Tax Deducted at Source (TDS)

Tax Deducted at Source (TDS) is income tax that is deducted from money paid at the time of making specified payments such as rent, commission, professional fees, salary, interest, and so on. In most cases, the person receiving the income is required to pay income tax. However, the government ensures that income tax is deducted in advance from payments made by you through Tax Deducted at Source provisions. The net amount is given to the income recipient (after reducing TDS). The gross amount is added to the recipient's income, and the amount of TDS is deducted from his final tax liability. The recipient receives credit for the amount that has already been deducted and paid on his behalf.

When and by whom should TDS be deducted?

Any person making specified payments as defined in the Income Tax Act is required to deduct TDS at the time the payment is made. If the person making the payment is an individual or a HUF whose accounts are not required to be audited, no TDS must be deducted. Individuals and HUFs are required to deduct TDS at 5% on rent payments exceeding Rs 50,000 per month, even if the individual or HUF is not subject to a tax audit. Individuals and HUFs who are required to deduct TDS at the rate of 5% do not need to apply for TAN. TDS is deducted by your employer at the applicable income tax slab rates. TDS is deducted at a rate of 10% by banks. If they do not have your PAN, they may deduct at a rate of 20%. TDS rates for most payments are specified in the Income Tax Act, and TDS is deducted by the payer based on these rates. You do not have to pay any tax if you submit investment proofs (for claiming deductions) to your employer and your total taxable income is less than the taxable limit. Therefore no deduction on your income should be made from TDS. Similarly, if your total income is less than the taxable limit, you can submit Form 15G and Form 15H to the bank so that they do not deduct TDS on your interest income. If you haven't been able to provide documents to your employer, or if your employer or bank has already deducted TDS and your total income is less than the taxable limit, you can file a return and request a refund of this TDS. The complete list of TDS-eligible Specified Payments, as well as the TDS rate.

TAX DEDUCTION AND COLLECTION ACCOUNT NUMBER (TAN)

The TAN, or Tax Deduction and Collection Account Number, is a ten-digit alpha-numeric number that must be obtained by anyone who is in charge of deducting or collecting taxes. All TDS returns must include the Tax Deduction Account Number (TAN) assigned by the Income Tax Department (ITD) in accordance with Section 203A of the Income Tax Act, 1961.

Procedure to pay TDS

below is procedure that a deductor needs to follow:

What is the deadline for the TDS to be deposited with the government?

Tax Deducted at Source must be deposited with the government by the 7th of the following month. For example,  TDS deducted in June must be paid to the government by July 7th. The TDS may however be deposited by 30 April in the month of March. The due period for TDS deducted on rent and property purchases is 30 days from the end of the month in which TDS is deducted.

TDS Defaults: Interest, Penalty, Prosecution, and Other Consequences:

TDS compliance as we all know is one of the most critical compliances in the economic condition. Many taxpayers are not as attentive, and as a result, they must face the negative consequences, such as penalties or prosecution, on a case-by-case basis. As a result, today's post focuses on the penalties, prosecution, and adverse compliances that assesses in default face when it comes to TDS compliance.

1. Interest Liability:

A. Section 201(1A): Interest on failing to deduct tax and interest on failure to deposit deducted tax amount are both covered under this section.

• Failure to deduct TDS: 1% from the due date of deduction to the deduction date.
• Failure to Deposit TDS: 1.5% from the date of deduction to the date of payment.

 B. Section 220 (2). Failure to pay the sum required u/s 156 issued by way of notice of demand attracts interest.

1% from the date on which the application was due (due date for payment of demand shall be 30 days from the date of notice of demand).​

2. Section 234E for Late Fee:

The deductor or collector would be subject to liability, in accordance with Article 234E of the Income Tax Act, to pay a late fee for the not filing/late filing of TDS/TCS returns.

If a TDS/TCS return is not filed on time, the defaulter must pay a late fee of Rs 200 per day until the default is corrected. However, the amount of tax deductible (TDS) or collectible (TCS) may not be exceeded in late-fee limits, if applicable.

It is important to note that Section 234E of the Income Tax Act clearly states that in the event of a delay, the applicable late fee must be paid before the delayed TDS or TCS return can be filed.

3. Penalty:

A. Section 271C. Penalty for failing to Tax deducted at the source

• Failure to deduct the entire or a portion of the tax:

• In accordance with the provisions of Chapter XVIIB.
• In accordance with section 115-O (2).
• According to the second provisions of section 194B.
• A penalty equal to the amount of tax that was required to be deducted or paid is imposed. The Joint Commissioner will impose any penalties that are imposed.

B. Section 271H. Penalty for not giving statements:

• A person shall pay the penalty, if:

• He fails to make a statement within the period specified in accordance to in section 200(3).
• He fails to make a statement by the deadline set forward by section 200(3).
• Incorrect information is provided in the statement that is required to be delivered.
• The penalty is an amount not less than Rs. 10,000, but that can extend to Rs. 1,00,000.

C. Failure to provide a certificate under Section 272A(2)(g).

If a person fails to provide a certified certificate as required by section 203 (i.e. Form 16 or Form 16A), he is liable to pay a penalty of Rs.100 for each day the failure continues.

4. Failure to pay tax to the credit of the Central Government under Chapter XII-D or XVII-B will lead in a prosecution under section 276B:

If a person deducts tax at source and fails to pay it to the credit of the Central Government as required, he can be condemned to a term of life imprisonment of not less than 3 months and up to 7 years, as well as a fine.

5. TDS Default's Other Consequences:

Expenditures are not allowed to be deducted under section 40(a) (ia):

• Failure to deduct taxes on interest, commissions, brokerage fees, rent, royalties, and professional fees, among other things.
• Failure to pay the tax deducted within the stipulated time frames or before the due date of submitting the return of income u/s 139(1) results in the expenditure being disallowed.
• Tax is deductible in that year if it is deducted and paid in the next year, or if it is paid after the end of the previous year but before the due date of the return u/s 139(1).

• TDS work is outsourced for both salary and non-salary reasons.
• Reconciliation of TDS.
• All legal issues relating to TDS/TCS compliance are addressed.
• TDS refund assistance.
• TDS default clearing.
• Assistance with obtaining a TAN number under section 203A of the Indian Income Tax Act.
• Calculation of TDS u/s 192 and management of employees' TDS declarations on the company's behalf.
• Individual employee Forms 16 and 12BA, as well as 16A for non-employees, are generated.
• Assistance in obtaining a TDS certificate with a small deduction u/s 197 of the Income Tax Act of 1961.
• Preparation and submission of quarterly/annual TDS returns for salary (Form 24Q) and non-salary (Form 26Q) as required by the Income Tax Act of 1961.
• Assisting in the development of TDS operating procedures.
• TDS audits are performed according to the client's requirements, such as for pay and non-salary items.
• TDS vendor reconciliation.

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