TDS Compliances

Tax deduction at source (TDS) was introduced in the Income Tax Act, 1961 to collect tax from the very source of income.

As per the applicable law/ notifications/ circulars, a person (deductor) who is liable to make payment of specified nature to any other person (deductee) shall deduct tax at source and remit the same into the account of the Central Government.

The deductee from whose income tax has been deducted at source would be entitled to get the credit of the amount so deducted based on Form 26AS or TDS certificate (Form 16/ 16A) issued by the deductor.

TDS must be made when the amount of the payment exceeds the specified threshold limit.

Specified payments as prescribed by the Act are:

• Rent
• Commission
• Professional fees
• Salary
• Interest,
• contractual service payments,
• Proceeds of buying a house, etc.

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by the people making such payments. 

The government with the help of Tax Deducted at Source provisions makes sure that income tax is deducted in advance from the payments being made by you. The recipient of income receives the net amount (after reducing TDS).

The recipient will add the gross amount to his income and adjust the amount of TDS against his final tax liability. The recipient takes credit for the amount already deducted and paid on his behalf.  

In other words, TDS, as the name implies, aims to imply a method of "Pay as you earn" and "collect as it is being earned”.

What are the rates at which TDS is made?

TDS shall be deducted at the rates specified in the relevant provisions of the Act or the First Schedule to the Finance Act. However, in the case of payment to non-resident persons, the withholding tax rates specified under the Double Taxation Avoidance Agreements shall also be considered.

What are TDS compliances as per the statutory norms?

As soon as a Tax deduction at source (TDS) is made, an entire process-chain of the following events start:

• Deposit TDS with Government: After making Tax deduction at source (TDS), a deductor is required to deposit TDS with the government within a specified time frame (Month-wise due dates have been mentioned below)

• File TDS Return: The deductor is also required to file a TDS return(s) (Quarterly) where he/she declares the financial details of all the deductees for whom TDS has been made during a quarter.

• Updating 26AS: When the government receives the amount of TDS, Form 26AS of the deductee gets updated with Tax deposited details.

• Issuance of TDS Certificates & ITR Filing: After that, when the deductee (or payee) files ITR in the relevant financial year, he/she considers his Form 26AS and claims the credit of TDS available in it.

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TDS PAYMENT DUE DATES:

TDS RETURN FILING DUE DATES:

Penalties associated with TDS deduction?

• For non-deduction of TDS

If a deductor/collector fails to collect the tax at source, the whole of such expenses can be disallowed from the computation of total profits by the income tax assessing officer under section 40(A)(3) of the Income Tax Act, 1961

• For late-deduction of TDS

In case the tax at source is deducted after a day or few days of making the payment of income, then simple interest at the rate of 1% per month on the amount of tax deducted at source will be levied.

• For late-payment of TDS

As mentioned above, there is a monthly due date for depositing the TDS so collected, to the government. If the deductor fails to do so, they have to pay simple interest on the amount deducted as tax at the rate of 1.5% per month.

• For late-filing of TDS Returns

If the deductor fails to furnish the TDS return on or before the specified due date, he shall be liable to pay a penalty of ₹ 200 per day till the date of default. Please note that the total amount of such a penalty cannot exceed the total amount of tax deducted at the source.

• For non-filing of TDS Returns

If the deductor fails to file a TDS return within the due date, then the assessing officer may charge a penalty ranging from ₹ 10,000 to ₹ 1 lakh.