What is Tax deducted at source?
Whenever any payment is done by any person, be it be individual/ HUF/ company or anyone, to any person Individual or otherwise, and the income of such person is accessible in India, then the payer must deduct an amount at source if the amount exceeds the limit, that amount is called as Tax deducted at source.
Why Tax is necessary?
Taxation is an inevitable part of any society. And, as we all know, it can be quite complex. That’s why it’s so important that you understand your tax obligations—especially if you work in the modern economy.
If you’re not up to speed on the latest changes to the tax system, read on for a guide to tax deducted at source. This is an important topic and one that will help you save money on your taxes each year.
Chapter XVII-B of the Income-tax lays down the provisions for the levy and collection of Tax deducted at source or TDS. However, only certain payments are subjected to TDS. Not all are subjected to TDS.
The deductions are made as per rates specified under Chapter XVII-B, on the amount of payment, not on the Income of that person. The rates are as specified by the Income tax act if the payee provides the PAN.
However, if the payee doesn’t provide the PAN, then the rate of TDS increases to 5%, 20%, 42.74%, or any other, depending upon the circumstances. Furthermore, No TDS shall be deducted if the payment is made to Government, RBI, Mutual Fund, or any New pension trust.
No TDS is subjected to be deducted for the personal payments made under sections 194J and 194C. Every payer who shall be liable to deduct TDS shall deduct TDS on the payment to a payee.
It’s the responsibility of the payer to deduct the TDS, and if that person fails to deduct, then one shall be liable to legal proceedings, penalties and fines.
The payer has to apply for Tax deduction and collection Account number. However, no TAN is necessary by Individual/HUF, if the deduction is made under sections 194IA, 194IB and 194M.
The credit for the amount deducted shall be received by the payee at the time of filing the return and paying tax ( if any ). The TDS shall be deducted under every section except 192, at the time of payment or at the time when credit is made (whichever is earlier ). However, under section 192, TDS shall be deducted only at the time of payment.
The deducted amount shall be deposited by the 7th of the next month in which it was deducted and where if the amount was deducted in march, the deposit shall be made by the 30th of April.
Items liable for tax deducted at source
192 – TDS on salaries @ Slab rate
193 – TDS on Interest on securities @10%
194 – TDS on Dividend @10%
194A – TDS on Interest other than Interest on securities @10%
194B- TDS on Winning from lottery @30%
194BB- TDS on Winning from Horse races @30%
194D – TDS on Life Insurance agent’s commission @5%
194G – TDS on Lottery Agent’s commission @5%
194H- TDS on other commission @5%
194I – TDS on Rent for land and building, furniture and fixtures and plant and machinery @2/10%*
194IB – TDS on Rent for Land and building not covered u/s 194I @5%
194J- TDS on Fees for professional service, director’s sitting fees, NCF, FTS and royalty @10/2%*
194IA – TDS on transfer of land and building other than agricultural land @1%
194LA – TDS on compulsory acquisition of land and building other than agricultural land 10%
194C – TDS on works contract @1/2%*
195 – TDS on payments to non-resident @42.744%
194E – TDS on payment to NR – NC, sports person and entertainer @20%
194N – TDS on withdrawal of money from bank @2%
194M- TDS on payments not liable under section 194J, 194H and 194C @5%
194O – TDS on sale of goods through E-commerce operator @1%
194Q – TDS on certain sum for purchase of goods @0.1%
RATES OF TDS
The rates of TDS vary from section to section and circumstance to circumstance. The detailed information of each section will be uploaded soon or may get uploaded by the time you read.
Steps for deducting Tax deducted at source
– Checkout the residential status of the payee
– Check if the payment is subject to any transaction
– Check if payer is required to deduct TDS
– Checking the amount limit under the section
– Checking the rate and then compute the amount of TDS
When you receive income, part of that money is subject to tax. The amount of tax that is deducted from your income depends on the type of income you earn and the country you are in.
This article outlines the different types of tax that are deducted at source and offers some tips on how to minimize your tax liabilities. If you’re interested in learning more about taxation, be sure to check out our comprehensive guide!
DISCLAIMER: The information provided above in the article is only for educational purposes. The same shall not be treated as any professional or legal advice.