TDS Provisions under Income Tax Act, 1961

TDS PROVISIONS UNDER INCOME TAX LAW

WHAT IS TDS AND PURPOSE OF ITS INTRODUCTION

TDS is abbreviated for tax deducted at source which was introduced to collect taxes at source from where the income is generated. The government uses TDS as a tool to collect tax in order to minimise tax evasion by taxing the income at the time it is generated rather than at a later date. 

Person making specified payments such as salary, commission, professional fees, interest, rent, etc. are required to deduct tax before making the payment to receiver and deposits the same with the government, subject to the provisions under Income Tax Act.

WHO IS LIABLE TO DEDUCT TDS

Any person who is liable for audit u/s 44AB of Income Tax Act, 1961 are liable to deduct TDS as per the relevant provisions. In this case, all Company and firms are required to deduct TDS.

There are various other circumstances on case to case basis where TDS are required to be deducted even the person is not liable for audit.

TAN is mandatory for deduction of TDS

For deducting TDS, deductor need to have TAN which should be quoted in all the TDS Certificates, challans, quarterly statements, correspondence, etc.

Consequence if deductor is not having TAN

 If the deductor does not quote the TAN as above, he may face penalty of Rs.10,000.

Circumstances under which TAN is not required for deduction of TDS

Person deducting TDS on consideration more than 50 lakhs for sale of immovable property other than the agricultural property can use PAN instead of TAN.

DUTIES OF PERSON DEDUCTING TDS

Deduct TDS and deposit to the government account

Person responsible for deducting TDS has to deduct the tax at the time of making such payments which has to be deposited on or before 7th of the following month in which TDS has been deducted with the government. However, for the month of March, it should be deposited on or before 30th April.

Issue of TDS Certificate

After the TDS deduction, the deductor has to issue the certificate in form 16(for salaried person) and 16A(other than salaried person) to the person from whom TDS has been deducted.

Filing of Prescribed Return/Quarterly Statement

Every person responsible for deducting tax is required to file quarterly statements of TDS.

FILING OF E-RETURNS

Filing of the TDS return in electronic media are beneficial for the deductor since it reduces the return preparation time, the volume of documentation and also the compliance cost. At the same time, it will also facilitate the Government in better co-relation of taxes deducted with the taxes finally deposited in the banks and credits of TDS claimed by the deductees.

REQUIREMENT TO FILE TDS E-RETURNS

• As per the provisions of law all corporate and Government deductors are compulsorily required to file their TDS return in electronic mode;
• A person required to get his accounts audited u/s 44AB shall also file the return electronically;
• Person whose deductee's record in a statement for any quarter of F.Y. is twenty or more.

In other cases, filing of e-return is optional. They can file the TDS return physically.

FORMS FOR QUARTERLY TDS RETURNS

DUE DATE OF FILING OF TDS RETURN

PENALTIES FOR DEFAULT OR CONTRAVENTION OF THE PROVISIONS OF ACT

1. Failure to deduct tax

If the taxpayer fails to deduct TDS-

• Income Tax Assessing officer may disallow the expenditure in respect of which TDS has not been deducted. Thus, if disallowed, you will be liable to pay tax on such expenditure;
• He will be liable to pay interest @ 1% for every month or part of a month on the amount of tax not deducted which shall be calculated from the date on which it should be deducted till actually deducted.

2. Failure to deposit tax with government after deduction

If the taxpayer deducts the tax but fails to deposit it with government, he has to pay Interest @1.5% per month or part of the month which will be levied from the date of deduction till the date of payment. Additionally, Penalty may also be levied which shall not be greater than equal to the amount of TDS.

3. Failure to file TDS return within due date

Delay in filing of TDS return will attract penalty of Rs.200 per day till the date of filing of return.

Disclaimer: The article has been written by Siddarth Agarwal, Practising Company Secretary carrying his practice in Delhi-NCR and Guwahati. Due care has been taken to ensure the correctness of information. However, this article cannot be construed as legal opinion and writer will not be liable for any claim. Any suggestions are welcome to increase the effectiveness of the article. For detailed analysis on any of the provision or for any query, writer can be contacted on the given contact details.

The author can also be reached at pcs.siddarth@gmail.com