Understanding the Basics of TDS in India: A Beginner's Guide
TDS stands for Tax Deducted at Source. It is a tax that is deducted at the source of income, rather than the recipient of the income
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What is TDS ?
TDS stands for Tax Deducted at Source. The concept of TDS (Tax Deducted at Source) was introduced with an aim to collect tax from the very source of income. It is a tax that is deducted at the source of income, rather than the recipient of the income paying the tax. In other words, the person or organization responsible for paying the income (the "payer") is required to withhold a certain percentage of the payment as tax and pay it to the government on behalf of the recipient (the "payee").
For example, if an employee receives a salary from an employer, the employer is required to deduct a certain percentage of the salary as TDS and pay it to the government. Similarly, if a company pays interest to a bank account holder, the bank is required to deduct TDS on the interest and pay it to the government.
The deductee from whose income tax has been deducted at source would be entitled to get credit of the amount so deducted on the basis of Form 26AS or TDS certificate issued by the deductor.
Budget 2024 Updates
1. Now TCS Credit under section 192 of the Income Tax Act can be claimed by the Salaried Individual. This is a positive change and will allow salaried employees to get more money upfront. For example, upto FY 2023-24, TCS could not be adjusted with TDS liability and could only be claimed as a refund when filing tax returns.
2. TDS Payment on Immovable Property - According to Secion 194-IA, when a buyer makes payment to seller they should deduct TDS @ 1% of amount paid or property value whichever is higher provided total value exceeds INR 50 Lacs. In finance bill it is clarified that it apples to total sale value and not individual to all the property holder.
TDS Rate Chart for FY 2024-25
Payments such as salaries, commission, professional fees, interest earned, rent etc. are subject to TDS deduction. Based on the type of income and amount of income earned, TDS is paid at various rates. Thus, different kinds of income has different TDS rates and the tax is paid on the extra amount earned after a certain maximum threshold limit is attained. The rate at which TDS is paid varies from 1 per cent to 30 per cent, depending on the income taxed. Following is the list of the important sections which are applicable in our day to day lives.
Budget 2024 Update for TDS Rate Chart
TDS Sections
Nature
Current TDS Rate
Proposed TDS Rate
Effective Date
Section 194D
Payment of insurance commission in case of other than company
5%
2%
1st April 2025
Section 194DA
Payment in respect of life insurance policy
5%
2%
1st Oct 2024
Section 194G
Commission on sale of lottery tickets
5%
2%
1st Oct 2024
Section 194H
Payment of commission or brokerage
5%
2%
1st Oct 2024
Section 194-IB
Payment of Rent by certain individuals or HUF
5%
2%
1st Oct 2024
Section 194M
Payment of certain sums by certain individuals or HUFs
5%
2%
1st Oct 2024
Section 194-O
Payment of certain sum by e-commerce operator to e-commerce participants
1%
0%
1st Oct 2024
Section 194F
Payment on account of repurchase of units by mutual funds or UTI
Proposed to be Omitted
1st Oct 2024
Complete TDS Rate Charts for the FY 2023-24 and FY 2024-25
Section
Nature of transaction
Threshold Limit (Rs)
TDS Rate
192
Payment of salary
Basic exemption limit of employee
Normal Slab Rates
192A
Premature withdrawal from EPF
50,000
10%
194
Payment of any dividend
5,000
10%
194A
Interest from other than interest from securities (from deposits with banks/post office/co-operative society)
Senior Citizens- 50,000 / Others- 40,000
10%
194A
Interest from other than interest on securities u/s 193 and interest from banks/post office/co-operative society.
5,000
10%
194B
Income from lottery winnings, card games, crossword puzzles, and other games of any type
Aggregate income from lottery winnings, card games, crossword puzzles etc- 10,000
30%
194BA
Income from online games
Nil
30%
194BB
Income from horse race winnings
10,000
30%
194C
Payment to contractor/sub-contractor:-
Single transaction- 30,000 / Aggregate transactions- 1,00,000
a) Individuals/HUF
1%
b) Other than Individuals/HUF
2%
194D
Insurance commission to:
a) Domestic Companies
15,000
10%
b) Other than companies
15,000
5%
194DA
Income from the insurance pay-out, while payment of any sum in respect of a life insurance policy.
1,00,000
5% / Budget 2024 - Reduced to 2% wef 1st October 2024
194EE
Payment of amount standing to the credit of a person under National Savings Scheme (NSS)
2,500
10%
194G
Payments, commission, etc., on the sale of lottery tickets
15,000
5% / Budget 2024 - Reduced to 2% wef 1st October 2024
194H
Commission or brokerage
15,000
5% / Budget 2024 - Reduced to 2% wef 1st October 2024
194-I
Rent:
194-I(a) Rent on plant and machinery
2,40,000
2%
194-I(b) Rent on land/building/furniture/fitting
2,40,000
10%
194-IA
Payment in consideration of transfer of certain immovable property other than agricultural land.
50,00,000
1%
194-IB
Rent payment by an individual or HUF not covered u/s. 194-I
50,000 per month
5% / Budget 2024 - Reduced to 2% wef 1st October 2024
194-IC
Payment under Joint Development Agreements (JDA) to Individual/HUF
No limit
10
194J
Any sum paid by way of fee for professional services
30,000
10%
194J
Any sum paid by way of remuneration/fee/commission to a director
30,000
10%
194J
Any sum paid for not carrying out any activity concerning any business;
30,000
10%
194J
Any sum paid for not sharing any know-how, patent, copyright, etc.
30,000
10%
194J
Any sum paid as a fee for technical services
30,000
2%
194J
Any sum paid by way of royalty towards the sale or distribution, or exhibition of cinematographic films
30,000
2%
194J
Any sum paid as fees for technical services, but the payee is engaged in the business of operation of the call center.
30,000
2%
Prior to June 1, 2017, the rate was 10%
194K
Payment of any income for units of a mutual fund, for example, dividend
No limit
10%
194LA
Payment in respect of compensation on acquiring certain immovable property
2,50,000
10%
194LB
Payment of interest on infrastructure debt fund to Non-Resident
No limit
194LC
Payment of interest for the loan borrowed in foreign currency by an Indian company or business trust against loan agreement or the issue of long-term infrastructure bonds or rupee-denominated bonds (RDB).
No limit
194LD
Payment of interest on rupee-denominated bonds (RDB) to a Foreign Institutional Investor (FII) or a Qualified Foreign Investor (QFI) or from a Government Security.
No limit
194M
Payment to resident contractors and professionals by an individual or HUF not liable for tax audit
50,00,000
5%
194N
Cash withdrawal from one or more accounts maintained by any person with a banking company or cooperative bank or post office
One or more than one account with the same person:
1. Cash withdrawals of more than 1 crore
2%
2. Cash withdrawals exceeding 20 lakhs for non-filers of ITR
2%
3. Cash withdrawals exceeding 1 crore for non-filers of ITR
5%
194O
Payment of certain sums by e-commerce operators to e-commerce participants
5,00,000
1%
194P
Deduction of tax in case of specified senior citizens.
75 years or more
Slab Rates
194Q
Payment for the purchase of goods by a buyer whose turnover or gross receipts exceed Rs. 10 crores during the financial year.
50,00,000
0.10%
194R
Benefits or perquisites paid to residents in respect of business or profession
No limit
10%
194S
Payment on the transfer of virtual digital assets
10,000
1%
194T
TDS on winnings from the horse race
No limit
30%
194W
Tax Deduction on any sum payable as per the terms of the lease contract.
No limit
2%
194X
Tax Deduction at Source on any sum payable for the purchase of Software
No limit
2%
195
Payment of sums other than salary, which are taxable under the provisions of the Income Tax Act, 1961.
No limit
Applicable rates or rates prescribed in DTAA.
196A
Income in respect of units of Non-Residents.
No limit
20%
196B
Income and Long-term capital gains from units purchased in foreign currency
No limit
10%
196C
Income by way of interest or dividends on bonds and shares purchased in foreign currency or long-term capital gains from such assets.
No limit
10%
196D
Income of Foreign Institutional Investors (FII) from securities
No limit
20%
Who is liable to Deduct TDS in India
In India, the person or organization responsible for paying the income (the "payer") is required to deduct TDS on certain payments. The payer is known as the "deductor" and is responsible for deducting TDS at the prescribed rate and paying it to the government on behalf of the payee.
Here are a few examples of deductors in India:
Employers: If an employee receives a salary from an employer, the employer is required to deduct TDS on the salary and pay it to the government.
Banks: If a bank pays interest to a bank account holder, it is required to deduct TDS on the interest and pay it to the government.
Property owners: If a property owner receives rent from a tenant, they are required to deduct TDS on the rent and pay it to the government.
Companies: If a company pays commission, fees, or other payments to a person or organization, it is required to deduct TDS on the payment and pay it to the government.
Importance of TDS in India
TDS plays an important role in the tax system of India. It helps the government to collect tax on a regular basis, rather than waiting for the payee to pay the tax at the end of the financial year. This ensures a steady flow of revenue for the government and helps it to fund various developmental and welfare programs.
TDS is also important for the payee, as it helps to reduce the burden of paying a large amount of tax at the end of the year. The payee can claim credit for the TDS deducted at the source and adjust it against their final tax liability.
Step by Step process for TAN Registration
Register on the e-Filing Portal: For Tax Deductor and Collector.
Step 1 - Go to the e-Filing portal (Link) homepage, click Register
Step 2: Click others and select the Category as Tax Deductor and Collector
Step 3: Enter the TAN of the Organization and click Validate
Step 4A: If TAN is available in the database, registered with TRACES and the registration request is not raised already and pending for approval
· Click Continue to view the Basic Details page.
· The basic details are pre-filled. Click Continue.
Step 4B: If TAN is available in the database, which is not registered with TRACES and whose registration request is not raised and is pending for approval:
Click Continue to view the TRACES page.
Click Register with e-Filing on TRACES to view the Basic Details page
Enter the basic details as required and click Continue.
Note: You must register on TRACES. From there, you will be taken to the e-Filing
registration page on clicking Register with e-Filing.
Step 4C: If TAN is available in the database, whose registration request is raised and is pending for approval:
An error message is displayed, and you can choose to withdraw the registration process.
Step 5: Enter the details of the person making payments or collecting tax and click Continue.
Step 6: Provide the contact details including Primary Mobile Number, email ID and Postal Address. Click Continue.
Step 7: Two separate OTPs are sent to your primary mobile number and email ID as entered in Step 6. Enter the separate 6-digit OTPs and click Continue.
Note:
OTP will be valid for 15 minutes only
You have 3 attempts to enter the correct OTP.
The OTP expiry countdown timer on screen tells you when the OTP will expire
On clicking Resend OTP, a new OTP will be generated and sent.
Step 8: On the Verify Details page, review the details provided, edit the details if necessary, and then click Confirm.
Step 9: On the Set Password page, enter your desired password in the Set Password and Confirm Password textboxes, set your personalized message, and click Register.
Note:
Do not click Refresh or Back.
While entering your new password, be careful of the password policy:
It should be at least 8 characters and at most 14characters.
It should include both uppercase & lowercase letters.
It should contain a number.
It should have a special character (e.g. @#$%).
A success message is displayed along with the transaction ID. Please keep a note of the Transaction ID for future reference. The registration process is complete upon receiving approval from the competent authority.
Examples of TDS in India
Here are a few examples of TDS in India:
Salary: If an employee receives a salary of INR 10,00,000 per year, the employer is required to deduct INR 3,00,000 (30% of INR 10,00,000) as TDS and pay it to the government. The employee can claim credit for the TDS deducted and adjust it against their final tax liability.
Interest: If a bank pays interest of INR 50,000 per year to a savings account holder, it is required to deduct TDS at the rate of 10% and pay it to the government. The account holder can claim credit for the TDS deducted and adjust it against their final tax liability.
Rent: If a property owner receives rent of INR 1,00,000 per month from a tenant, they are required to deduct TDS at the rate of 10% and pay it to the government. The property owner can claim credit for the TDS deducted and adjust it against their final tax liability.
What is TDS under GST ?
TDS under GST refers to the tax deducted at the source on supplies made by a supplier to a government department or local authority. Under the GST regime in India, a government department or local authority is required to deduct TDS at the rate of 2% on the value of supplies made to them if the value of such supplies exceeds INR 2.5 lakh in a financial year.
For example, if a company supplies goods worth INR 3 lakh to a government department in a financial year, the government department is required to deduct TDS at the rate of 2% on the value of the supplies, i.e. INR 6,000 (2% of INR 3 lakh). The TDS so deducted must be paid to the government along with the GST return.
It is important to note that TDS under GST is applicable only to supplies made to a government department or local authority. It is not applicable to supplies made to a person or an organization other than a government department or local authority.
Penalty Provision for not Filing TDS Return or Payment
Failure to file TDS returns or delay in filing TDS returns can attract penalty. The penalty for not filing TDS returns or for delay in filing TDS returns is as follows:
If the TDS return is not filed within the due date, a penalty of INR 200 per day (up to a maximum of INR 10,000) is applicable.
If the TDS return is filed after the due date but before the end of the assessment year, a flat penalty of INR 5,000 is applicable.
If the TDS return is filed after the end of the assessment year, a penalty of INR 10,000 is applicable.
It is important to note that these penalties are in addition to the interest that may be payable on the unpaid TDS. The deductor must ensure that they file the TDS return on time to avoid these penalties.
In addition to the above penalties, the deductor may also be liable to pay interest on the unpaid TDS at the rate of 1% per month. The interest is calculated from the date on which the TDS was deductible to the date on which it is actually paid to the government.
It is important to note that the above penalties and interest are applicable to the deductor, not the payee. The payee is not liable for any penalties or interest for non-filing or delay in filing of TDS returns. However, the payee may be required to pay any unpaid tax, along with interest and penalty, if the TDS has not been deducted or has been deducted at a lower rate.
FAQ on Basics of TDS in India
Here are some frequently asked questions (FAQs) on the basics of TDS in India:
Q: What is TDS?
TDS stands for Tax Deducted at Source. It is a tax that is deducted at the source of income, rather than the recipient of the income paying the tax.
Q: Who is liable for deducting TDS in India?
The person or organization responsible for paying the income (the "payer") is required to deduct TDS on certain payments. The payer is known as the "deductor" and is responsible for deducting TDS at the prescribed rate and paying it to the government on behalf of the payee.
Q: What is the importance of TDS in India?
TDS plays an important role in the tax system of India. It helps the government to collect tax on a regular basis, rather than waiting for the payee to pay the tax at the end of the financial year. TDS is also important for the payee, as it helps to reduce the burden of paying a large amount of tax at the end of the year.
Q: What are the rates of TDS in India?
The rate of TDS varies depending on the type of income and the payee's tax slab. The government has prescribed different rates for different types of income, such as salary, interest, rent, commission, etc.
Q: What are the penalty provisions for not filing TDS returns in India?
Failure to file TDS returns or delay in filing TDS returns can attract penalty. The penalty for not filing TDS returns or for delay in filing TDS returns is as follows:
If the TDS return is not filed within the due date, a penalty of INR 200 per day (up to a maximum of INR 10,000) is applicable.
If the TDS return is filed after the due date but before the end of the assessment year, a flat penalty of INR 5,000 is applicable.
If the TDS return is filed after the end of the assessment year, a penalty of INR 10,000 is applicable.
In addition to the above penalties, the deductor may also be liable to pay interest on the unpaid TDS at the rate of 1% per month.
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