TDS, or Tax Deducted at Source, is a component of income tax. It must be deducted by a person while making certain payments in the ordinary course of business. Let’s explore the provisions of TDS as per the Income Tax Act of 1961.
What is TDS?
TDS stands for Tax Deducted at Source. It means that tax on income is deducted at the source or point of origin to prevent tax evasion. It is understood as a transaction in which tax, at a specific percentage, is deducted from the money payable for certain transactions. This system helps the government collect taxes in advance on these transactions. The receiver must then claim this income in their income tax return to benefit from the reduced amount and ensure effective tracking of transactions.
When and by whom should TDS be deducted?
Any person making specified payments mentioned under the Income Tax Act is required to deduct TDS at the time of making (and in some cases, on a due basis) such specified payments. However, there is relief for individuals or Hindu Undivided Families (HUFs) making these payments if the gross sales or turnover from their business or profession does not exceed Rs. 1 crore or Rs. 50 lakhs, respectively.
There are some cases where TDS must be deducted even if turnover does not exceed the basic tax audit limits. For example:
- Rent payments made by individuals and HUFs exceeding Rs. 50,000 per month require TDS to be deducted at 5%, even if the individual or HUF is not liable for a tax audit.
- Employers deduct TDS based on applicable income tax slab rates. Banks deduct TDS at 10%, or at 20% if they do not have your PAN information.
For most payments, the rates of TDS are specified in the Income Tax Act, and TDS is deducted by the payer based on these rates.
Now that we have discussed all the relevant details regarding TDS, the only question remaining is the list of specified payments, which is as follows:
TDS Section List
| TDS Section | Nature of Payment | Basic Exemption Limit (₹) | For Individual / HUF | For Others |
| 192 | Payments made as salary | ₹ 2,50,000 | Slab Rates (Budget) | Slab Rates (Budget) |
| 192A | Early withdrawal of EPF (Employee Provident Fund) | ₹ 50,000 | 10% | 10% |
| 193 | Tax deduction at source on interest earned on securities | ₹ 10,000 | 10% | 10% |
| 194 | Distribution of dividends | ₹ 5,000 | 10% | 10% |
| 194A | Interest from banks or post offices on deposits | ₹ 40,000 ₹ 50,000 (for senior citizens) |
10% | 10% |
| 194A | Interest from sources other than securities | ₹ 5,000 | 10% | 10% |
| 194B | Winnings of lotteries, puzzles, or games | Aggregate of ₹ 10,000 | 30% | 30% |
| 194BA | Winnings from online games | – | 30% | 30% |
| 194BB | Winnings of horse races | ₹ 10,000 | 30% | 30% |
| 194C | Payments made to contractors or sub-contractors (one-time) | ₹ 30,000 | 1% | 2% |
| 194C | Payments made to contractors or sub-contractors (aggregate basis) | ₹ 1,00,000 | 1% | 2% |
| 194D | Commission paid on insurance sales to domestic companies | ₹ 15,000 | Not Applicable | 10% |
| 194D | Commission paid on insurance sales to non-domestic companies | ₹ 15,000 | 5% | Not Applicable |
| 194DA | Maturity of life insurance policy | ₹ 1,00,000 | 5% | 5% |
| 194EE | Payment received from the National Savings Scheme (NSS) by individuals | ₹ 2,500 | 10% | 10% |
| 194F | Repurchase of units by UTI (Unit Trust of India) or any mutual fund | – | 20% | 20% |
| 194G | Payments or commission made on the sale of lottery tickets | ₹ 15,000 | 5% | 5% |
| 194H | Other commission or brokerage fees | ₹ 15,000 | 5% | 5% |
| 194I | Rent paid for land, building, or furniture | ₹ 2,40,000 | 10% | 10% |
| 194I | Rent paid for plant and machinery | ₹ 2,40,000 | 2% | 2% |
| 194IA | Payment for the transfer of immovable property excluding agricultural land | ₹ 50,00,000 | 1% | 1% |
| 194IB | Rent payment made by an individual or HUF not covered under section 194I | ₹ 50,000 (P.M.) | 5% | Not Applicable |
| 194IC | Payments made under a Joint Development Agreement (JDA) to individuals or HUF | No Limit | 10% | 10% |
| 194J | Fees paid for professional and technical services | ₹ 30,000 | 10% | 10% |
| 194J | Royalty paid for the sale, distribution, or exhibition of cinematographic films | ₹ 30,000 | 2% | 2% |
| 194K | Income received from units of a mutual fund, such as dividends | ₹ 5,000 | 10% | 10% |
| 194LA | Compensation payment for acquiring certain immovable property (compulsory acquisition of property) | ₹ 2,50,000 | 10% | 10% |
| 194LB | Interest payment on infrastructure bonds to Non-Resident Indians | Not Applicable | 5% | 5% |
| 194LBA(1) | Distribution of certain income by a business trust to its unit holders | Not Applicable | 10% | 10% |
| 194LD | Interest payment on rupee-denominated bonds, municipal debt security, and government securities | Not Applicable | 5% | 5% |
| 194M | Payments made for contracts, brokerage, commission, or professional fees (excluding sections 194C, 194H, 194J) | ₹ 50,00,000 | 5% | 5% |
| 194N | Cash withdrawal exceeding a specified amount from the bank, with filed ITR | ₹ 1,00,00,000 | 2% | 2% |
| 194N | Cash withdrawal from a bank without filing ITR | ₹ 20,00,000 | 2% | 2% |
| 194O | Amount received for the sale of products/services by e-commerce service providers through digital platforms | ₹ 5,00,000 | 1% | 1% |
| 194Q | Payments made for the purchase of goods | ₹ 50,00,000 | 0.10% | 0.10% |
| 194S | TDS on the payment of cryptocurrencies or other virtual assets | Not Applicable | 1% | 1% |
| 206AA | TDS applicable in case of non-availability of PAN | Not Applicable | At a higher rate than: The rate specified by the Act 20% The currently applicable rate |
At a higher rate than: The rate specified by the Act 20% The currently applicable rate |
| 206AB | TDS on non-filers of Income Tax Return | Not Applicable | The higher of: 5% Twice the rate mentioned in the provision The currently applicable rate |
The higher of: 5% Twice the rate mentioned in the provision The currently applicable rate |
The list above is extracted from the Income Tax Act of 1961 but has been edited to be more accessible and understandable for users.
Deposit of TDS
TDS deducted must be deposited with the government before the 7th of the subsequent month. However, TDS deducted in the month of March can be deposited until the 30th of April.
How and when to file TDS returns?
Filing Tax Deducted at Source (TDS) returns is mandatory for all entities that have deducted TDS. TDS returns must be submitted quarterly and should include various details such as the PAN of the deductee, the nature of the payment, the amount of payment, and other related details. Different forms are prescribed for filing TDS returns, depending on the purpose or nature of the TDS deduction.
Various types of return forms are described below:
| FORM NO. | TRANSACTIONS REPORTED | DUE DATE OF FILING |
| FORM 26Q | TDS on all payments except salaries | Q1 – 31st July Q2 – 31st October Q3 – 31st December Q4 – 31st May |
| FORM 24Q | TDS on salary | Q1 – 31st July Q2 – 31st October Q3 – 31st December Q4 – 31st May |
| FORM 27Q | TDS on all payments made to non-residents except salary | Q1 – 31st July Q2 – 31st October Q3 – 31st December Q4 – 31st May |
| FORM 26QB | TDS on sale of property | 30 days from the end of the month in which TDS is deducted (e.g., TDS on 10th June must be filed by 30th July) |
| FORM 26QC | TDS on rent (greater than INR 50,000) | 30 days from the end of the month in which TDS is deducted (e.g., TDS on 10th June must be filed by 30th July) |
How will the other party be informed of this deduction, and will the deductor actually deposit the amount on behalf of the other party?
To address these concerns, the government introduced certificates to be delivered to the deductee by the deductor as proof of TDS deposit. These certificates include details such as the PAN of the deductee and deductor, the gross amount payable, the nature of the payment, and the date of payment and deposit of TDS. The certificates to be delivered are as follows:
| CERTIFICATE NAME | NATURE/PURPOSE OF PAYMENT | FREQUENCY | DUE DATE OF FILING |
| FORM 16 | TDS on salary payments | Yearly | 15 days from the due date of filing the return for the last quarter |
| FORM 16A | TDS on non-salary payments | Quarterly | 15 days from the due date of filing the return |
| FORM 16B | TDS on sale of property | Every transaction | 15 days from the due date of filing the return |
| FORM 16C | TDS on rent | Every transaction | 15 days from the due date of filing the return |
It is highly recommended to consult with a professional before Tax planning strategies finalizing any decisions to avoid unnecessary litigation and penalties. Professionals are subject matter experts who can navigate complex tax regulations effectively, ensuring compliance and reducing the risk of errors.
