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.


Form No. 15G is for the individual or a person (other than company or firm) and Form No. 15H is for the senior citizens.

Note: The CBDT vide Order u/s 119, dated 03-04-2020 has clarified that if a person had submitted Form No. 15G and 15H for FY 2019-20 to banks and other institutions then these forms will be valid up to 30.06.2020 for FY 2020-21 also.



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

You can also use the “View Your Tax Credit” facility available at www.incometaxindia.gov.in



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