Tax deducted at source is a means of collecting tax on income, dividends, or asset sales, by requiring the payer to deduct tax due before paying the balance to the payee.
Who is liable to deduct tax at source ?
People responsible for making certain payments of incomes or amounts are liable to deduct tax at source on such payment at the specified rates.
Rates for Tax Deduction at source
The Government has prescribed TDS rates depending upon whether the payee is a resident in India or not a resident in India or is a domestic company or a foreign company.
When not to deduct tax at source ?
The Government has specified the following situations when tax has not to be deducted at source :
- On declaration furnished by the payee in certain cases. The declaration can be in paper form or
- On certificate issued by ITO in certain cases.
- On exempt incomes.
- Interest payment by Offshore Banking Units.
When to deduct tax at source ?
Tax is to be deducted at source at the time of credit to the payee’s account (or to Interest Payable A/c, etc. or Suspense A/c) or on accrual of the payment at the end of the accounting year or at the time of payment in cash or by cheque or draft or any other mode, whichever is less.
Compliance with provisions of quoting PAN
Any person whose receipts are subject to deduction of tax at source i.e. the deductee, shall mandatorily furnish his PAN to the deductor failing to which the deductor shall deduct tax at source at higher of the rates mentioned as below :
- the rate prescribed in the Act
- at the rate in force i.e., the rate mentioned in the Finance Act
- at the rate of 20 percent
Provisions related to Tax deducted at source :
- For Contract Payments, TDS is required if the amount paid is greater than Rs. 30,000 in a single payment of Rs. 1,00,000 in the aggregate during a financial year.
- For Commission Payments (other than insurance commission), TDS is required if the amount paid during the previous year, is greater than Rs. 15,000.
How to deposit TDS with the Government ?
TDS should be deposited into the Government Treasury (Reserve Bank of India) or authorized branch of the nationalized banks within the prescribed time along with Challan Number 281 for all types of TDS. There should be separate challan for each nature of the payment.
When to deposit TDS ?
TDS should be deposited within one week from the last day of each month in which the deduction is made. The due date for payment of TDS is the 7th of next month. However, if the amount is credited or paid in the month of March, the TDS should be deposited latest by 30th April.
Interest for failure to deduct tax at source or deferment of payment of taxes deducted
|Rate of Interest||Period for which interest is payable|
|1% per month or part thereof||From the date on which tax was|
deductible to the date on which tax is
|1.5% per month or part thereof||From the date on which tax was|
actually deducted to the date on which
tax is actually paid to the government