Tax Deducted at Source (TDS)

TDS is deducted on the following types of payments

Salaries
Commission Payments
Rent Payments
Consultation or Professional Fees
Interest Payments by Banks

TDS is an abbreviated form of Tax Deducted at Source which is required to be deducted while making payment to parties at a given rate. There are some identified expenses/payments against which income tax department has prescribed a specific rate of deduction and the threshold limit on which it is required to be deducted.

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Tax Deducted at Source

Every business, whether a startup or an existing company, is certain to incur some expenses or to make payments to its parties irrespective of its size and scale. Thus TDS provisions apply to all types and size of businesses. It applies in the same or similar way to a proprietor, firm, LLP or a company registered under the companies, Act. 2013. The payment of expense by a person is an Income in the hands of the recipient. Thus the payor is under a liability to deduct the tax at applicable rates while making payment to the party. For small payments, the provision of TDS does not apply until it crosses a threshold limit as prescribed. It must be noted that the TDS is applicable only on the specified payment and after it reaches the threshold limit. The most common types of expenses on which TDS is applicable is provided hereunder.

Key Point on Key Points of TDS Deduction & Payment

Payment of TDS Deducted

The tax deducted at source (TDS) while making payment to parties for qualified expenses must be deposited before 7th of next month. For example, the TDS deducted in November 2017 is payable on or before 7th December 2017. The challan number for making TDS deposit is 281. while making TDS Payment care must be exercised while selecting the appropriate section/nature of the payment.

The Consequence of Non-Compliance

The non-compliance of TDS provisions is a grave offence and is punishable under section 271 (C) of the Income Tax Act 1961, wherein the minimum penalty is 10,000 which can go up to Rs. 1,00,000/-. Further section 276B applies to all such cases where a willful default is established, in all those cases the punishment is 3 Years rigorous imprisonment which can go up to seven years.

Interest on Non Payment of TDS

The TDS deducted by a person need to be deposited within 7th day of the next month. Any failure or delay in depositing the TDS is punishable under section 271 C or/and Section 276 B. The defaulter is further liable to pay interest on delayed payment at the rate of 1.5% per month or part thereof. There is no provision in law where the interest can be waived; hence the assessee should be very careful.

Filing of TDS Return

After making the payment of TDS to the income tax, the taxpayer is required to file a quarterly return where the TDS deposited is mapped against the PAN of the person from which TDS was deducted. The TDS Return is filed within 30th of the month succeeding the quarter. For example, the first quarter ends on 30th June, hence the TDS Return must be submitted before 30th July.

Interest on Non-Deduction of TDS

When a person while making payment for which he ought to have deducted TDS fails in deducting TDS or deducts an amount less than the required amount. In all such cases, the deductor is liable to pay an interest @ 1% per month or part of the month, till the date on which TDS is deducted. Hence, a businessperson must be prudent while making payment to parties and ensure that TDS is deducted.

Other Consequences of Default on TDS

The expenses on which TDS was required to be deducted shall be disallowed as an expense under section 40(a) while computing the total taxable income. To understand it quickly let's take an example of business where the income is 10 lac and the expense is also 10 lac, then effectively there shall be zero income tax, However, if the TDS is not deducted then the tax shall be three lacs (30% of 10 lac)

TDS Rate Chart for FY-2017-18 (AY 2018-19) - Most Used Sections

Section	NATURE OF PAYMENT	Threshold	Indv / HUF	Others
192	Salaries		Average Rate	-
192A	Premature withdrawal from EPF	50000	10	-
193	Interest on Securities	10,000	10	10
194	Dividends	2500	10	10
194A	Interest (Banks)	10,000	10	10
194A	Interest (Others)	5000	10	10
194B	Winning from Lotteries	10000	30	30
194BB	Winning from Horse Race	10000	30	30
194C	Contractor - Single Transaction	30000	1	2
194C	Contractor - During the F.Y.	1 Lakh	1	2
194C	Transporter (44AE) declaration with PAN	-	-	-
194D	Insurance Commission (15G - 15H allowed)	15000	5	10
194DA	Life insurance Policy	1 Lakh	1	1
194DE	Non-Resident Sportsmen or Sports Association	-	20	20
194EE	NSS	2500	10	10
194F	Repurchase Units by MFs	-	20	20
194G	Commission - Lottery	15000	5	5
194H	Commission / Brokerage	15000	5	5
194I	Rent of Land and Building - F&F	1.80 Lakh	10	10
194I	Rent of Plant / Machinery / Equipment	1.80 Lakh	2	2
194IB	Rent by Individual / HUF (wef 01.06.2017)	50000/PM	5	-
194IA	Transfer of certain immovable property other than agriculture land	50 Lakh	1	1
194J	Professional Fees / Technical Fees / etc.	30000	10	10
194J	Payment to Call Centre Operator (wef 01.06.2017)	30000	2	2
194LA	Compensation on transfer of certain immovable property other than agricultural land	2.50 Lakh	10	10
194LA	Immovable Property (TDS exempted under RFCTLARR Act (wef 01.04.2017)	-	-	-
194LB	Income by way of interest from infrastructure debt fund (non-resident)	-	5	5
194LC	Income by way of interest by an Indian specified company to a non-resident / foreign company on foreign currency approved loan / long-term infrastructure bonds from outside India (applicable from July 1, 2012)	-	5	5
194LD	Interest on certain bonds and Govt. Securities (from 01.06.2013)

Section	Nature of Payment	TCS Rate (%)
206C	Scrap	1
206C	Tendu Leaves	5
206C	Timber obtained under a forest lease or other mode	2.5
206C	Any other forest produce not being a timber or tendu leave	2.5
206C	Alcoholic Liquor for human consumption	1
206C	Parking Lot, Toll Plaza, Mining and Quarrying	2
206C	Minerals, being coal or lignite or iron ore (applicable from July 1, 2012)	1
206C	Sale of motor vehicle of the value exceeding Rs. 10 Lacs (wef 01.06.2016) Motor vehicle clause not applicable on Central Government, a State Government, an embassy, a High Commission, Legation, Commission, Consulate and the Trade Representation of a foreign State; Local Authority; a Public Sector Company which is engaged in the business of carrying passengers (wef 01.04.2017)	1

Note TDS deducted in a month is required to be paid before 7th day of next month. While making TDS mention correct section in the challan number 281. For TDS payment use separate challan while making payment for specific type (section). Interest on Late Payment is- 1.5% per month or part thereof, The penalty on Late filing of TDS Return is Rs. 200 per day, however it is limited to the TDS amount.

Download Detailed Table for TDS Rate

Due Date of Payment of TDS & FIling of TDS Return

SL. NO.	PARTICULAR	DUE DATE	TYPE OF EVENT
1	Payment of TDS deducted under various sections of the income tax act	Before 7th day of Next Month	Monthly
2	1st Quarter TDS Return ( 1stApril to 30the June)	31st July 2017	Quarterly
3	2nd Quarter TDS Return(1st July to 30th September)	31st Oct 2017	Quarterly
4	3rd Quarter TDS Return(1st October to 31st December)	31st Jan 2018	Quarterly
5	4th Quarter TDS Return(1st January to 31st March)	31st May 2018	Quarterly

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