TDS return filing is the process of submitting a statement of tax deducted at the origin/source to the Income Tax Department. This statement comprises the details of deductor, deductee, payment amounts and tax deducted, etc.
Tax Deducted at Source (TDS) is a part of the Indian Income system introduced to collect tax at the source of income generation and deposited with the Income Tax Department. This tax deduction is applicable to payments such as salaries, rent, interest and professional fees.
Filing TDS returns accurately and on time is essential to ensure compliance and keep penalties at bay. This article elucidates TDS Return filing importance/significance, its process, due dates, penalties and points to keep in mind to ensure compliance.
What is TDS Return Filing?
TDS Return filing typically involves submitting a statement to the Income Tax Department to report the tax deducted at source and deposited with the government. It consists of details pertaining to;
- TAN Number of the deductor
- PAN of the deductees
- Amount Paid/Credited
- Tax Deducted and Deposited
What are the prerequisites before filing TDS Returns?
Before filing your TDS Returns, it's crucial to have these requirements/details ready beforehand:
- Valid TAN: Tax Deduction Account Number is mandatory for the deductors.
- PAN Details: Make sure to have valid PAN information of both the deductor and the deductee, and the PAN details must match official records.
- Challan Details: Collect challan number, BSR code, and payment date in case advance tax or TDS payments have been made.
- TRACES/ITD Portal Access: It is required to have an active account on the TRACES or Income Tax e-filing portal.
Who Needs to File TDS Returns?
Any individual or entity responsible for deducting tax at source (TDS) is obliged to file a TDS return. Those who need to file TDS Returns are;
- Corporations & LLPs: All Registered companies and Limited Liability Partnerships (LLPs) must file TDS returns on salaries, professional fees, rent, etc.
- Individuals & Partnership Firms: Individuals and Partnership Firms (including sole proprietorships) are obliged to file their TDS returns if they are making any payment that is subject to TDS. It typically affects individuals who make significant payments, such as rent payments above Rs 50,000 each month, or businesses engaging contractors and freelancers.
- Government Departments: Government offices and departments are also responsible for deducting TDS and subsequently filing TDS returns.
- HUFs (Hindu Undivided Families): HUFs are required to file TDS returns if their turnover, gross receipts, or sales from a business or profession surpass the monetary threshold specified by the Income Tax Act.
- The core principle is Straightforward: Once TDS has been deducted, filing a TDS return is mandatory.
Common Types of TDS Returns
TDS Returns can be categorised into various types based on the nature of the payment and the deductor. The most common types are as follows;
- Form 24Q: This form is filed each quarter by employers reporting the TDS deducted from the salaries of their employees.
- Form 26Q: This form is used to file TDS on all payments other than salaries made to residents. This includes payments like professional fees, rent, interest, commission, and so on.
- Form 27Q: It's used to file TDS on all payments except salaries made to the Non-Resident Indians (NRIs) and Foreign Businesses.
Step-by-Step Process for TDS Return Filing
TDS Returns can be filed online by following the specified steps. The step-by-step process of TDS filing goes as follows;
- Obtain a valid TAN: TAN is a 10-digit unique alphanumeric number required for all deductors. It needs to be mentioned on all documents related to TDS.
- Deduct TDS timely: Deduct the correct percentage of TDS while making a payment that is subject to TDS.
- Deposit TDS to the Government: The deducted TDS must be deposited with the government through a bank using Challan 281. TDS must be deposited by the 7th of the following month.
File TDS Return Quarterly
- Preparing Return: Use a TDS Return Preparation Utility (RPU) on your accounting software to prepare the return file in the specified format.
- Validating the File: Now, use the TDS File Validation Utility (FVU) provided by NSDL to ensure the file is error-free.
- Uploading the Return: Go to the Traces portal and upload the validated file using your TAN.
Issue Form 16/16A to the Deductee: Post return filing, you must provide a TDS certificate (Form 16 for salaries and Form 16A for non-salary payments) to the person you have deducted the tax from.
Penalties for Non-filing of TDS Return
Upon failure to comply with TDS return filing, the following strict penalties may be imposed;
- Late Filing Fees: Under Section 234E, a fee of Rs 200 per day is charged on the delay of the return until the fee amount is equal to the total TDS amount.
- Penalty for Non-Filing: In case of failing to file TDS Return by the due date or filing with incorrect details, the Assessing Officer can levy a penalty of Rs 10,000 and can go up to Rs 1,00,000 under Section 271H.
- Disallowance of Expense: Under Section 40(a)(ia), if TDS was needed to be deducted but was not deducted or was deducted but not deposited to the government, that entire expense will be treated as your income, thereby it can significantly increase your tax liability.
- Interest: For late deduction, interest of 1% (per month) is levied, and late payment attracts an interest of 1.5% (per month) of the TDS amount.
Conclusion
In India, TDS Return filing is a crucial compliance requirement for individuals and businesses. Exploring the significance, eligibility, types and process of TDS Return filing can help file it smoothly to avoid unnecessary penalties. Taking timely actions is essential in the compliance segment as it not only helps avoid penalties but also the headaches of non-compliance! This is the reason it's often advisable to consult a CA or tax experts to handle your tax compliance hassle-free!
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