Question. What is Tax Deducted at Source?
Answer. For quick and efficient collection of taxes, the Income-tax Law has incorporated a system of deduction of tax at the point of generation of income. This system is called as “Tax Deducted at Source”, commonly known as TDS. Under this system tax is deducted at the origin of the income. Tax is deducted by the payer and is remitted to the Government by the payer on behalf of the payee. The provisions of deduction of tax at source are applicable to several payments such as salary, interest, commission, brokerage, professional fees, royalty, contract payments, etc. In respect of payments to which the TDS provisions apply, the payer has to deduct tax at source on the payments made by him and he has to deposit the tax deducted by him to the credit of the Government.
Question. What are the payments covered under the TDS mechanism and the rates for deduction of Tax at Source?
Answer. Tax is deductible at source at the rates given in table (infra). If PAN of the deductee is not intimated to the deductor, tax will be deducted at source by virtue of section 206AA either at the rate given in the table or at the rate or rates in force or at the rate of 20 per cent, whichever is higher. Further, under section 94A(5), if payment or credit is made or given to a deductee who is located in a notified jurisdictional area, tax is deductible at the rate given in the table or at the rate of 30 per cent, whichever is higher. TDS rates for the financial year 2020-21 are as follows:
CATEGORY A - WHEN RECIPIENT IS RESIDENT | |
Nature of payment | TDS (SC : Nil, EC : Nil, SHEC : Nil) |
• Sec. 192 - Payment of salary | Normal or Special Tax Rate plus surcharge and education cess Surcharge: 10% (if total income exceeds Rs. 50 lakh but doesn’t exceed Rs. 1 crore), 15% (If total income exceeds Rs. 1 crore but doesn’t exceed Rs. 2 crore), 25% (If total income exceeds Rs. 2 crore but doesn’t exceed Rs. 5 crore), 37% (If total income exceeds Rs. 5 crore) HEC : 4% |
• Sec. 192A - Payment of taxable accumulated balance of provident fund | 10 |
• Sec. 193 - Interest on securities— | |
a. interest on (a) debentures/securities for money issued by or on behalf of any local authority/statutory corporation, (b) listed debentures of a company [not being listed securities in demat form], (c) any security of the Central or State Government [i.e., 8% Savings (taxable) Bonds, 2003 or 7.75% savings (Taxable) Bonds, 2018, but not any other Government security] | 10 |
b. any other interest on securities (including interest on non-listed debentures) | 10 |
• Sec. 194 - Dividend— | 10 |
• Sec. 194A - Interest other than interest on securities | 10 |
• Sec. 194B - Winnings from lottery or crossword puzzle or card game or other game of any sort | 30 |
• Sec. 194BB - Winnings from horse races | 30 |
• Sec. 194C - Payment or credit to a resident contractor/sub-contractor— | |
a. payment/credit to an individual or a Hindu undivided family | 1 |
b. payment/credit to any person other than an individual or a Hindu undivided family | 2 |
• Sec. 194D - Insurance commission | 10 |
- if recipient is a resident (other than a company) | 5 |
- if recipient is a domestic company | 10 |
• Sec. 194DA - Payment in respect of life insurance policy | 1 |
• Sec. 194EE - Payment in respect of deposits under National Savings Scheme, 1987 | 10 |
• Sec. 194F - Payment on account of repurchase of units of MF or UTI | 20 |
• Sec. 194G - Commission on sale of lottery tickets | 5 |
• Sec. 194H - Commission or brokerage | 5 |
• Sec. 194-I - Rent— | |
a. rent of plant and machinery | 2 |
b. rent of land or building or furniture or fitting | 10 |
• Sec. 194-IA - Payment/credit of consideration to a resident transferor for transfer of any immovable property (other than rural agricultural land) | 1 |
• Sec. 194-IB - Payment of rent by an individual or HUF not subjected to tax audit under Section 44AB | 5 |
• Sec. 194-IC - Payment under Joint Development Agreement to a resident individual or HUF who transfers land or building as per such agreement | 10 |
• Sec. 194J - Fees for professional or technical services. Note: 2% if payee is engaged in the business of operation of call center | 10 |
1. sum paid or payable towards fees for technical services | 2 |
ii. sum paid or payable towards royalty in the nature of consideration for sale, distribution or exhibition of cinematographic films; | 2 |
iii. Any other sum | 10 |
Note: 2% if payee is engaged in the business of operation of call center | |
• Sec. 194LA - Payment of compensation on acquisition of certain immovable property | 10 |
• Sec. 194LBA(1) - Payment of the nature referred to in section 10(23FC) or section 10(23FC)(a) or section 10(23FCA) by business trust to resident unit holders | 10 |
• Sec. 194LBB - Payment in respect of units of investment fund specified in section 115UB | 10 |
• Sec. 194LBC(1) - Payment in respect of an investment in a securitisation trust specified in clause (d) of the Explanation occurring after section 115TCA (with effect from June 1, 2016) | - |
section 194M – Payment of contractual work, commission (not being insurance commission referred to in section 194D), brokerage or professional fees, by an individual or a HUF not covered under section 194C, section 194H and 194J | 5 |
section 194N – Payment in cash by banking company or co-op. bank or post office | 2/5 |
section 194K – Income in respect of units payable to resident | 10 |
Section 194P – Deduction of tax by specified bank in case of senior citizen having age of 75 or more | Tax on total income as per rate in force |
Section 194Q – Payment to resident for purchase of goods of the aggregate value exceeding Rs. 50 lakhs | 0.1 % exceeding Rs. 50 lakhs |
Question. Is there any minimum amount up to which tax is not deducted?
Answer. The Income-tax Act has prescribed a different threshold limit for deduction of tax at source under various sections. If the expenditure incurred/payment made during the year is below the threshold limit, then there is no requirement to deduct tax at source. No TDS from payment to participants of e-commerce - If amount paid or payable Resident Individual or HUF during the financial year does not exceed Rs. 5 Lakhs.
Question. Can a payee request the payer not to deduct tax at source and to pay the amount without deduction of tax at source?
Answer. A payee can approach to the payer for non-deduction of tax at source but for that they have to furnish a declaration in Form No. 15G/15H, as the case may be, to the payer to the effect that the tax on his estimated total income of the previous year after including the income on which tax is to be deducted will be nil.
Question. How can I know the quantum of tax deducted from my income by the payer?
Answer. To know the quantum of the tax deducted by the payer, you can ask the payer to furnish you a TDS certificate in respect of tax deducted by him. You can also check Form 26AS from your e-filing account at https://www.incometax.gov.in
Question. How does the TDS calculated if I own more than one outlet?
Answer. In cases where there are multiple branches of the outlet and have the same ownership and bank details, the limit of not deducting TDS is Rs. 5000 as combined and not an individual outlet.
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