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All About Tax Deducted at Source (TDS)

This blog covers:

· Applicability of TDS provisions – when to be deducted, how to be reported to Government.

· Modes of payment of TDS and due dates.

· Filing of ETDS Returns

· Consequences of Defaults in collection or payment of TDS and filing of TDS returns.

Brief Idea:

Tax Deducted at Source (TDS) is a means of collecting income tax in India, under the Indian Income Tax Act of 1961. Any payment covered under these provisions shall be paid after deducting a prescribed percentage. It is managed by the Central Board of Direct Taxes (CBDT) and is part of the Department of Revenue managed by Indian Revenue Services. Assessee is also required to file quarterly return to CBDT. Returns states the TDS deducted & paid to government during the quarter to which it relates.

1. Applicability for deduction of TDS for payment and filing of TDS

TDS is deducted on the following types of payment:

· Salaries

· Interest payments

· Commission payments

· Rent payments

· Consultation fees

· Professional fees

· Contract charges

Any person making specified payments mentioned under the Income Tax Act are required to deduct TDS at the time of making such specified payment. But no TDS needs to be deducted if the person making the payment is an individual or HUF whose books are not required to be audited under the Income Tax Act.

However, in case of rent payments made by individual and HUF exceeding Rs.50,000 per month, are required to deduct TDS @ 5% even if the individual or HUF is not liable for a tax audit.

(For instance: TDS deducted for a particular month must be paid to the government by 7th of the next month. However, the TDS deducted in the month of March can be deposited till 30th April. TDS must be deposited using Challan ITNS-281 on the government portal.)

Filing Tax Deducted at Source returns is mandatory for all the persons who have deducted TDS. TDS return is to be submitted quarterly and various details need to be furnished like TAN, amount of TDS deducted, type of payment, PAN of deductee, etc. Also, different forms are prescribed for filing returns depending upon the purpose of the deduction upon the purpose of the deduction of TDS.

Tax deducted at source shall be deposited to the credit of the Central Government by following modes:

1. Electronic mode: E-Payment is mandatory for

a. All corporate assesses; and

b. All assesses (other than company) to whom provisions of section 44AB of the Income Tax Act, 1961 are applicable.

2. Physical mode: By furnishing the Challan 281 in the authorised bank branch.

2. Implications of default in compliance

The non-compliance with TDS provisions attracts different types of penalties if a person fails to deduct or pay TDS on the payment for which he was required to deduct TDS. TDS is required to be deducted in the specified cases as per the provisions of the act. TDS is however collected as a means in order to keep a stable revenue source for the government throughout the year, while it helps in desisting people from avoiding taxes.

When your employer has not paid the TDS to the income tax department, the TDS would not be available against your PAN in your Form 26AS. You cannot take a tax credit of the TDS while filing your income tax return. If you take the tax credit for this amount, you will receive a notice from the income tax department for the mismatch in the TDS claimed and taxes paid.

In situation like this, the taxpayer will be caught between the income tax department and the employer and may suffer.

Levy of penalty under section 271C for TDS non-deduction or non-payment. Penalty of an amount equal to tax not deducted/paid could be imposed under section 271C.

The below chart will depict the brief summary of TDS rates, its threshold limit for FY 2019-20(AY 2020-21)

Implications for non-compliance with TDS Provisions:

CASE 1: Failure to deduct TDS

Interest- If a person fails to deduct TDS from the payment he is making to a resident for which he is liable to deduct tax at source, he is liable to pay interest at a rate of 1% per month from the date on which it was deducible till the time it is deducted.

Penalty- As per section 271C of the Income Tax Act, if any person fails to deduct the whole or any part of the tax that he was required to deduct as per the provisions of the Act, such person shall be liable to pay a penalty as imposed by the Joint Commissioner subject to the maximum of the sum equal to the amount of tax which such person failed to deduct.

Disallowance of Expenditure: Under the Income Tax provisions, 30% of the expenses are disallowed on which TDS was not deducted. Thus increasing the tax burden on the assessee.

CASE 2: Failure to pay TDS

Interest- As per section 201, if a person fails to pay the amount of TDS which he has deducted from the payment he is making to a resident, interest chargeable at the rate of 1.5% per month or part of the month from the date on which it was deducted till the date of payment.

Penalty- As per section 221, if a person fails to pay the amount of the TDS that he has deducted at source from any payment, the Assessing officer may direct to pay for a penalty for non-failure to pay TDS amount subject to the maximum of total amount of tax in arrears.

It may be noted that a reasonable opportunity of being heard will be given to the person before levying of the penalty.

CASE 3: Default in filing of returns

Interest- There is no interest penalty applicable in case of the default in filing of return.

Penalty- If a person fails to file the return of TDS as per the provisions of the Act, he is liable to pay Rs.100/day of default but subject to the maximum of the total amount of TDS to be reported in such ETDS return.

Feel free to reach us for any discussion or any query in this topic.

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