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Page 1 MAKING TDS NOT SO TEDIOUS An entrepreneur’s guide to TDS for recurring business transactions

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Page 1: How to TDS

Page 1

MAKING

TDS NOT SO TEDIOUS

An entrepreneur’s guide to TDS for recurring business transactions

Page 2: How to TDS

Page 2

UNDERSTANDING TDS

First things first, we need to understand TDS and why we do

TDS to avoid making things tedious:

• TDS is actually tax paid in advance for the year against

the expected tax for the year

• It is collected on a premise that one would file return of

income

• TDS is normally done by the buyer and paid to the

government on behalf of the payee

Page 3: How to TDS

Page 3

TRANSACTIONS THAT ATTRACT TDS

Normal business transactions

• Salaries

• Interest other than Interest on

Securities

• Payments to Contractors and

Sub-contractors

• Commission or Brokerage

• Rent

• Fees for Professional or

Technical Services

Other transactions:

• Interest on Securities

• Dividends

• Winnings from Lotteries or crossword puzzles

• Winnings from Horse Races

• Insurance Commission

• Payment to Non-resident sportsmen or sports

association

• Payment in respect of NSC

• Payments in respect of Repurchase of units of

Mutual Funds or UTI

• Commission on Sale of Lottery Tickets

• Payment of Compensation on acquisition of

certain immovable property

• Other Sums

• Long term capital gain

• Income or Long term capital gain from Foreign

Currency bonds/Global Depository Receipts

• Income of Foreign Institutional Investors from

Securities

Page 4: How to TDS

Page 4

SALARIES

Payment Covered Taxable Salary of the employee

Time of deduction At the time of payment only

Maximum amount which can be

paid without tax deduction

On any amount which exceeds the basic

exemption limit after deductions/exemptions

Rate At an average rate of tax, computed based on

the slab rate for that Previous Year

Section 192

Exception If PAN is not provided by the employee, the rate of TDS will be

higher of rate in force or 20%

Page 5: How to TDS

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INTEREST OTHER THAN INTEREST ON SECURITIES

Payment Covered Amount payable as interest

Time of deduction At the time of payment or at the time of credit,

whichever is earlier

Maximum amount which can be

paid without tax deduction

INR 5,000 per annum

Rate 10% - Payee = Resident Non-corporate

20% - Payee = Resident Corporate

Section 194A

Page 6: How to TDS

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PAYMENTS TO CONTRACTORS AND SUB-CONTRACTORS

Payment Covered Any amount of consideration payable towards

contracts for work

Time of deduction At the time of payment or at the time of credit,

whichever is earlier

Maximum amount which can be

paid without tax deduction

If a single payment exceeds INR 30,000/- or

If total aggregate payments exceed INR

75,000/- per annum per contractor

Rate 1% if Payee = Individual/ HUF

2% if Payee = Others

Section 194C

Exception If PAN is not quoted by the employee, the rate of TDS will be

20%

Page 7: How to TDS

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PAYMENTS TO CONTRACTORS AND SUB-CONTRACTORS

COMMISSION OR BROKERAGE

Payment Covered Amount of commission or brokerage

Time of deduction At the time of payment or at the time of credit,

whichever is earlier

Maximum amount which can be

paid without tax deduction

Any amount exceeding INR 5,000

Rate 10%

20% in cases where PANis not quoted by the

deductee

Section 194C

Section 194H

Page 8: How to TDS

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RENT

Payment Covered Amount payable as Rent

Time of deduction At the time of payment or at the time of credit,

whichever is earlier

Maximum amount which can be

paid without tax deduction

INR 180,000 per annum per payee

Land & Building

Rate

10% - If payable to an Individual

20% - If payable to any other person

Plant & Machinery

Rate

2% - Rent of Plant & Machinery

Exception For assesses whose books of accounts are required to be audited

under Section 44AB in the immediately preceding financial year have to

compulsorily do TDS on ALL TRANSACTIONS covered by the list of

transactions above.

Section 194I

Page 9: How to TDS

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FEES FOR PROFESSIONAL OR TECHNICAL SERVICES

Payment Covered Amount payable as Professional services, technical

services or Royalty

Time of deduction At the time of payment or at the time of credit,

whichever is earlier

Maximum amount which can be

paid without tax deduction

INR 30,000 per annum per payee

Rate 10%

Exception For assesses whose books of accounts are required to be audited

under Section 44AB in the immediately preceding financial year have to

compulsorily do TDS on ALL TRANSACTIONS covered by the list of

transactions above.

Section 194J

Page 10: How to TDS

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COMMON QUERY

TDS on FEES FOR PROFESSIONAL OR TECHNICAL SERVICES &

PAYMENTS TO CONTRACTORS AND SUB-CONTRACTORS

When Service tax is charged on Amount of consideration by the Payee, should I

make TDS on Invoice amount or the amount exceeding Service tax?

TDS has to be made on the entire amount of the Invoice including Service Tax.

TDS on RENT

When Service tax is charged on Amount of RENT paid to the Payee, should I

make TDS on Invoice amount or the amount exceeding Service tax?

TDS has to be made only on the amount of RENT. Service Tax should not be

included while making TDS..

Page 11: How to TDS

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CALCULATING TDS

Special

Case

Fact 1

On April 1, 201X, XYZ Ltd. has engaged Mr. X to perform services in the nature

of professional services. He has to be paid the following sums:

June

July

August

INR 10,000

INR 10,000

INR 5,000

Action Payments made were as follows:

June

July

August

INR 10,000

INR 10,000

INR 5,000

Base

scenario

Payments for professional fees were made to Mr. A as follows in the month

of January of INR 100,000 will be:

Fees payable INR 100,000 TDS @ 10%AMOUNT PAYABLE

TO Mr. A

January INR 100,000 INR 10,000 INR 90,000

Page 12: How to TDS

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CALCULATING TDS

Action Payments made were as follows in the month of September will be:

Fees payable TDS PAYABLE

Invoice amount INR 10,000 INR 1,000 INR 9,000

TDS Recovered June

July

August

INR 1,000

INR 500

INR 1,000 INR (2,500)

INR 6,500

Special

Case

Fact 1

On September 1, 201X, XYZ Ltd. Decided to extend further work to Mr. X for

which the payment would be:

September

October

November

INR 10,000

INR 10,000

INR 10,000

Page 13: How to TDS

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WHEN IS THE DUE DATE FOR PAYMENT OF TDS

DU

E D

AT

E F

OR

PA

YM

EN

T T

O T

HE

GO

VE

RN

ME

NT

April

7th of the month immediately following

the month of payment or credit, whichever is

earlier (as applicable)

May

June

July

August

September

October

November

December

January

February

Transactions up

to March 30

March 31

of the same month

Transactions of

March 31

May 31

of the immediately following

Page 14: How to TDS

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FILING RETURNS OF TDS

If you are a Salary

Other

payments to a

Resident

Other

payments to a

Non-Resident

CompanyOR

Person whose books are required

to be audited in immediately

preceding u/s 44ABOR

Number of Deductees in any

quarter return of immediately

preceding year exceed 20

Form 24Q in

Electronic

format

+

Form 27A

Form 26Q in

Electronic

format

+

Form 27A

Form 27Q in

Electronic

format

+

Form 27A

(Quarterly)

Any other person Form 24Q Form 26QForm 27Q

(Quarterly)

Due Date

April – June, July – September,

October – December

15 days from last day of each quarter

Due Date

January – March31 May immediately following

Page 15: How to TDS

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CONSEQUENCES OF DEFAULTING ON TDS

DEFAULT EFFECT

Non deduction

The expenditure for which TDS to be deducted

gets DISALLOWED for Income taxes

+

Penal interest @1.5% for every month up to date of deduction

Non paymentThe expenditure for which TDS deducted but not paid

gets DISALLOWED for Income taxes us 40a

Less deductionThe amount short deducted is

required to be paid along with penalty

Late PaymentPenal interest @1.5% for every month

from date of deduction to the date of payment.

Page 16: How to TDS

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Disclaimer

The contents of this document are solely for informational purpose. It

does not constitute professional advice or a formal recommendation.

While due care has been taken in preparing this document, the

existence of mistakes and omissions herein is not ruled out. Neither the

author nor Prequate Mindworks and its affiliates accepts any liabilities

for any loss or damage of any kind arising out of any inaccurate or

incomplete information in this document nor for any actions taken in

reliance thereon. No part of this document should be distributed or

copied (except for personal, non‐commercial use).

Page 17: How to TDS

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Prequate Consultants Private Limited

Get in touch

11/2, 3 Cross, Wilson Garden

Bangalore – 560 027

+9180 22 22 50 40

Pradyumna NagDirector

+91 988 63 44 [email protected]

Rakesh BordiaDirector

+91 988 63 87 [email protected]

Rishabh PahariyaDirector

+91 988 68 21 [email protected]