Tax Deduction at Source
The income tax is paid by
the assessee either in form of Advance Tax or Self-Assessment Tax as per the
expected or actual incomes earned during the financial year. This is the moral
duty of assessee to pay the income tax. The income tax department also ensures
the deduction of taxes on various payments and in such case the person or organization
making payments, deduct the taxes and then make the payments. Such deduction of
tax is known as Tax Deduction at Source (TDS). The person or organization who
deducted tax before making specified payment, pays the deducted tax on behalf
of payee to the income tax department. The TDS is deducted on payments of
salaries, interest, commission, brokerage, professional fees, royalties,
contract payments.
Rate of TDS deducted on particular payments:
Salaries are paid to the
employees, interest and commission are paid to the customers, interest and
brokerage are paid to the investors, professional fees and royalties are paid
to professionals and contract payments are made to the contractors. Before
deducting tax at source, it is required to know the PAN number of the recipient
to whom the payment is being made. In such case, he is known as deductee. The person
or organization who deducts the tax at source is known as deductor.
(a) In case of payment of salaries:
The TDS is deducted as
per the income category of the employee. In such case, the annual expected
taxable income is calculated and as per the estimated tax liability, the TDS is
deducted from the amount of salaries. From Financial Year 2018-19, the slab
rates of income tax have been revised. For example, an employee is being paid
salary @Rs. 50000 (Fifty Thousands) per month then the expected annual income
will be Rs. 6 Lacs minus standard deduction of Rs. 50000 (from FY 2019-20) i.e. the tax payable
on Rs. 5.5 Lacs will be computed including surcharge (if any) and education
cess. The surcharge is applicable @10% in case the taxable income is above Rs.
50 Lacs but up to 1 Crore while it is @15% in case of taxable income exceeds 1
Crore. The tax payable will be computed and thereafter the TDS is deducted on
the basis of tax payable. In case of monthly payments of salaries, the TDS will
be deducted equal to the amount of (total annual tax payable divided by 12). The
section 192 states that the TDS will be computed on the basis of Tax Liability
i.e. (income tax plus surcharge) plus education cess @4% on (income tax plus
surcharge).
(b)
In case of payments other
than salaries:
10% TDS is deducted on
interest on Fixed Deposits, interest of securities, and other types of interest
payments. In case of unexpected income from winning of lottery or games or quiz
contests or horse race etc. 30% TDS is deducted by the deductors. In payments
of contractors, if the contractor is individual or HUF then 1% TDS is deducted
otherwise 2% TDS is deducted. In payments of commission, 5% TDS is deducted. In
payments of remuneration or royalties or professional fees etc.; 10% TDS is
deducted. The provisions for TDS on various types of payments are described in
section 192, 192A, 194, 195 and 196.
In case of purchase of
immovable property (other than rural agricultural land), the buyer makes
payment to the seller. If the sale proceeds are less than Rs. 50 Lacs then no
TDS will be deducted but if it is more than Rs. 50 Lacs then TDS is deducted
@1% on amount of sale proceeds.
Threshold Limits for not deducted TDS:
In case, the payments are not so much or
subject to a particular limit; then no TDS is deducted by the deductors. For
example, in case of salaries if the deductee’s taxable income is not chargeable
to tax i.e. up to basic exemption limit (BEL) then no TDS will be deducted from
the salaries. The BEL for persons up to age 60 is Rs. 2,50,000; age 60 to 80
(senior citizens) is Rs. 3,00,000; age more than 80 (super senior citizens) is
Rs. 5,00,000. Section 192A states that the premature withdrawal from
accumulated balance of provident fund up to Rs. 50,000 is not subject to TDS.
The annual payment of interest up to Rs. 10000 are not subject to TDS however
in case of interest on debentures the threshold limit is Rs. 5000. Similarly if
the amount of winnings from lottery is less than 10,000 then TDS is not
deducted. In case of payment of rent, if the amount is less than Rs. 50,000 per
month then there will be no TDS deducted by the deductor but if it exceeds Rs.
50000 per month, then 5% TDS is required to be deducted.
Provision of submitting Form 15G or 15H:
In case, the deductee’s
estimated total income is not taxable then he can submit an undertaking in
prescribed format i.e. 15G (for individuals with age up to 60) and 15H (for
senior citizens).
Duties of Deductors for TDS:
It is the moral duty of a
deductor to deposit the TDS to income tax department on behalf of deductee. For
this purpose, first of all, the deductor obtain Tax Deduction Account Number
(TAN) and file the TDS statements known as TDS return by due dates as specified
by the income tax department. Further, it is also required to issue the TDS
certificate to the deductee so that he can claim the benefit of TDS deducted in
his ITR. In case, the deductor fails to remit the TDS amount to income tax
department by due date, he is required to pay interest on late payment of TDS
and also required to pay penalty and in few cases, also subject to imprisonment
up to seven years.
*Copyright © 2018 Dr. Lalit Kumar. All rights reserved.
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