Introduction

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.

 

TDS Concept

• TDS stands for Tax Deducted at Source.
• It refers to income tax that is deducted in advance from certain payments made by individuals or entities.
• These specified payments include rent, commission, professional fees, salary, interest, and more.
• The person making the payment (the “payer”) deducts TDS and ensures that income tax is paid upfront.
• The recipient of income receives the net amount after TDS deduction.
• The recipient then adds the gross amount to their income and adjusts the TDS against their final tax liability.

Example:

• • Suppose Shine Pvt Ltd pays monthly office rent of Rs 80,000 to the property owner.
  • TDS is required to be deducted at 10%.
  • Shine Pvt Ltd deducts TDS of Rs 8,000 and pays the balance of Rs 72,000 to the owner.
  • The property owner adds the gross amount (Rs 80,000) to their income and takes credit for the TDS already deducted.

 

What are the duties of the deductor 

How can deductee know the quantum of TDS deducted ​​

Payments Covered Under The TDS

Cases where TDS not deducted

​​​​​​​​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)

Form No. 15H is for the senior citizens.

Rate of TDS if deductee do not furnish PAN

​​As per section 206AA​, if you do not furnish your Permanent Account Number to the payer (i.e., deductor), then the deductor shall deduct tax at the higher of the following rates :

• At the rate specified in the relevant provision of the Act.
• At the rate or rates in force, i.e., the rate prescribed in the Finance Act.
• At the rate of 20%.​

Rate of TDS if deductee doesn’t furnish return of income

​As per section 206AB, the tax shall be deductible at the higher rates prescribed under this provision if the following conditions are satisfied:

(a) Deductee has not filed the return of income for assessment years relevant to the previous year immediately prior to the previous year in which tax is required to be deducted;

(b) The due date to file such return of income, as prescribed under section 139(1), has expired; and

(c) The aggregate amount of tax deducted and collected at source is Rs. 50,000 or more in said previous years.

What are the Consequences a Deductor fails to Deduct TDS

​​​​​​​​​A deductor would face the following consequences if he fails to deduct TDS or after deducting the same fails to deposit  it to the credit of Central Government’s account:-

a) Disallowance of expenditure

 As per section 40(a)(i) of the Income-tax Act, any sum (other than salary) payable outside India or to a non-resident, which is chargeable to tax in India in the hands of the recipient, shall not be allowed to be deducted if it is paid without deduction of tax at source or if tax is deducted but is not deposited with the Central Government till the due date of filing of return.

​However, if tax is deducted or deposited in subsequent year, as the case may be, the expenditure shall be allowed as deduction in that year.

Similarly, as per section 40(a)(ia), any sum payable to a resident, which is subject to deduction of tax at source, would attract 30% disallowance if it is paid without deduction of tax at source or if tax is deducted but is not deposited with the Central Government till the due date of filing of return.

However, where in respect of any such sum, tax is deducted or deposited in subsequent year, as the case may be, the expenditure so disallowed shall be allowed as deduction in that year.

b) Levy of interest

 As per section 201 of the Income-tax Act, if a deductor fails to deduct tax at source or after the deducting the same fails to deposit it to the Government’s account then he shall be deemed to be an assessee-in-default and liable to pay simple interest as follows:-

(i) at one per cent for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted; and

(ii) at one and one-half per cent for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid.​

c) Levy of Penalty

​Penalty of an amount equal to tax not deducted or paid could be imposed under section 271C​.

TDS Payment Due Dates

The dates for depositing the tax deducted at source and filing of TDS return for the financial year 2023-24 for all the deductors is shown in the below table-

*All sums deducted in accordance with the provisions of Chapter XVII-B by an office of the Government without challan (Treasury Challan) should be deposited on the same day of deduction. Only for tax deducted by the government office during the month of March 2024 should be deposited by 7th April 2024.