What is TDS (Tax Deduct at Source)
TDS is the concept developed to ensure tax is collected where the income is generated, which means the source. TDS is deducted for the payment or credit, whichever is earlier, meaning when the person (Deductee) makes the payment or credit in the books, it must be deducted at the rate specified in the Income Tax for the deductor and deposited in the government account.
Where TDS is Deducted
TDS is deducted on the various activities listed in the Income Tax Act but is restricted to services and not applied to purchasing and selling goods. There is a list of activities where the recipient deducts the TDS on the due date.
TDS payments are made on or before the 7th of the subsequent month. The total amount deducted or credited in the books is accumulated and deposited to the Central Government.
TDS Payments are made through two modes:
- Electronic Mode or online TDS payment is mandatory for all corporations and other assesses (other than the company) where the provision of section 44AB of the Income Tax Act 1961 is applicable.
- Others can deposit physically through Challan 281 in the Authorized Bank Branch.
- The TDS payment website is https://eportal.incometax.gov.in/iec/foservices/#/e-pay-tax-prelogin/user-details and is used to make TDS payments online.
- The income tax portal allows section-wise payments that can be done online. If a higher amount is paid in one section, an offset is possible in the current and the future with different sections.
- The lower TDS rate cannot be adjusted against the higher interest rate section. But vice versa can be done.
Interest Provisions Under Tax Deduct At Source
- Interest for Late Filing of TDS Return: There is no interest for late filing of TDS returns, but Rs 200 per day from the due date of filing the return is charged under section 234E.
- Incorrect information furnished: In cases where PAN or other information is incorrectly given in the return, a penalty of Rs. 10,000 shall be charged U/s 271H.
- Interest on Late Deduction: Credit in the books or payment earlier is deducting the TDS; if the company fails to do so, a 1% monthly interest shall be charged when the TDS becomes deductible under section 201A.
- Interest on Late payment: The amount deducted and not paid is the case where the amount is not deposited to the Central Government; in such a case, it is 1.5% monthly. Unlike other scenarios here, the month is considered even one day default. If the amount is not paid by the due date of the 7th, the entire month’s interest is applicable. If the amount is spent on the 2nd of the subsequent month, the whole month’s interest is also applied to the next month.
Due date of filing of TDS Returns
- Three types of returns are filed:
- 24 Q, and this is filed for Tax deductions made for salaries paid to the employees
- 26 Q, and this is filed for Tax deductions made for vendor payments
- 27 Q is for the deduction made for the NRI/NRE
The due date of filing of TDS Returns are:
Form 24 Q, 26 Q, 27 Q
April to June
31st of July
July to September
31st of October
October to December
31st of January
January to March
31st of May
Details included in Filing TDS Returns:
- A challan is generated by each company’s unique income tax portal based on their TAN number and the section where the payment is made.
- For all the deductees, PAN is compulsory, or 20% of the amount is applicable.
- Details of the party for whom the amount is deducted, like if rent is deducted u/s 194 I, then the PAN number of the Landlord and name of the person is required in the return.
Generation of Form 16 after the year closure:
Once the TDS Payment status is checked and completed for all the months, and the TDS Quarterly returns are filed, it is time to issue Form 16 to the Deductees. Though all the Deductees get the credit reflected in the Traces, Form 16 is issued quarterly and shared with them if required.
- Login to the company (deductor) Traces account
- Choose the download option
- Select Form 16 from the option
- Select single or bulk PAN for the download option
- Choose the Financial Year and Section in which the download is happening, along with the quarter or year for the download.
- Download the HTTP document from the Traces
- Download the Traces Utility and complete the information required.
- Attached is the DSC of the authorized person in the downloaded Utility
- Upload the HTTP file in the Utility
- Now you can download the Form 16.
To ensure that your hard-earned business money is not wasted, it is essential that you correctly decide the applicability of the TDS rate, timely payment, and timely return filing. CFO Angle is a company with trained and experienced professionals who help ensure TDS compliance completion.
- Can I deduct a lower TDS?
If the deductee has taken exemption under a specific condition where the Income Tax Department on the application submitted for Lower TDS has accepted such deduction, then on furnishing this certification, the deductor should deduct on the lower rate.
- If the deductor does not deduct TDS on time, will a deductee be penalized?
The deductor is responsible for depositing the deduction on time to avoid a penalty. Any delay will lead him only to pay the penalty and interest and not the deductee.
- If the deductor makes an interest payment on a late payment, does the deductee get the interest?
No, the interest paid is the income of Central Government of India and no benefit is passed on to the deductee.
- Will a Foreign National be exempt from charging TDS?
No Foreign Nationals are exempt from getting taxed in India for the income earned in India. Based on the category and section, the same is deducted and deposited.
- Will a Foreign National get credit for the taxes paid in India?
If there is a DTAA (Direct Tax Avoidance Agreement) between India and the Foreign National Resident Country, then, on submitting proof of the country residence certificate, a lower tax rate can be approved by the Assessing Officer.