DEDUCTION OF TAX AT SOURCE

Dr.Dharuv Pal Singh Associate Professor

Agenda
Rationale for Tax Deducted at Source (TDS) TDS on different types of Payment Person making payment Obligations

Rationale
Every citizen is liable to pay Income Tax on his income as per law Tax on income shall be payable by deduction or collection at source or by advance payment in accordance with the other provision Tax deduction liability is a vicarious liability and the principal liability is of the person who is taxable in respect of such income

Why TDS?

Pay as you earn (PAYE) scheme Ensure regular flow of funds for the Government Helps in widening the tax base Reporting of correct income Check tax evasion Early collection of the revenue by the government Cheapest mode of collection and recovery of tax Deduction at the time of payment or credit, whichever event is earlier Deposit within one week from end of month of deduction Income credited / paid on last day of financial year, tax withheld deposited within period of two months from last day Default attracts Disallowance of expenses Penal Interest Penalty Prosecution

Overview

When and How tax is be deducted at source from salary [ sec.192]

The summarized provision of section 192 are given below
Who is the payer Employer

Who is the recipient

Payment covered At what time tax has to be deducted at source

Employee
Taxable salary of the employee At the time of payment

Maximum amount which can be paid without tax The amount of exemption limit (i.e. Rs deduction . 1,90,000 / Rs 2,40,000 / Rs 1,60,000 for the financial year 2009-10 Rate of tax deduction at source When the provisions are not applicable Is it possible to get the payment without tax deduction or with lower tax deduction Normal rates applicable to an individual. The employee can make an application in Form No. 13 to the Assessing Officer to get a certificate of lower tax deduction or no tax deduction

Case Study
X is in employment of A Ltd, drawing salary of Rs.5,50,670, during the financial year 2009-10. he contributes Rs 40,000 towards public provident fund. The following information is submitted by X in respect of other income to his employer. Rs Income from consultancy 70,000 Tax deducted by the payer under section 194J 7,000 Expenses on earning the above income 68,250 Short-term capital loss (-)6,000 Loss from self occupied house property (-)40,000 Loss from let out house property (-)61,000 Tax deducted by the payer of rent 6,240 On receipt of the above information A Ltd will make the following two computations Computation -1:- Under this computation, all other income declared by the employee will be considered Computation- 2:- Only Salary income will be considered. It may be noted that in the two computations, house property loss ( from let out as well as self-occupied property) will be considered. How ever no other loss will be considered

Computation 1 Rs

Computation 2 Rs

Salary House Property loss Short-term capital loss

5,50,670 (-)1,01,000 -

5,50,670 (-)1,01,000 -

Consultancy income [ Rs. 70,000(-) Rs.68,250

Gross Total Income Less: Deduction under section 80 C Net income

1,750
4,51,420 40,000 4,11,420

NA
4,49,670 40,000 4,09,670

Tax
Less: Tax deducted by others:By tenant under section 194-I By payer of consultancy fees under section 194J Balance Tax to be deducted by the employer is Rs 30,772

37,373
6,240 7,000 24,133

37,012
6,240 30,772

When and how tax is to be deducted at source from interest on securities [ Sec.193]
Who is the payer Who is the recipient Payment covered At what time tax has to be deducted at source Maximum amount which can be paid without tax deduction Payer of interest on securities A resident person holding securities Interest on securities At the time of payment or at all the time of credit, which ever is earlier --

Rate of tax deduction at source

When the provisions are not applicable Is it possible to get the payment without tax deduction or with lower tax deduction

10%
Interest on Central/State Government securities Application in Form no 13

When and how tax is to be deducted at source from dividends [ sec. 194]
Who is the payer Who is the recipient Payment covered At what time tax has to be deducted at source Maximum amount which can be paid without tax deduction Rate of tax deduction at source Domestic Company Resident shareholder Deemed dividend under section 2(22)(e) At the time of payment -10%

When the provisions are not applicable Dividends covered by section 115-O Is it possible to get the payment without tax deduction or with lower tax deduction
Dividends covered by section 115-O,Form no 13,Form no15G

When and how tax is to be deducted at source from

interest other than interest on securities [ Sec. 194A]

Who is the payer Any person paying interest other than interest on securities ( not being an individuals or a Hindu undivided family whose books of account are not required to be audited under section 44AB in the immediately preceding financial year A resident person Interest other than interest on securities

Who is the recipient Payment covered

At what time tax has to be deducted at source

Maximum amount which can be paid without tax deduction

At the time of payment or at all the time of credit, which ever is earlier
If the amount of payment or credit is Rs5,000 or less than Rs 5,000 ( from June 1,2007 tax is not deductible if payment/credit does not exceed the amount Rs, 10,000 10% For a few cases Interest does not exceed limit ,interest is credited or paid to banking co ,cop bank ,LIC ,UTI, by firm to partners ,PO deposits ,motor accident claim not exceed 50,000

Rate of tax deduction at source When the provisions are not applicable Is it possible to get the payment without tax deduction or with lower tax deduction

When and how tax to be deducted at source from winnings from lotteries or crossword puzzles [ Sec.194B]
Who is the payer Any person paying winnings from lotteries/crossword puzzles / card games/ others games. Any person Winnings from lotteries/crossword puzzles/card games/other games At the time of payment

Who is the recipient Payment covered At what time tax has to be deducted at source

Maximum amount which can be paid without If the amount of payment is tax deduction Rs5,000 or less than Rs, 5,000 Rate of tax deduction at source
When the provisions are not applicable Is it possible to get the payment without tax deduction or with lower tax deduction

30%
---------Not possible

When and how tax is to be deducted at source from winnings from horse races [ Sec. 194BB]
Who is the payer Who is the recipient Payment covered At what time tax has to be deducted at source Maximum amount which can be paid without tax deduction Rate of tax deduction at source When the provisions are not applicable Any person paying winnings from horse races. Any person Winnings from horse races At the time of payment If the amount of payment is Rs2,500 or less than Rs, 2,500 30% ----------

Is it possible to get the payment without tax deduction or with lower tax deduction

Not possible

Tax deductible from payments to contractors or sub-contractors [Sec. 194C]

Who is the payer Govt./Central/State/Local ,Co, Co-operative Society / Trust/ University, Firm ,HUF/BOI/AOP Resident Contractors At the time of payment/ At the time of credit whichever is earlier

Who is the recipient Payment covered At what time tax has to be deducted at source

Maximum amount which can be paid without tax deduction

Rate of tax deduction at source

Amount does not exceeds Rs 20,000 ( Rs 50,000 in F.Y.)

Individual / HUF-1% Any other person- 2%

When the provisions are not applicable

Is it possible to get the payment without tax deduction or with lower tax deduction

---------Petty cases.& Payment to transport operators (quoted PAN no)

When and how tax is to be deducted at source from insurance commission [ Sec.194D]
Who is the payer Who is the recipient Payment covered At what time tax has to be deducted at source Any person paying insurance commission A resident person Insurance commission At the time of payment or at the time of credit, whichever is earlier

Maximum amount which can be paid without tax deduction

Rate of tax deduction at source

If the amount of payment is Rs5,000 or less than Rs, 5,000

10%

When the provisions are not applicable

----------

Is it possible to get the payment without The recipient can make an tax deduction or with lower tax deduction application in Form No.13 to the Assessing Officer to get a certificate of lower tax deduction or no tax deduction

When and how tax is to be deductible at source from payment to nonresident sportsmen or sports associations [Sec.194E]
Who is the payer Any person making payment to non-resident foreign citizen sportsmen or non-resident sports association or institution Non-resident foreign citizen sportsman or non-resident sports association or institution

Who is the recipient

Payment covered

Payment to non-resident foreign citizen sportsman or non-resident sports association or institution

At the time of payment or at the time of credit, whichever is earlier Nil

At what time tax has to be deducted at source Maximum amount which can be paid without tax deduction

Rate of tax deduction at source

10%

When the provisions are not applicable Is it possible to get the payment without tax deduction or with lower tax deduction

---------No provision

When and how tax is to be deductible from payment in respect of National savings Scheme [ Sec. 194EE] Who is the payer Who is the recipient Payment covered Post Office Any person Payment (principal+ Interest) out of National Saving Scheme,1987

At what time tax has to be deducted at At the time of payment source Maximum amount which can be paid without tax deduction Rate of tax deduction at source When the provisions are not applicable If the amount of payment is Rs 2,500 or less than Rs 2,500 20% The payment is made to legal heirs of the deceased depositor

Is it possible to get the payment If declaration is submitted u/ s without tax deduction or with lower tax 197A deduction

When and how tax is to be deductible from payment on account of repurchase of units of Mutual Funds or UTI [ Sec.194F] Who is the payer Who is the recipient Payment covered Mutual Fund or UTI Unit holder under section 80CCB Payment on account of repurchase of units referred to in section 80 CCB

At what time tax has to be deducted at At the time of payment source Maximum amount which can be paid without tax deduction Rate of tax deduction at source When the provisions are not applicable 20% -

Is it possible to get the payment No provision without tax deduction or with lower tax

When and how tax is to be deductible from commission etc., on sale of lottery tickets [ Sec.194G]

Who is the payer Who is the recipient Payment covered At what time tax has to be deducted at source Maximum amount which can be paid without tax deduction

Any person paying commission on sale of lottery tickets Any person Commission on sale of lottery tickets At the time of payment or at the time of credit, whichever is earliest If the amount of payment is Rs,1,000 or less than Rs.1,000

Rate of tax deduction at source

When the provisions are not applicable Is it possible to get the payment without tax deduction or with lower tax deduction

10%
The recipient can make an application in Form No.13 to the Assessing Officer to get a certificate of lower tax deduction or no tax deduction

When and how to deduct tax source from commission or brokerage [Sec.194H]
Who is the payer Any person is paying commission or brokerage (not being an individual or a HUF whose books of account are not required to be audited under section 44AB in the immediately preceding financial year)

Who is the recipient

Payment covered At what time tax has to be deducted at source Maximum amount which can be paid without tax deduction Rate of tax deduction at source When the provisions are not applicable Is it possible to get the payment without tax deduction or with lower tax deduction

Any resident person

Commission or brokerage (not being insurance commission) At the time of payment or at the time of credit, whichever is earliest If the amount of payment is Rs 2,500 or less than RS.2,500 10% The recipient can make an application in Form No.13 to the Assessing Officer to get a certificate of lower tax deduction or no tax deduction

When and how tax is to be deductible from Rent [Sec.194-I]

Who is the payer Any person paying rent (not being an individual or a Hindu undivided family whose books of account are not required to be audited under section 44AB in the immediately preceding financial year) A resident person
Rent At the time of payment or at the time of credit, whichever is earlier If amount of payment during a financial year is Rs.1,20,000 or less than Rs 1,20,000 Use of machinery or plant or equipment-2% Use of land or building or furniture 10% If payee is govt./local authority. The recipient can make an application in Form No.13

Who is the recipient

Payment covered At what time tax has to be deducted at source Maximum amount which can be paid without tax deduction Rate of tax deduction at source When the provisions are not applicable Is it possible to get the payment without tax deduction or with lower tax deduction

When tax is deductible at source on fees for professional or technical services [ Sec.194J]
Who is the payer Any person paying fees for professional /technical service/ royalty (not being an individual or a Hindu undivided family whose books of account are not required to be audited under section 44AB in the immediately preceding financial year or not being an individual or HUF who makes payments for personal purposes) A resident person Fee for professional /technical services/royalty At the time of payment or at the time of credit, whichever is earlier If amount of professional fees during a financial year is Rs 20,000 or less than Rs 20,000.Similarly ,if the amount of technical fees during a financial year is Rs 20,000 or less. Further if the amount of royalty during a financial year is Rs 20,000 or less. 10% The recipient can make an application in Form No.13

Who is the recipient Payment covered At what time tax has to be deducted at source Maximum amount which can be paid without tax deduction

Rate of tax deduction at source

When the provisions are not applicable Is it possible to get the payment without tax deduction or with lower tax deduction

When and how to deduct tax at source from payment of compensation on acquisition of certain immovable property [Sec.194LA]
Who is the payer Any person paying compensation/enhanced compensation / consideration/enhanced consideration on account of compulsory acquisition of any land ( not being rural agricultural land ) or building A resident person Compensation /enhanced compensation /consideration / enhanced consideration on account of compulsory acquisition of land ( not being rural agricultural land ) or building. At the time of payment or at the time of credit, whichever is earlier If amount of payment is Rs 1,00,000 or less than Rs 1,00,000 during a financial year 10% Payment /credit before October 1,2004 The recipient can make an application in Form No.13 to the Assessing Officer to get a certificate of lower tax deduction or no tax deduction

Who is the recipient Payment covered

At what time tax has to be deducted at source Maximum amount which can be paid without tax deduction Rate of tax deduction at source When the provisions are not applicable Is it possible to get the payment without tax deduction or with lower tax deduction

When and how tax is to be deducted at source from other sums [ Sec.195]
Who is the payer Any person responsible for making payment to a non-resident. A non-resident person Any payment of non-resident other than salary At the time of payment or at the time of credit, whichever is earlier -

Who is the recipient Payment covered At what time tax has to be deducted at source Maximum amount which can be paid without tax deduction

Rate of tax deduction at source

When the provisions are not applicable

If in the hands of the recipients, the amount is not chargeable to tax in India The recipient can make an application in Form No.13 to the Assessing Officer to get a certificate of lower tax deduction or no tax deduction

Is it possible to get the payment without tax deduction or with lower tax deduction

TDS from income or long-term capital gain from foreign currency bonds/Global Depository Receipts [ Sec.196C] Who is the payer Any person responsible for paying in income/long-term capital gain from GDR/bonds A non-resident person

Who is the recipient

Payment covered
At what time tax has to be deducted at source

Income/long-term capital gain from GDR/bonds

At the time of payment or at the time of credit, whichever is earlier

Maximum amount which can be paid without tax deduction

Rate of tax deduction at source When the provisions are not applicable Is it possible to get the payment without tax deduction or with lower tax deduction

10% Dividend referred to in section 115-O No provision

When and how to deductible at source from income of Foreign institutional investors from securities [Sec.196D]
Who is the payer Who is the recipient Payment covered Any person responsible for paying income in respect of securities referred to in section 115AD Foreign Institutional Investor Income in respect of securities referred to in section 115AD At the time of payment or at the time of credit, whichever is earlier -

At what time tax has to be deducted at source Maximum amount which can be paid without tax deduction Rate of tax deduction at source When the provisions are not applicable

20% Dividend referred to in section 115-O; capital gain arising from transfer to securities referred to in section 115AD No provision

Is it possible to get the payment without tax deduction or with lower tax deduction

Quarterly return to the Income-tax Department

Every person , deduction tax at source, is required to submit return of tax deducted as follow

Different payment

When deductor is (a) company (b) Government (c) any person who is required to get his account audited under section 44AB in the immediately preceding financial year; or (d) a person in whose case the number of deductors records in a quarterly statement for any quarter of the immediately proceeding financial year is equal to or more than 50
Form No.24Q in electronic format and Form No. 27A

In case the person deducting tax is any other person

Time limit for submission of return by the person deducting tax

Salary

Form No. 24Q

Within 15 days from the end of each quarter (76 days in the case of last quarter Within 15 days from the end of each quarter(76 days in the case of last quarter) do

Payment (other than salary ) to a resident

Form No. 26Q in electronic format and Form No. 27A

Form No. 26Q

Payment (other salary) to a nonresident

Form No. 27Q in electronic format and Form No. 27A (Quarterly )

Form No. 27Q (Quarterly)

Consequences of Failure to Deduct or Pay

Non deduction or failure to pay TDS

Non-Deduction

Deduction and Failure to pay

Deduction and Delay in Payment

Shortfall in Deduction

Penalty-271C Disallowance of Expenditure, subject to 40(a)(i) / 40(a)(ia) Interest-201(1A)

Penalty-271C Prosecution-276B

Interest-201(1A) Disallowance of Expenditure, subject to 40(a)(i) / 40(a)(ia)

Penalty-271C Disallowance of Expenditure, subject to 40(a)(i) / 40(a)(ia) Interest-201(1A)