Tax Deductio D eduction n At Source (TDS) (T DS) Nothing is as tangled and knotty as the TDS provisons. While some TDS rates are specified in the individual section which deal with the tax treatment of the particular stream of income, some rates are included as part of a separate schedule. To make matters worse, these rates get tampered and modified every year. This result in so much chaos and confusion, that sometimes those who have to apply TDS, do not have a clue about what rate to use. Imagine the plight of tax payer. The genasis of the problem lies in the complicated nature of the tax laws. The authorities complain that less than 2% of our population actually pays taxes. However, simpliflying the provisions is not viewed as a possible solution. On the other hand, in an effort to bring more and more people into the tax net, the lawmakers simply endup complicating the law. And the rule is simple more the complexity more the room. TDS is final tax payable- at the time of filling his returns, the assessee pays the balance if any or asks for refund, as the case maybe. Ergo, it behooves the Department to have a standard uniform rate -convenient both for itself as well as the taxpayers. The most unfortunate part is that we could have easily done away with any TDS provided the deparrtment had good infrastructure to apprehend assessees avoiding tax only through TDS.
Types Of Payment, Relevant Provisions, Person Responsible For Deduction Of Tax And Type Of Payee S Nature of Payment No
Person Responsible for deduction of tax at source
TDS necessary when payment is made to
All Governments, Companies, Co operartive Salary and all positive incomes societies, Local authorities, under any head on income but not University, Institutions, 1. including loss under the head Associations or Body , income under the House property Trustees of a recognized (Sec 192) Provident Fund or Superannuation Fund
Any individual having taxable salary during the previous year from any number of employers
2. Interest on Securities (Sec 193)
Any person
Any person
3. Divi Divide dend nd from from Dom Domes esti ticc Principal Officer of a Companies or companies which Domestic Company. have made prescribed arrangement for declaration/payment of dividend within India (Excluded
A resident shareholder when total dividend paid exceeds Rs
from TDS w.e.f. 1.6.97 by Finance Act, 97) (Sec 194)
2,500/-
4.
Interest other than interest on securities (Sec 194A)
Any person other than individual or HUF
A resident
5.
Winnings from Lottery or crossword puzzles (Sec 194B)
Any person
Any person
Winnings from horse races (Sec 194BB)
Book maker or person holding a licence for horse Any person racing, wagering or betting in any race course
6.
Central, State Government, local authority; Central, State or provincial Corporation; Company ; Co-operative i. Payment to Contractors in Society; trust; University; a pursuance of any work of contract Any resident constituted authority engaged including supply of labour contract person in housing and planning & 7. (Sec 194C) development of Cities,Towns and Villages; and firm (firm included w.e.f. 1.7.95 vide Finance Act, 1995) ii. Payment to sub-contractors (Sec Any Contractor other than 194C) individual or HUF
Any resident person
Insurance Commission covering all Any person responsible for 8. payments for procuring Insurance payment business(Sec 194D)
A resident
Payment to non-resident sportsman (including athlete) or sports association or institution. In case of non-resident sportsman, it includes Any person responsible for 9. payments in respect of payment advertisements as well as articles on any game or sports in India in newspapers, magazines etc. (194E)
Any nonresident sportsman who is not a citizen of India and any non-resident sports association or institution
10.
Payments in respect of deposits under NSS (194EE)
Person responsible for Any person making payment in respect of except when the amount referred to in Section payment is made 80CCA (2)(a). to the heirs.
Person responsible for Payment on account of repurchase making payment in respect of 11. of Units by Mutual Fund or UTI Any person amount referred to in Section (194F) 80CCB (2). 12. Commissio Commission n to Stockists, Stockists, Person responsible for distributors, buyers and sellers of making payment to such Lottery tickets including agent remuneration or prize on such
Any person
tickets (sec 194G) 13. 13. Comm Commis issi sion on bro broke kerag ragee (sec (sec 194H 194H)) Not Not appli applica cabl blee w.e.f w.e.f.. 1.6.9 1.6.92 2
-
14. Payment Payment of rent (sec (sec 194I) 194I)
Any person responsible for making payment excluding individual & HUF.
Any person
Fees for professional & technical services; professional services include legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, advertising & any profession 15. notified under Section 44AA ; Technical fees mean any consideration for rendering any managerial , technical or Consultancy service including provision of services of technical or other personnel(sec 194J)
Any person responsible for making payment except an individual & HUF.
A resident.
Rates For TDS In India. During the Financial Year 1998-1999 Tax is to be Deducted by the peerson responsible for making the necessary payments at following Rates. A. B. C. D. E.
Salary to an employee. employee. In the case of payment to a resident other than a company . In the case of payments to a domestic company. company . In the case of payment to a non-resident other than a company . In the case of payments to a non-domestic company. company .
Nature of payment
A. Salary to an employee
Rate of deduction of tax(as Surcha Sur charge rge Total Total percentage of payment made)
At regular tax rates in force See sub-module Tax Rates Top
B. In the case of payment to a resident other than a company: 1.interest other than interest on securities
10
1
11
2.winning from lotteries and crossword puzzles
40
4
44
3.winning from horse races
40
4
44
4.insurance commission
10
1
11
5.interest on debentures or securities other than a security of the Central or a State Government for money issued by or on behalf of a local authority or a statutory corporation or listed debentures of a company
10
1
11
6.rent to an individual or a Hindu undivided family
1.5
1.5
16.5
7.rent to a person other than an individual or a Hindu undivided family
20
2
22
8.payment in respect of deposit under National Savings Scheme, 1987
20
2
22
9.payment on account of repurchase of units by Mutual Fund of UTI [section 80CCB(2)
20
2
22
10.commission on sale of lottery tickets
10
1
11
11.payment to contractor ( in the case of advertising contracts : 1 per cent)
1
0.1
1.1
11A. Payment to a contractor other than an advertising contract
2
0.2
2.2
12.payment to sub contractor
1
0.1
1.1
13.fees for professional or technical services
5
0.5
5.5
14. Payment exceeding Rs. One lakh of compensation/consideration or enhanced compensation/consideration on account of compulsory acquisition of any capital asset (applicable upto May 31st 2000)
10
1
11
15.any other income
20
2
22 Top
C. In the case of payments to a domestic company: 1.interest other than interest on securities
20
2
22
2.winning from lotteries and crossword puzzles
40
4
44
3.winning from horse races
40
4
44
4.commission on sale of lottery tickets
10
1
11
5.payments to a contractor ( in the case of advertising contracts : 1 per cent)
1
0.1
1.1
5A. Payment to a contractor other than an advertising contract
20
0.2
20.2
6.payments to sub-contractor
1
7.rent
20
2
22 22
8.fees for professional or technical services
5
5
0.5
10
1
11
9 Payment exceeding Rs. One lakh of
compensation/consideration or enhanced compensation/consideration on account of compulsory acquisition of any capital asset (applicable upto May 31st 2000) 10.any other income
20
2
22 Top
D. In the case of payment to a non-resident other than a company 1.income from foreign exchange assets payable to an Indian citizen
20
2
22
2.income by way of long-term capital gains referred to in section 115E
10
1
11
3.income by way of interest payable by Government/Indian concern on money borrowed or debt incurred by Government or Indian concern in foreign currency
20
2
22
4.rent to an individual or a Hindu Undivided Family
15
-
15
5.rent to a person other than an individual or a Hindu Undivided Family
20
-
20
6.winnings from lotteries and crossword puzzles
40
4
44
7.winnings from horse races
40
4
44
8.payments referred to in section 115BBA
10
-
10
9.payments in respect of National Savings Scheme, 1987
20
-
20
10.payments on account of repurchase of units by Mutual Fund/UTI [section 80CCB(2)]
20
-
20
11.income by way of interest/dividends [not being dividends referred in section 115-O] payable in respect of bonds/shares referred to in section 115AC or by way of long-term capital gain arising from transfer of such bonds
10
-
10
12.commission on sale of lottery tickets
10
-
10
13.income in respect of units referred to in section 115AD(1)(a) payable to foreign Institutional Investor (other than capital gain)
20
-
20
14.income by way of long-term capital gain
20
2
22
16.any other income [see Note 2]
30* Top
E. In the case of payments to a non-domestic company 1.winning from lotteries and crossword puzzles
40
-
40
2.winnings from horse races
40
-
40
3.interest payable by Government or an Indian
20
-
20
concern on money borrowed or debt incurred in foreign currency 4.royalty payable by Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern after March 31, 1976, where such royalty is in consideration for the transfer of all or any rights ( including the granting of a licence) in respect of copyright in any book on a subject referred to in the first proviso to sub-section (1A) of section 115A of the Act, to the Indian concern or in respect of computer software referred to in the second proviso to section 115A(1A), to a person resident in India :--where the agreement is made before June 1, 1997
30
-
30
--where the agreement is made after May 31, 1997
20
-
20
--where the agreement is made after March 31, 1961 but before April 1, 1976
50
-
50
--where the agreement is made after March 31, 1976 but before June 1, 1997
30
-
30
--where the agreement is made after May 31, 1997
20
-
20
--where the agreement is made after February 29, 1964 but before April 1976
50
-
50
--where the agreement is made after March 31, 1976 but before June 1, 1997
30
-
30
--where the agreement is made after May 31, 1997
20
-
20
7.rent
20
-
20
8.long-term capital gains
20
-
20
9.payments referred to in section 115BBA
10
-
10
5.royalty [not being royalty of the nature referred to in (d) supra] payable by Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern and where such agreement is with an Indian concern, the agreement is approved by the Central Government or where it relates to matter included in the industrial policy, the agreement is in accordance with that policy:-
6.fees for technical services payable by Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern and where such agreement is with an Indian concern, the agreement is approved by the Central Government or where it relates to matter included in the industrial policy, the agreement is in accordance with that policy
10.commission on sale of lottery tickets
10
-
10
11.payments to overseas financial corporation covered by section 115AB or by long-term capital gains arising from transfer of such units
10
-
10
12.income by way of interest/dividend [not being dividend referred in section 115-O] in respect of bonds/shares referred to in section 115AC or by way of long-term capital gain arising from transfer of such bonds
10
-
10
13.income (other than capital gain) in respect of units referred to in section 115AD(1)(a) payable to Foreign Institutional Investor
20
-
20
14.on any other income
48
-
48
Annual Returns to be filed - Section 206 read with Rule 37 S No
Nature of payment
Form No.
Section
Due date of filing in the next financial year
Payment of salary
24
Section 192
31st May
Interest on securities
25
Section 193
30th June
2.
Payment of dividend or income in 26 respect of Units u/s194K
Section 194 Section 194K
30th April
3.
Interest other than Interest on securities
26A
Section 194A
30th June
Winning from lotteries
26B
Section 194B
31st May
Winning from horse races
26BB
Section 194BB
-do-
4.
Payment to Contractors & SubContractors
26C
Section 194C
30th June
5.
Insurance Commission
26D
Section 194D
-do-
Insurance Commission 6. paid/credited without deduction of 26E tax
Section 206
Ommited w.e.f. 19.3.1997
7.
Section
30th June
1.
Payments fro from deposits under
26F
NSS
194EE
8.
Payments on account of repurchase of Units
26G
Section 194F
-do-
9.
Payments regarding Commission on sale of lottery tickets
26H
Section 194 G
-do-
26J
Section 194I
-do-
26K
Section 194J
-do-
11. Payment of rent 12.
Payment of Professional fees or technical fees
TAN (T (Tax ax Deduction Deduction Account Number) [Section 203A] Every person deducting tax in accordance with the provisions of sections 192 to 194, section 194A, section 194B, section 194BB, section 194C, section 194D, section 194E, section 194EE, section 194F, section 194G, section 194H, section 194I, section 194J, section 194K, section195, section 196A, section 196B, section 196C and 196D, if he has not been allotted any tax deduction account number, shall, within such time as prescribed under Rule 114A of the Income Tax Rules, 1962, apply in Form No. 49B to the Assessing Officer for the allottement of Tax Deduction Account Number. This number is known as TAN and has to be quoted in all TDS challans, TDS Returns and in all certificates issued pertaining to TDS.
How To To Deposit Deposit In TDS Challan in which payment is to be made to Govt. Account Sr. Challan No No
Nature of payment
1.
Challan No 9-ITNS 191
2.
Where tax is deducted Challan No 8-ITNS 39/ at source (other than ITNS salaries) on payment 271(Computerised) made to persons other than Companies.
3. Chall hallan an No 2-IT 2-ITN NS 39A/ ITNS 269(Computerised)
Where tax is deducted from salaries
Where tax is deducted at source from payments made to
Companies. Important points to be kept in mind while filling the Challan :
In case of TDS pertaining to item other than salaries, the deductor must indicate the nature of payment by ticking the relevant item. Two counterfoils will be returned by the bank- 4th counterfoil is required to be attached with the return of income and 3rd counterfoil is required to be retained by the deductor for his record as indicated on the top of the challan.
Exemption From TDS India Circumstances in which tax is not to be deducted at source or is to be deducted at a lower rate : Form No in which S.No Type of Income Income application to be made
Certificate to be issued by Period of the Assessing validity Officer
1.
Salary (sec192)
Valid for the Form No period specified 15AA (see in the certificate rule 28AA). (see Rule Form No 13 The certificate 28AA) Fresh (see rule 28) is issued to the application deductor under required after advice to the expiry of applicant validity period.
2.
Interest on securities (Section 193)
-do-
-do-
-do-
3.
Interest other than interest on Securities (Section 194A)
-do-
-do-
-do-
4.
Insurance Commission (Section 194D)
-do-
-do-
-do-
5.
Rental Income (Section 194I)
-do-
-do-
-do-
6.
Income in respect of Units -do(Section 194K)
-do-
-do-
7.
Payment to nonresidents -do(Section 195)
-do-
-do-
8.
No prescribed form. The Payment to certificate can Contractors or Form No.13C For the relevant be issued by Sub-Contractors (See Rule 28) FY. the Assessing (Section (194) Officer on a plain paper
9.
Commission on sale of lottery tickets (sec 194G)
Form No 13D (applies to lottery agents -doand not prize winners)
-do-
10.
Payment of fees for professional or technical Form No 13E -d -doservices (sec 194J)
-do-
11.
Payment to nonFor the FY resident banking Form No 15C Form No 15E specified in the company (sec (see rule 29B) certificate 195(3))
Payment to nonresident company carrying on business or profession in Form No 15D 12. -doIndia through a (see rule 29B) branch (not being interest or dividend)-sec 195(3)
For the relevant FY
Types of income/payment where the above benefit is not available under the Act :
1. 2. 3. 4. 5.
Winning Winning from from Lottery Lottery or or Crosswor Crossword d puzzles puzzles Section Section 194B Winnin Winning g from from horse horse race race Sect Section ion 194B 194BB B Payments Payments to non-residen non-residentt Sportsmen Sportsmen or Associati Association on Section Section 194E 194E Payments Payments in in respect respect of of NSS NSS deposit depositss Section Section 194EE 194EE Payments Payments on account account of of repurchase repurchase of units units issued issued by by Mutual Mutual funds funds Section Section 194F 6. Income Income in respect of units units of non-resid non-residents, ents, Off-shor Off-shoree Funds;forei Funds;foreign gn currency currency bonds; (FIIs) Section 196A,196B, 196C & 196D
TDS Exemption For Individuals The Act , vide Sec 197A, for the convenience of an individual payee, allows the benefit of non-deduction of tax at source on filing of declaration in the prescribed form with the payer. The details are given below (Sec 197A read with Rule 29C. Also see Circular No.351 dated 26.11.82) Types of Prescribed form S.No Income (in duplicate)
Payee who Period of can file validity declaration
1.
Form No 15F in duplicate. One copy to be sent by the Interest on By an Payer to Chief securities individual Commissioner/ Section resident in Commissioner 193 India. within seven days of the succeeding month.
Declaration valid for one previous year.
2.
Interest other than interest on Form No.15H securities Section 194A.
-do-
Any payee other than -doCompany or firm.
3.
Payment of NSS deposit – Form No.15I section 194EE
-do-
Any individual resident in India
4.
Income in respect of Form No 15H Units Sec 194K
-do-
Any payee other than a -docompany or a firm
-do-
Certificate Of Deduction In India 1. Sala Salary ry (sec (sec 192) 192) : Form No.16 (Rule 31 (1)(a). The certificate should be issued by the deductor within one month of the close of the financial year in which deduction is made. 2. In all all oth other er cas cases es : Form No 16A (Rule 31(1)(b)). 1. General time limit limit for issuin issuing g certificates certificates in in all other other cases cases is within within one month from the end of the month during which the credit is given or sum paid. 2. Rule 31(3), 31(3), first first proviso, proviso, gives gives further further option option to the the payer payer to issue issue certificate within one week after the expiry of two months from the month in which income is credited. This option is available where the amount is credited to the account of the payee on the last day of the accounting period of the payer. This option is available in respect of payments except sec 192-salary, 194B-winning from lotterie s, 194BBwinning from horse races, 194EE-payments from NSS deposits, 194F payments in respect of repurchase of units, 194K-income in respect of units. 3. Where paymen paymentt in respect respect of of TDS is is permitted permitted quarterly quarterly under rule 30(1) i.e. income from interest, insurance commission, the certificate is to be issued within 14 days of the payment of Income Tax. Note : Where more than one certificate certificate is required to be furnished to the payee during the financial year, then on the request of the payee, one consolidated certificate may be issued within one month from the end of such financial year vide new proviso to Rule 30 inserted vide notification dated 2.7.1996
Deduction of Tax at Source in the case of Non-Residents and No Objection Certificate for Foreign Remittance (Sec. 195) 1. Any person person respons responsible ible for paying paying to to a non-reside non-resident, nt, not being being a company company,, or to a foreign company, any interest (not being interest on securities) or any other sum chargeable under the provisions of this Act (not being income chargeable under the head ''Salaries'' ) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force: Provided that in the case of interest payable by the Government or a public sector bank within the meaning of clause (23D) of section 10 or a public financial institution within the meaning of that clause, deduction of tax shall be made only at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode. 2. Where the the person responsibl responsiblee for paying paying any such such sum sum chargeable chargeable under under this Act (other than interest on securities and salary) to a non-resident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application to the Assessing Officer to determine, by general or special order, the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted under subsection (1) only on that proportion of the sum which is so chargeable. 3. Subject Subject to rules made under under sub-secti sub-section on (5) of Sec.195 Sec.195 , any person person entitled entitled to receive any interest or other sum on which income-tax has to be deducted under sub-section (1) may made an application in the prescribed form to the Assessing Officer for the grand of a certificate authorising him to receive such interest or other sum without deduction of tax under that sub-section, and where any such certificate is granted, every person responsible for paying such interest or other sum to the person to whom such certificate is granted shall, so long as the certificate is in force, make payment of such interest or other sum without deducting tax thereon under sub-section (1). 4. A certificate certificate granted granted under under sub-sectio sub-section n (3) of Sec.195 Sec.195 shall remain remain in force force till the expiry of the period specified therein or, if it is cancelled by the Assessing Officer before the expiry of such period, till such cancellation.
Special Cases In TDS 1. Return regarding regarding deducti deduction on of tax tax from non-reside non-residents nts – – Rule 37A: Returns in respect of T.D.S. under Section 193, 194, 194E, 195,196A,196B,196C 195,196A,196B,196C & 196D from any payment made to a non resident or to a resident but not ordinarily resident assessee (not being a company) or from any company which is neither a Indian Company nor a company which has made the prescribed arrangement for the declaration of and payment of dividend within India have to be filed within14 days from the end of the quarter in Form No 27 to the designated officer as per Rule 36 A. However, where T.D.S. is pertaining to interest on securities under Sec.193, or payment to non-resident sportsmen or sports associations under Sec.194E, or of interest or any other sum referred to in Sec.195, or income from units of UTI to a non resident Indian or a non resident HUF where the assets were acquired out of funds from a NR(E) account or by remittance of foreign currency as referred to in Section 196A(2) , or income from units referred to in section 196B, or income from foreign currency bonds or shares of an Indian Company referred to in Section 196C at the income of FIIs from securities referred in Section 196D then the return is to be filed in Form No. 27 within 14 days after the expiry of two months from the month in which the income was so credited. 2. Return of of deduction deduction of tax tax from contribu contribution tion paid paid by Trustees Trustees of approv approved ed Superannuation Fund-Rule 33: Return to be filed in Form No 22 within 2 months from the end of the financial year.
