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TDS is an abbreviation of Tax Deducted at Source which is also known as withholding tax. There are some identified expenses / payments against which government has prescribed a specific rate of deduction. While making payment to parties the deductor is required to deduct tax at source, pay the collected tax to the credit of government, file quarterly TDS Return and issue a statement of TDS deducted and deposited in form no 16 or 16 A as the case may be. The provisions of TDS are very stringent and any non compliance have serious consequences. It is always good to comply law as the cost of compliance is always low in comparison to penalty which a defaulter is required to pay.

Key Points on TDS

  • TDS is to be deducted at the time of making payment
  • 7th day of next month is the last date of TDS Payment
  • TDS needs to be deducted at double rate if deductee does not have PAN number
  • Section under which TDS is deducted must be mentioned in the TDS challan
  • The Form 16/ 16A must be issued within 30 days of filing the TDS Return.

Payment of TDS deducted : The due date for deposit of TDS deducted from parties is 7th of next month. The TDS payment can be made through online banking, by cheque or cash by presenting the challan at designated banks. The challan contains date of deposit, BSR Code of the collecting banker, Serial Number of transaction and the amount deposited. The challan also mentions the section under which the TDS is being deducted and the assessment year for which the TDS is being deposited.

Filing of TDS Return : Every deductor who have been applied a TAN number shall file quarterly return of TDS. In case there is NIL deduction then a declaration need to be filed. The deductors shall obtain pan number of deductee and file the TDS Return clearly specifying the amount which was deducted against a particular PAN Number. The TDS return is a quarterly exercise and is of two type, viz one for deductions while making payment of Salary. while other is for all other cases.

Consequence of Non Compliance: The NON Compliance of TDS provisions is a very serious offence and is punishable under section 271 (c ) of the Income Tax Act 1962, where minimum penalty is 10,000 which can go up to Rs. 1,00,000/-. Section 276B applies to all cases where willful default is established and the punishment is severe in nature, its minimum 3 Years rigorous imprisonment which can go upto 7 years. However, if sufficient cause is shown to the satisfaction of commissioner of Income Tax the penalty can be waived.

Interest on Non Deduction of TDS : A deductor 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 businessman must be very careful while making payment to parties and ensure that TDS is being deducted from all such payments at the prescribed rates.

Interest on NON Payment of TDS : The TDS deducted while making payment or otherwise shall be deposited before 7th day of succeeding month. any failure on deposit of TDS is a serious offence and the business man not only punishable under section 271 C or / and Section 276B he is also 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.

Other Consequences of Default on TDS :The expenses on which TDS was supposed to be deducted shall be disallowed as an expense under section 40(a) while computing the taxable income. Each deductor is required to obtain a TAN number which need to be quoted on all TDS payment Challans, on Form 16 /16 A. The late filing of TDS Return attracts a penalty of Rs. 200 per day till the day default continues. The punishment can be upto Rs. 100,000/- In case the return is filed beyond 1 years from the due date.

TDS Rate Chart:

TDS is applicable to any person, other than an individual or a HUF not subject to audit under section 44AB in the immediately preceding year.

Section Description Threshold Amount (Rs.) Rate %
192B** Salary providing Deductions ofChapter VI A As per Normal Slab Rates after
(Other than Government Employee) 192B** Salary providing Deductions ofChapter VI A
194A nterest by bank/co op society/ post office 10,000 10%
194A Interest by others 5,000 10%
194C Payment to contractor/subcontractor/ Advertisement/ Transporter - Single Transaction 30,000 2%*
194C Payment to contractor/subcontractor/ Advertisement/ Transporter - Aggregate during FY 75,000 2%*
194C Payment to contractor/subcontractor/ Advertisement/ Transporter - Transporter owning ten or less than ten goods carriage with PAN TDS not applicable NA
194D Insurance commission 20,000 0%
194H Commission/ brokerage 5,000 10%
194I RENT - Plant & Machinery, Equipment 1,80,000 2%
194I RENT - Land & Build., Furniture & Fixture 1,80,000 10%
194J Professional fees/Royalties/Technical Fees 30,000 10%
194J Directors Remuneration NIL 10%
194LA Compensation on acquisition of immovable property (other than agricultural land) 2,00,000 10%
194IA Purchase of Immovable Properties (other than 50,00,000 (from 1.6.13) 1%
agriculture land)
* 1% TDS shall be deducted in case of an individual / HUF.
** Person responsible for making payment for> calculation of TDS required to obtain the evidence
or proof or particulars of prescribed claims (including claims of set-off of loss) from deductee.
# TAN is not compulsory for deductions u/s 194IA
Note : If No PAN or invalid PAN, TDS rate is 20%. Declaration of Non Filing of TDS statement is
mandatory in case of NIL TDS Returns.