Taxation is the primary source of revenue for governments which helps manage their expenses and is used to fund various development programs and to build infrastructure. TDS, short for Tax Deducted at Source, is a deduction from an individual’s income by the employer and deposited with the Income Tax Department on behalf of the individual. The deduction is mandated by the Income Tax Act of 1961 for individuals or organizations with income above a specified threshold.
Staying compliant with TDS regulations is crucial to avoid penalties and legal consequences. All salaried individuals in India are required to adhere to TDS regulations to ensure accurate tax deductions, timely submissions, and proper documentation, fostering financial transparency.
Understanding TDS and its significance
Tax Deducted at Source (TDS) is a tax collection mechanism central to the Indian tax system. It ensures that tax is deducted in advance at the point of origin of income. The primary purpose of TDS is to collect tax at the very source of income, thereby preventing tax evasion and ensuring a regular inflow of revenue for the government.
The Central Board for Direct Taxes (CBDT) oversees the collection of TDS. CBDT, a statutory body, frames policies related to the collection of taxes. CBDT’s responsibilities in TDS administration include formulating guidelines, setting tax rates, and ensuring compliance. It monitors the proper deduction, collection, and remittance of TDS by deductors.
Financial transactions and business activities where TDS is applicable
Some of the common transactions where TDS kicks are the following.
1. Salary: Employers deduct TDS from employee salaries according to their income tax slab.
2. Interest payments: TDS applies to interest payments made by banks, financial institutions, or companies.
3. Rent: Individuals and businesses making rent payments above a specified threshold need to deduct TDS.
4. Winning a lottery: TDS is applied on winnings from lottery, crosswords, or games when the amount exceeds ₹10,000. For instance, winnings from a game show exceeding this threshold will qualify for a 30% TDS deduction.
TDS rates and threshold limits for FY 2023-24
The TDS Rate Chart for the financial year 2023-24. For a more detailed reading, refer to the link from the Income Tax website:
| TDS Section List | Nature of Payment | Threshold (₹) | For Individual / HUF | For Others |
| 192 | Payment made as salaries | ₹2,50,000 | Slab Rates | Slab Rates |
| 192A | Early withdrawal of EPF (Employee Provident Fund) | ₹50,000 | 10% | 10% |
| 193 | Tax deduction at source on interest earned on securities | ₹10,000 | 10% | 10% |
| 194 | Distribution of dividends | ₹5,000 | 10% | 10% |
| 194A | Interest from banks or post offices on deposits | ₹40,000 ₹50,000 (For senior citizens) | 10% | 10% |
| 194A | Interest from sources other than securities | ₹5,000 | 10% | 10% |
| 194B | Winnings of lotteries, puzzles, or games | Aggregate of ₹ 10,000 | 30% | 30% |
| 194BA | Winnings from online games | – | 30% | 30%x` |
| 194BB | Winnings of horse races | ₹10,000 | 30% | 30% |
| 194C | Payments made to contractors or sub-contractors one- time | ₹30,000 | 1% | 2% |
| 194C | Payments made to contractors or sub-contractors on an aggregate basis | ₹1,00,000 | 1% | 2% |
| 194D | Commission paid on insurance sales to domestic companies | ₹15,000 | Not Applicable | 10% |
| 194D | Commission paid on insurance sales to non-domestic companies | ₹15,000 | 5% | Not Applicable |
| 194DA | Maturity of life insurance policy | ₹1,00,000 | 5% | 5% |
| 194EE | Payment received from the National Savings Scheme (NSS) by individuals | ₹2,500 | 10% | 10% |
| 194F | Repurchase of units by UTI (Unit Trust of India) or any mutual fund | No Limit | 20% | 20% |
| 194G | Payments or commissions made on the sale of lottery tickets | ₹15,000 | 5% | 5% |
| 194H | Commission or brokerage fees | ₹15,000 | 5% | 5% |
| 194I | Rent paid for land, buildings, or furniture | ₹2,40,000 | 10% | 10% |
| 194I | Rent paid for plant and machinery | ₹2,40,000 | 2% | 2% |
| 194IA | Payment for the transfer of immovable property excluding agricultural land | ₹50,00,000 | 1% | 1% |
| 194IB | Rent payment made by an individual or HUF not covered under section 194I | ₹50,000 (per month) | 5% | Not Applicable |
| 194IC | Payments made under a Joint Development Agreement (JDA) to individuals or HUF | No Limit | 10% | 10% |
| 194J | Fees paid for professional and technical services | ₹30,000 | 10% | 10% |
| 194J | Royalty paid for the sale, distribution, or exhibition of cinematographic films | ₹30,000 | 2% | 2% |
| 194K | Income received from units of a mutual fund, such as dividends | ₹5,000 | 10% | 10% |
| 194LA | Compensation payment for acquiring certain immovable property | ₹2,50,000 | 10% | 10% |
| 194LB | Interest payment on infrastructure bonds to Non-Resident Indians | Not Applicable | 5% | 5% |
| 194LBA(1) | Distribution of certain income by a business trust to its unit holders | Not Applicable | 10% | 10% |
| 194LD | Interest payment on rupee-denominated bonds, municipal debt security, and government securities | Not Applicable | 5% | 5% |
| 194M | Payments made for contracts, brokerage, commission, or professional fees (excluding sections 194C, 194H, 194J) | ₹50,00,000 | 5% | 5% |
| 194N | Cash withdrawal exceeding a specified amount from the bank, with filed ITR | ₹1,00,00,000 | 2% | 2% |
| 194N | Cash withdrawal from a bank without filing ITR | ₹20,00,000 | 2% | 2% |
| 194O | Amount received for the sale of products/services by e-commerce service providers through digital platforms | ₹5,00,000 | 1% | 1% |
| 194Q | Payments made for the purchase of goods | ₹50,00,000 | 0.10% | 0.10% |
| 194S | TDS on the payment of cryptocurrencies or other virtual assets | Not Applicable | 1% | 1% |
| 206AA | TDS applicable in case of non-availability of PAN | Not Applicable | At a higher rate than: The rate specified by the act 20% The currently applicable rate | At a higher rate than: The rate specified by the act 20% The currently applicable rate |
| 206AB | TDS on non-filers of Income Tax Return | Not Applicable | The higher of: 5% Twice the rate mentioned in the provision The currently applicable rate | The higher of: 5% Twice the rate mentioned in the provision The currently applicable rate |
Source: https://www.hostbooks.com/in/tds-chart-rates/
TDS on Property Purchase – Section 194IA
Section 194IA of the Income Tax Act, 1961, concerns TDS on the purchase of immovable property. The provision applies when an individual, Hindu Undivided Family (HUF), or any other specified person is purchasing property from a resident seller.
- Threshold limit: The buyer is required to deduct TDS at the rate of 1% of the total sale consideration if it exceeds ₹50 lakhs. This threshold applies to the total value of the property, including land and buildings.
- Applicability: TDS on property purchase applies to residential and commercial properties.
- Buyer’s responsibility: The responsibility for deducting TDS is with the buyer, and not the seller. Failing to fulfill this obligation can lead to penalties imposed by tax authorities. It is the responsibility of the buyers to complete Form No. 26QB to facilitate TDS crediting.
- Form 26QB: The buyer is required to file Form 26QB online on the TRACES website (TDS Reconciliation Analysis and Correction Enabling System) within 30 days from the end of the month in which TDS was deducted. The form includes details such as the PAN of the buyer and seller, property details, and TDS amount.
- TDS Payment: After filing Form 26QB, the buyer needs to make the TDS payment online. The payment can be made through net banking. Once the payment is successful, the buyer should download the TDS certificate from the TRACES website.
- TAN requirement: The property buyer is not required to acquire a TAN (Tax Deduction Account Number) for submitting TDS to the government. The payment can be made using their PAN.
- Penalties for non-compliance: Failure to deduct or remit TDS within the specified timelines can lead to penalties and payment of interest on dues.
A step-by-step guide to making TDS online payment
The payment of TDS can be made online by following the steps below:
Step 1: Go to the income tax official website.
Step 2: Click on ‘e-pay tax’ on the left side of the page.
Step 3: It will direct you to a separate page. Here, fill in your ‘PAN / TAN’ and ‘Mobile Number’ and ‘Continue’.
Step 4: Next, enter the ‘OTP’ received on your registered mobile number.
Step 5: Once successfully verified, the taxpayer’s full name will appear on the screen.
Step 6: Select the ‘Assessment Year (AY)’ and click on ‘Proceed’ under ‘Pay TDS’ tab.
Step 7: Add all necessary details related to ‘Nature of Payment’, ‘Tax Break up’, ‘Payment mode’
Step 8: Select the bank through which you want to make the payment. It will redirect you to the net banking website of the bank.
Step 9: Log in to your internet banking profile and make TDS payment.
Step 10: Once the payment is successful, a counterfoil challan will be generated which will have the Corporate Identity Number (CIN) and other details related to the payment. Download the challan for future reference.
Note: Before proceeding with the TDS online payment, make sure you are registered with the e-filing portal. Here’s how you can get registered:
1. Go to the e-Filing portal and click on the ‘Register’ button on the right side of the Home Page.
2. Choose “Taxpayer,” input your PAN, and click the “Validate” button.
3. Select “Yes” to register as an “Individual Taxpayer.”
4. Provide details like full name, date of birth, and residential status.
5. Fill in mandatory details like phone number, email, and postal address.
6. For residents, a six-digit OTP and email OTP will be sent to your specified mobile number and email. For non-residents, OTP will be sent to the primary email ID.
7. Enter and confirm your password, set a personalized message, and click ‘Register.’ A confirmation email will be sent to you.
Common mistakes to avoid while making TDS payments
Take care to avoid some of the common mistakes listed below while you make TDS payments.
- Selecting the incorrect form: Choosing the correct ITR form is crucial for the successful processing of returns. Incorrect forms may lead to a defect notice, requiring timely rectification.
- Non-updation of TAN: TAN (Tax Deduction and Collection Account Number) must be valid and updated in accordance with TDS CPC. Incorrect or outdated TAN details may result in non-reflection of payment and non-validation by the department.
- Incorrect challan details: Proper entry of date, tax amount, section, and BSR code in TDS challan is crucial to avoid data mismatches, invalid returns, and intimation issues from TRACES.
- Avoid incorrect PAN: Verify deductee PAN before including it in the TDS return to prevent a 20% TDS demand deduction. Incorrect PAN leads to a lack of TDS credit in Form 26AS.
- Incorrect financial/assessment year: Furnish accurate financial and assessment year details to prevent error 2034 and avoid intimation issues from TRACES.
- Incorrect income details: Ensure the TDS deposited matches the specified income, section, and rates to avoid rejection of the return. Revise and refile with correct details if needed.
- Providing incorrect personal details: Furnish accurate details to avoid errors in the TDS return.
Budget 2023 and TDS updates
The key takeaways related to TDS from the Union Budget 2023 are:
- TDS introduced on income from online gaming.
- From April 1st, 2023, non-residents earning income from Indian mutual funds can provide a Tax Residency Certificate to avail TDS benefits as per tax treaty rates, instead of the fixed 20% rate.
- TDS rate reduced to 20% from the maximum marginal rate on PF withdrawal for employees without PAN.
- No TDS exemption on interest from listed debentures; tax must be deducted on specified securities’ interest.
- TDS threshold increased on cash withdrawal by co-operative societies. From 1 April, 2023, tax applies if the withdrawal exceeds ₹3 crore, up from the previous limit of ₹1 crore.
- Cooperative societies will have an increased TDS limit of ₹3 crore for cash withdrawals.
- The minimum threshold for TDS will be eliminated.
- A proposal suggests TDS on net winnings either at withdrawal or at the fiscal year-end.
- Converting gold to electronic gold receipt and vice versa will not incur capital gains.
Conclusion
Compliance with Tax Deducted at Source (TDS) is crucial for all income earners, as it prevents tax evasion by deducting tax at the source. Employers and individuals must pay careful attention to TDS obligations to avoid penalties for non-filing or late filing. Individuals need to provide proper documentation to employers and stay updated on TDS provisions.
Q. Is TAN mandatory for making TDS payments online?
Ans. As per section 203A of the Income Tax Act, 1961 it is compulsory to quote Tax Deduction Account Number (TAN) on all TDS returns, including all TDS payment challans and certificates. The TAN is allotted by the Income Tax Department and can be obtained online by filling out Form 49B.
Q. What if I quoted the wrong TAN unintentionally while making TDS payment?
Ans. Clerical errors while making payments are possible, and hence the tax department allows for corrections to be made to the challan. If the entry is incorrect, the deductee will not be able to claim the credit. Corrections in the challan generated can be made through the TRACES website. Depending on the field that requires correction, either the assessing officer or the bank can authorize it. The Assessing Officer authorizes TAN/PAN corrections.
Q. Can I view the TDS-paid tax challans online?
Ans. Yes, you can view and enquire about challan status online. On the official portal of TIN-NSDL, taxpayers can monitor their challan deposits and verify the details of tax payment made. TDS challan status can be tracked online via TAN view and CIN view. In TAN view, the TAN number serves as the identification number for challan tracking. In the TAN view mode of challan tracking, the information that can be fetched includes the CIN (Challan Identification Number), Minor and Major Head Codes and the mode/nature of the payment. The deductor can view the details by mentioning the TAN, and CTD (Challan Tender Date). In CIN mode, the challan number serves as the identification number.
Q. How can I create a Nil TDS challan?
Ans. To create a NIL TDS challan, the deductor must fill up all amount columns as ‘Zero’ and leave the field containing Cheque/DD number blank.
Q. By when should I deposit the TDS payment online?
Ans. Tax deducted at source must be deposited within the 7th day of the subsequent month of deducting the tax. The only exception is TDS deducted on rent and purchase of property, where the due date is 30 days from the end of the month in which TDS is deducted. For TDS deducted in March, the due date is the 30th of April.
