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