contractor shall be liable to deduct tax at source.

Tax is required to be deducted either the time of credit of the sum paid to the account of the payee or at the time of payment in cash or by cheque or by any other mode, whichever is earlier.

With effect from 1st October, 2004, Section 194C has been amended to provide that tax will be required to be deducted at source where the amount credited or paid to the contractor or a sub-contractor exceeds Rs.20,000 (Rs. 30,000 from July 1, 2010) in a single payment or Rs.50,000 (Rs. 75,000 from July 1, 2010) in the aggregate during the financial year.

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“Work” shall include –

(a) Advertising

(b) Broadcasting and telecasting including the production of programmes for such broadcasting or telecasting including production of programmes for such broadcasting or telecasting;

(c) Carriage of goods or passengers by any mode of transport other than by railways;

(d) Catering

(e) Manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customers,

but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchase from a person, other than such customer.

Section 194D – Insurance Commission

Any person responsible for paying insurance commission to a resident is required to deduct tax at source at the rate of 10%.

No tax is deductible if the amount of insurance commission or aggregate of the amount of such income credited/paid during the financial year does not exceed Rs.5,000/-(Rs.20,000 from July,1,2010).

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Section 194E – Payment to Non-Resident Sportsman/Sports Association Any person responsible for paying any income to a non-

resident sportsman including an athlete who is not a Citizen of India or a non-resident Sports Association or Institution is required to deduct tax at source at the rate of 10%.

The tax is required to be deducted at the time of credit of such income to the account of payee or at the time of payment in cash or by issue of cheque or draft or by any other mode whichever is earlier.

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Section 194EE – Payment in respect of deposits under NationalSavings Scheme

Any person responsible for paying to any person any amount referred to in Section 80CCA(2) is required to deduct Income Tax at the rate of 20% at the time of payment.

No deduction is required to be made where the amount of such payment or the aggregate amount of such payments during the financial year is less than Rs.2,500/-.

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Section 194F – Payment on account of Repurchase of Units by MutualFunds or UTI

Any person responsible for paying to any person any amount

referred to in Section 80CCB(2) is required to deduct tax at source at the time of payment without any exemption at the rate of 20%.

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Section 194G – Commission etc. on the sale of Lottery Tickets

Any person who is responsible for paying commission, remuneration or prize to any person who is or has been stocking, distributing, purchasing or selling lottery tickets is required to deduct tax at source at the rate of 10% on such tickets on an amount exceeding Rs.1,000/-.

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Section 194H – Commission or Brokerage

Any person other than an individual or Hindu Undivided Family who is responsible for paying on or after 1st June, 2001, to a resident, any income by way of commission (other than insurance commission referred to in section 194D), or brokerage, is required to deduct tax at the rate of 10%.

No deduction is required to be made where the amount of such income or the aggregate of the amounts of such income credited/paid during the financial year does not exceed Rs.2,500/-(Rs. 5,000 from July 1,2010)

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Section 194 I – Rent

Any person (other than an individual or Hindu Undivided Family) responsible for paying rent to resident any income by way of rent is required to deduct tax.

‘Rent’ means any payment by whatever nature called, under any lease, sublease, tenancy or any other agreement or arrangement for the use of (either separately or together) any:

(i) land, or (ii) building (including factory building), or (iii) land appurtenant to a building (including a factory building),

or (iv) machinery, or (v) plant, or

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(vi) equipment, or

(vii) furniture, or

(viii) Fittings

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From 1st June, 2002 an individual or a Hindu Undivided Family whose total sales or gross receipts or turnover from business exceeds Rs.40 lacs (60 Lakhs w.e.f. 1.04.2011) (60 Lakhs w.e.f. 1.04.2011) or whose gross receipts from profession exceeds Rs.10 lacs (15 Lakhs w.e.f. 1.04.2011)(15 Lakhs w.e.f. 1.04.2011) during the financial year immediately preceding the financial year in which such sum is credited or paid shall be liable to deduct tax at source.

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Rate of deduction of tax – Sec 194I

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Asset on which Asset on which payment is madepayment is made

Payee being – Payee being – Individual.Individual.

Payee being –Payee being –other than other than Individual.Individual.

Land or building or furniture or fixtures.

10% if Payment or Credit exceeds or likely to exceed Rs.1,20,000/- (Rs.1,80,000 from July1,2010) in aggregate in the previous year.

10% if Payment or Credit exceeds or likely to exceed Rs.1,20,000/- (Rs.1,80,000 from July1,2010) in aggregate in the previous year.

Machinery or plant or equipment

2% if Payment or Credit exceeds or likely to exceed Rs.1,20,000/- (Rs.1,80,000 from July1,2010) in aggregate in the previous year.

2% if Payment or Credit exceeds or likely to exceed Rs.1,20,000/- (Rs.1,80,000 from July1,2010) i n aggregate in the previous year.

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Sec-194J – Fees for Professional or Technical Services. Any person (other than individual or HUF) responsible

for paying to a resident fee for professional services or fee for technical services is required to deduct tax on the income comprised therein at the rate of 10% for financial year 2010-11.

“Professional services” means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purpose of section 44AA or of this section.

“Fees for technical services” shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9 – For the purpose of this clause “Fees for technical services” means: any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provisions of services of technical or other personnel), but does not include consideration for any construction, assembly, mining or like product undertaken by the recipient or consideration which would be income of the recipient chargeable under the head ‘salaries’.

The tax is required to be deducted at the time of credit of such income to the account of the payee or at the time of payment in cash or by issue of cheques or drafts or by any other mode whichever is earlier. No tax is required to be deducted in case amount of such sum or aggregate of amount of such sums credited or paid during the financial year does not exceed Rs.20,000/-(Rs. 30,000 from July 1, 2010).

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With effect from 1st June, 2003 no individual or HUF shall be liable to deduct tax on fees for professional services in case such sum is credited or paid exclusively for personal purposes of such individual or any member of HUF.

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Exemption from deduction of tax at source in respect of payments made

to certain persons (Section 196)

Government Reserve Bank of India Corporation established by or under a Central Act

whose

income is exempt from Income Tax Mutual Fund u/s 10(23D)

Section 197 – Obtaining a Certificate of Lower Rate fromthe Assessing Office For tax-deductible u/s 192, 193, 194, 194A, 194C, 194D,

194G, 194H, 194-I, 194J, 194K, 194LA or 195.

The recipient can apply in Form No.13 to the Assessing Officer to get a

certificate authorizing the payer to deduct tax at lower or deduct no tax as may be appropriate.

The certificate of lower rate shall be issued through the ITD application i.e. computer system of the department. Issue of manual certificates is not permitted.

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Certificate has to be issued individually to each deductor. Only a copy

of the certificate is to be given to the applicant/assessee for information.

Only the original certificate addressed to the deductor and signed by AO can be acted upon by deductor and photocopy is not valid.

As per CBDT circular no 774 dated 17/03/99 certificate u/s 197 is valid for the payments made after the date of issue of certificate.

However in the case of entities covered by Rule 28AB, the Assessing Officer may issue a certificate to the recipient authoring payment of income without deduction of tax at source. The recipient may furnish copies of such certificate to the person responsible for paying the income for the purpose of no deduction of tax at source.

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No deduction of tax at source in certain cases – Section 197A

Payment u/s 193, 194A and 194K

– Form No: 15G by everybody (not being a company or a firm) and Form No: 15H by Senior Citizens. This benefit is not applicable if the total amount paid/payable is in excess of the maximum amount not chargeable to tax.

SECTION 206(AA)

Furnishing PAN is compulsory for all TDS eligible payments covered, failing to which, Deductor will be deducting TDS at a higher rate.

For such case, the rate of TDS should be determined at higher of

below conditions: 1.TDS rate prescribed in the Act ; 2.Rate of Tax in force ; 3.At 20%

The section is applicable for all payments made on or after April 1, 2010.

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Declaration under Section sub-section (1) or sub-section (1A) or sub-section (1C) of section 197A shall be valid only if PAN is furnished.

No certificate under section 197 shall be granted unless the application made under that section contains the PAN of the applicant. TAN of the deductor is mandatory without which certificate cannot be generated from the system.

The deductee shall furnish his PAN to the deductor and both shall indicate the same in all the correspondence, bills, vouchers and other documents which are sent to each other.

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Consequences of Default

Liability u/s 201 Interest & Penalty – Assessee in default u/s 221 equal to the amount of tax in arrears. Interest @ 1% per month (1.5% w.e.f. 01.07.2010, in case tax

deducted but deposited late).

Both the above are consequences of Not deducting or Deducted and not paying to the Central Government.

After deducting not paying also leads to a charge being credited on the assets of the payer.

Section 271C Penalty for failure to deduct tax at source as required or under the

provisions of Chapter XVII-B. Penalty Equal to Tax.

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Section 276B

If a person fails to pay to the credit of Central Government, tax deducted at source by him as required by or under the provisions of Chapter XVII-B.

Imprisonment Period 3 months to 7 years and with fine.

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Every person who at the time of offence was in charge of and was responsible to the company for the conduct of business of the company as well as the company shall be liable to be proceeded against.

If it is established that the offence was committed with the connivance of director, manager, secretary or other officer – such persons shall also be liable to be punished

In the case of imprisonment and the offence being committed by company, apart from fine on the company, officers responsible shall be liable to be proceeded against.

Section 278B – Prosecution - Offences by Companies

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Due dates for Payment of Tax deducted at Source – Rule30.

Sl.NSl.No.o.

Nature of PaymentNature of Payment Due DateDue Date

1 All Payments or Credits during the year

Within one week from the end of the month in which payment is made

2 Provision by way of credit to the account of person on 31st March of the Previous year.

Within 2 months from the end of the month in which such amount is credited.

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Certificate of Tax Deducted at source to the payee – Sec203 and rule 31.

• In respect of cases where Salaries exceeds Minimum threshold limit in Form No. 16 and in other cases Form No. 16AA

• Other than Salaries - Form No. 16A• The certificates issued in Form No. 16 can be issued under

Digital Signature by virtue of Circular No. 2/2007 dated 21/05/2007

• Due Dates by which certificate is to be submitted to the payee:

• Salaries - Form No. 16 /16AA - within one month from the close of the financial year

• Other Payments – Form No. 16A – within one month from the end of the month in which payment is made or where more than one payment is made in a year at the request of the payee with in one month from the end of the financial year.

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Exceptions to the time limit specified for issuance of TDS certificates.

In respect of cases where deduction is by virtue of credit – within one week from the expiry of two months after the month of credit

• Duplicate certificates can be issued on receipt of a letter on a plain paper from the payee

• Non Issuance of TDS certificates with in the due dates will attract a penalty of Rs.100/- per delay under Sec.272A.

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Tax Deduction Account Number – (TAN) Sec.203A Read with Rule 114A.

• Every person who is liable to deduct tax at source shall obtain a TAN number within one month from the end of the month in which tax has been deducted. Penalty for failure to obtain TAN is Rs. 10,000 (Sec 272BB)

• An application for the allotment of a TAN shall be made in duplicate in Form No. 49B.

FORM NO.FORM NO. PARTICULARSPARTICULARS PERIODICITYPERIODICITY

Form 24Q Quarterly statement for tax deducted at source from "Salaries"

Quarterly

Form 26Q Quarterly statement of tax deducted at source in respect of all payments other than "Salaries

Quarterly

Form 27Q Quarterly statement of deduction of tax from interest, dividend or any other sum payable to non-residents

Quarterly

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Form 27A is a summary of TDS return (Form 24Q, 26Q or 27Q), which contains control totals of 'Amount Paid' and 'Income tax

deducted at source'.

QUARTER DUE DATE DUE DATE FOR 27Q

April to June July 15 14 July

July to September October 15 14 October

October to December January 15 14 January

January to March June 15 14 June

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Sec. 206 and Rule 31ASec. 206 and Rule 31A

Thank You