Tax deduction at source
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Tax deduction at source (TDS) in India is a means of collecting tax on income, dividends or asset sales, by requiring the payer (or legal intermediary) to deduct tax due before paying the balance to the payee (and the tax to the revenue authority).
Under the Indian Income Tax Act of 1961, income tax must be deducted at source as per the provisions of the Income Tax Act, 1961. Any payment covered under these provisions shall be paid after deducting a prescribed percentage of income tax. It is managed by the [Central Board for Direct Taxes] (CBDT) and is part of the Department of Revenue managed by Indian Revenue Service. It has a great importance while conducting tax audits. 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.
Objectives of income tax deducted at source
- To enable the salaried people to pay the tax as they earn every month. This helps the salaried persons in paying the tax in easy installments and avoids the burden of a lump sum payment.
- To collect the tax at the time of payment of income to various assesses such as contractors, professionals etc.
- Government requires funds throughout the year. Hence, advance tax and tax deducted at source help the government to get funds throughout the year and run the government well
TDS on dividends
Section 302 of India's Income Tax Act 1961 by-law notes.
- Prior to the Budget 2020 dividend income was exempt from tax in the hands of the shareholder. But Since Budget 2020, any Dividend Income in excess of INR 5000 is liable for TDS @ 10% u/s 194.
- TDS provisions under this section are attracted only in respect of deemed dividend u/s 2(22)(e), If such dividend exceeds 2500 in year.
- Rate of deduction of tax in respect of such dividend is 1%.
- Provisions will not apply to dividend receivable by SADHA, GIC(General Insurance Corporation), its subsidiaries or any other insurer provided shares are owned by it or in which it has full beneficial interest :] [Provided also that no such deduction shall be made in respect of any dividends referred to in section 115-O.]
- Higher TDS rates for non files of income tax returns
TDS on immovable property
- This provision is applicable in respect of transactions effected on or after June 1, 2013
- It seeks deduction of tax at source on transfer of certain immovable property other than agricultural land to a resident transferor.
- Any person being a transferee who is liable to Pay to a resident by way of consideration for transfer of any immovable property exceeding 50 Lakhs shall at the time of credit of such sum to the account of the transferor or at the time of payment in whatever manner, has to deduct tax at source at 1% only
This TDS on property is required to be deposited in 30 days from the end of the month in which deduction is made for all payments to be made on or after 1 June 2016.
2. Section 194IB of Income Tax Act,1961
- This provision is applicable in respect of transactions effected on or after June 1, 2017
- It seeks deduction of tax at source on payment of rent exceeding Rs. 50,000 in a month by an individual or HUF to a resident landlord.
- TDS shall be deducted @ 5% at the time of credit of rent for the last month of the previous year or the last month of tenancy, if the property is vacated during the year, as the case may be.
3. Section 194C of Income Tax Act,1961 
- Tax need to be deducted 1% (for individual, HUF)/ 2% (for others) of payment where payment is made for carrying out any work (including supply of labour for carrying out any work and advertisements) by a contractor/sub-contractor.
- Such work must be in pursuance of a contract (including sub contract) between the contractor and payer.
- TDS is to be made at the time of credit to the account of contractor or at the time of payment in cash or by cheque or draft or by any other mode whichever is earlier.
- No TDS shall be deducted if the single time payment to contractor does not exceed RS. 35000 or Rs. 1,00,000 in aggregate during the year.
- TDS Can be deducted when the date of actual payment of cash or the date of crediting the sum to the payees account or the date of issue of cheque, draft or by any other mode, whichever is earlier.
- Every affordable housing scheme gets extended for one more year till 31st March 2022.
A deductor is required to issue a TDS certificate called form 16 for salaried employees and form 16A for non-salaried employees within a specified time. Form 16D is a TDS Certificate issued for payment of a commission, brokerage, contractual fee, the professional fee under section 194M by the payer. Under Section 194M if the payments to resident contractors and professionals exceeding INR 50,00,000 during the Financial Year, the payer/deductor has to deduct tax at the rate of 5% from the sum payable to a resident payee/deductee.
Deductor has to issue TDS Certificates within two months of the next financial year.
There are two types of major forms under TDS namely:
Form 16: Form 16 is a certificate where the employer declares details about the salary an employee earned during the year and details of deducted TDS. Form 16 has two parts Part A and Part B. Part A consists of employer and employee details, which includes name, address, PAN, TAN details, employment period, and details of TDS deducted & deposited with the government. Part B includes salary, incomes, deductions, and tax payable details etc.
Form 16A: Form 16A is also a TDS Certificate but it is applicable for TDS on Income other than Salary. This certificate features details such as name and address of deductor or deductee, PAN/TAN details, challan details of TDS deposited, income, TDS deducted and deposited on such income. Details from Form 16A will be fetched on Form 26AS.
Impact of non-compliance to TDS
Income Tax Act, 1961
- Disallowance u/s. 40(a) (ia) of Income Tax Act, 1962 (Act)
- Raising of demand u/s. 201(1) of the Act
- Charging of Interest u/s (1A) of the Act
- Levying penalty u/s. 271C of the Act
- "TDS on Immovable Property". TopCAfirms.
- "Time to Deposit TDS on Property". www.taxheal.com. Retrieved 3 May 2016.
- "TDS on Contractor". Top CA firms. Retrieved 28 December 2013.
- TDS Certificates
- "Non-compliance with TDS provisions". TopCAfirms. Retrieved 4 December 2013.