Indian Income Tax Act has prescribed many tedious procedures for tax compliance. Deduction andpayment of Tax (TDS) is one among them. This article lists out some of the vital points of TDS matters.
- What is TDS?
Tax deduction at source means the tax required to be paid by the assessees, is deducted by the person paying the income to him. Thus, the tax is deducted at the source of income itself. For example, you charge a fee of Rs.1,00,000 to Mr. Murali. While paying you this amount, he will deduct tax (TDS) at 10% and pay you the balance of Rs.90,000. The amount so deducted (TDS) is deposited by Mr. Murali to the government mentioning your Permanent Account Number (PAN)
- Obtain TAN – TAN i.e. Tax Deduction and Collection Account Number is a 10 digit alpha numeric number required to be obtained by all persons who are responsible for deducting tax at source or collecting tax at source. It is compulsory to quote TAN in TDS/TCS return (including any e-TDS/TCS return), any TDS/TCS payment challan, TDS/TCS certificates, Annual Information Return and other documents as may be prescribed. Failure to obtain TAN attracts a penalty.
- Deduct Tax – The income from the sources such as salary, Interest, fees, commission, rent, royalty, etc are subjected to tax deduction at source. Failure to deduct tax attracts penalty.
- Deposit Tax – The persons deducting tax (TDS) are governed by TDS provisions under the Income Tax Law. As per the law, tax deducted from the source has to be deposited to the government on or before specified dates. Failure to deposit TDS attract penalty
- File E TDS Return – The persons deducting tax (TDS) have to file eTDS return with the government mentioning the details such as PAN, Name and address of each deductee, the particulars relating to deposit of tax deducted at source in the bank, etc., on quarterly basis. Failure or delay in filing ETDS return attract penalty. There is no necessity of filing eTDS if one deducts tax u/s 194IA towards purchase of immovable property.
- Issue form TDS Certificate – The certification from the deductor, for the deduction and paymentof the respective TDS amount to the bank, issued to the deductee is known as TDS certificate. The deductee should produce the details of this certificate, while filing his tax return, to adjust the amount of TDS against the Tax payable by the Deductee.
Form 16 is issued to each employee (TDS on salaries) within one month from the close of the financial year in which such deduction was made. Similarly, for TDS on other payments such as fee, commission, contractor, etc, form 16A is issued to the deductee within one month from the end of the month during which the credit has been given or the sums have been paid. Failure to download and issue the forms from tax website within the due date attracts penalty.
- TDS on Imports or payments to NRIs – Any person responsible for paying to a non-resident any interest or any other sum chargeable under the provisions of IT act shall deduct income tax thereon at the applicable rates in force. So, those who have availed any service from NRI or from foreign companies are obliged to deduct tax (TDS) on such payments. Failure to deduct tax attracts penalty.
- Checking 26AS with your books- The form 26AS contains the details of tax deducted on behalf of the taxpayer by deductors etc. If your customer or employer or banker has deducted tax from your income, it is advisable to check the tax credits in 26AS from time to time. In case of any discrepancy, reach out to the deductors and seek clarification. Tax deducted not reflecting in 26AS is like ‘lost money. If you have to take tax credits, the information must be available in 26AS statement.
You would have observed from all the steps above that non-compliance of TDS provisions attracts penalty. So, it is very important to comply with the law carefully and diligently.
Thought for the day
Remain cautious and keep learning.
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