Tax Deduction At Source

Tax Deduction at Source

Tax Deduction At Source MEANING:

Person responsible for making payment of certain income of the income earners deduct income tax at the prescribed rates on such incomes before payment is made to them.

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The amount so deducted at source shall be deposited by the deductor in the Government Treasury within the prescribed time limit.

Payment covered by TDS scheme Covers payment like: 

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Salary (to R/NR). Payment other than salary to residents (interest, dividend, rent, commission, etc). Payment to non residents or foreign companies.

Salaries (Sec.192) 

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Compute the income from salary as discussed under the head “Income from salaries”. From such salary allow the deductions u/s. 80C, 80CCC, 80CCD, 80D, 80DD, 80E, 80GG and 80U.

Rates Of Tax Income (Individual) Upto Rs. 1,50,000 Above Rs. 1,50,000 – Upto Rs. 3,00,000

Rate of Tax Nil 10%

Above Rs. 3,00,000 – Upto Rs. 5,00,000 Above Rs. 5,00,000

20%

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30%

Surcharge : 10% on excess of 1000000 Education Cess : 2% on (income tax + surcharge) Secondary & Higher Education Cess: 1% on (income tax + surcharge)

Practical Ques: An employee ‘C’ receives the following for financial year 2008-2009:  Salary :Rs 25000pm and Bonus Rs. 40000  C’s contribution to RPF is Rs. 30000  Life Insurance premium paid Rs. 10000  Compute TDS on his income

Solution Computation of salary income and TDS for the assessment year 20092010 Rs. Salary(25000*12) and bonus = 340000 Savings u/s 80C: L.I premium 10000 Contri to RPF 30000 (40000) Salary Income Liable to TDS 300000 Tax on Rs. 300000 Upto Rs. 1,50,000 Nil Above Rs.1,50,000 – Upto Rs.3,00,000 10% Add Surcharge Nil Add EC@2% Add SHEC@1% Tax deductible at source

15000 300 150 15450

Rules for TDS from Salary Who will deduct the tax- Employer.  When tax will be deducted- At the time of payment.  Salary for more than 1 employerAssessee must furnish detail of his salary receive from previous employer for deduction of tax at source. 

Rules Cont… 

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Income from any other headAn employee can furnish detail of this other income to his employer Employer can deduct tax at source from such incomes also. Assessee cannot claim set-off any loss from salary income except loss under the head “Income from House Property”.

Rules Cont… 

Payment of salary in Foreign currency-

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For the purpose of TDS on salary payable in foreign currency the value in rupees of such salary shall be calculated at the prescribed rate of exchange.

Rules Cont… 

Tax on Perks paid by employers-

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The employer has being given the option to pay tax on income by way of perquisites (not provided by the way of monetary payments). Such amount paid by employer shall be deemed to have being paid by the assessee.

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Rules Cont… 

Relief U/S 89(1)-

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If employee furnishes information in form no. 10E to the employer relief u/s 89 should be given to the concerned employee while deducting TDS u/s 192.

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This facility is available for employees of:-

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government organization or company, corporative society, local authority, university, institution, association or body.

Rules Cont… 

Deposit of tax-

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Person responsible for paying the salary is required to pay TDS as under-

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Where deduction is made by or on behalf of Government- on same day. In other case- within one week of the last day of the month in which deduction is made.

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Rules Cont… 

Furnishing statement-

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Person responsible for paying salary shall furnish to the person who receives a salary a statement giving particulars of perquisites or profit in lieu of salary( in form 12BA).

Is it possible to get salary without tax deduction or with lower tax deduction? YES, Employee can make an application in form no. 13 to the assessing officer to get a certificate of lower tax deduction or no tax deduction.

Interest on securities Sec. 193 (a)  Any person responsible for paying an interest on securities to a resident is required to deduct tax at source at the rates in force on amount of interest payable. (b) The Tax is required to be deducted at the time of credit of such income to the payees account or at the time of payment of interest on securities whichever is earlier.

Interest on securities Sec. 193 RATE OF TAX:a) If the recipient of interest is other than a company: i) Securities issued by local authority or statutory corporation-@10%+surcharge, if any + education cess@2%+secondary and higher education cess@1%; ii) Debentures issued by a company, where such debenture are listed in a recognised stock exchange in India-@10%+surcharge, if any + education cess@2%+SHEC@1%; iii)other securities-@20%+surcharge, if any + education cess@2%+SHEC@1%.

Interest on securities Sec. 193 b)If the recipient is a company: then it would be charged @20%+surcharge, if any + education cess@2%+SHEC@1%. TAX SHALL NOT BE DEDUCTED AT SOURCE FROM ANY INTEREST PAYABLE ON:a) National Savings Certificates; or b) 8% Savings(Taxable)Bonds; or c) National Development Bonds; or d) Any security of the central or state government.

Dividends Sec.194 (a) The Principal Officer of the Indian Company or a company, which has made prescribed arrangements for declaration and payment of dividend in India is responsible for deducting tax at source from dividend payable to a shareholder, who is resident in India. (b) No tax is to be deducted at source u/s 194 from Dividend payable to any individual shareholder if the dividend is paid by the company by an account payee cheque and the aggregate amount of dividend distributed/paid or likely to be distributed/paid during the financial year does not exceed Rs.2,500/-.

Dividends Sec.194 (c) Dividend paid by domestic companies u/s 115O are exempt from tax in the hands of the recipients’ w.e.f. April 1, 2003. d)The rate of TDS on dividends are @ 20%+ surcharge, if any+ education cess@2%+SHEC@1%

INTEREST OTHER THAN ‘INTEREST ON SECURITIES’ Sec. 194A 

Who will deduct the tax at source

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An Individual or HUF, who is required to get his accounts audited u/s 44AB

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A Company, firm, co-operative society, local authority, AOP or BOI etc.

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Payment made to whom: a resident of India. RATE OF TAX: 1.) Domestic Company: @ 20% + Surcharge @ 10% + E.C. @ 2% 2.)Other residents in India: @ 10% + Surcharge, if any +E.C. @ 2 %

Illustration (Q) Calculate the amount of tax deducted at source from the following incomes during the F.Y. 2008-09. a.) Interest on unlisted debentures of Y Ltd. Payable to T, a resident in India Rs. 10,000. b.) Interest on Delhi Govt. Securities payable to Mr. Z, a resident in India Rs. 20,000.

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Income from Interest on Securities (listed) Rs. 6,000.

WINNINGS FROM LOTTERY OR CROSSWORD PUZZLES ETC. Sec. 194B  

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Who is the recipent : any person Payment covered: Winnings from lotteries/ crosswords puzzles/ card games/ other games. Max. amount which can be paid without tax deduction: if the amount of payment is Rs. 5,000 or less than Rs. 5,000. Rate of tax deduction at source: 30%

Illustration During the F.Y. 2008-09 find out the tax to be deducted at source in the following cases: a.) payment regarding lottery winnings Rs. 500 b.) Lottery winnings of Rs. 1,00,000 payable to Mr.X , resident in India. 

Winning From Horse Race Tax will be deducted at source by bookmakers and race clubs from winning from horse races, when The payment exceeds Rs 2500 The prescribed rate for deducting tax during the previous year 2008-09 is 30% plus surcharge if any Plus education cess @3% in case of all assessee. 

Winning from lottery or crossword puzzles Tax will be deducted if the amount exceeds by  Rs 5000  The prescribed rate for deducting tax during the previous year 2008-09 is 30% plus surcharge if any  Plus education cess @3% in case of all assessee.

Winning from lottery Important points to be remember 

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When the price is given partly in cash and partly in kind, then income tax will be deducted with reference to the aggregate amount of the cash prize and the value of the prize in kind. If the part in cash is not sufficient to meet the liability of deduction of tax in respect of the whole of the winning, the person responsible for paying shall before releasing the winning ensure that tax has been paid When the prize is given in installments, the tax will be deducted only at the time of actual payment of each installments ie not in the lump sum in the end but at each interval of installments. Income tax is not deductible from the income by way of bonus or commission paid to lottery agent or sellers of lottery tickets on the sale made by them.

Payment to contractors and sub contractors  

 a) b) c) d) e) f) g) h) i)

Tax will be deducted at source if the sum exceeds Rs 20,000. and further where the aggregate of amount exceeds Rs. 50,000. Everyone except an individual or HUF shall not deduct tax at source where such sum is made or credited to the contractor exclusively for personal purposes of such individual or any member of HUF. The authorities which will have to pay tax are: The central government or any state government Any local authority Any statutory corporation Any company Any cooperative society Any registered society Any trust Any firm An individual or HUF who is required to get his accounts audited under 44AB Act

Payment to contractors and sub contractors  a) b)  a) b)

Rate of TDS When payee is a contractor, under sec 194C in case of advertising @1% plus surcharge, if any + education cess@3% In any other case @ 2%plus surcharge, if any + education cess @3% When payee is a sub contractor, under sec194 C2 when payee is an individual or HUF contractor, who is required to get his accounts audited under sec40AB If sub contractor is resident, then the deduction is @ of 1% + surcharge, if any + education cess @ 3%

Payment to contractors and sub contractors 

Exceptions Tax will not be deducted during the course of business of plying, hiring or leasing good carriages, if such contractor is an individual who has not owned more than two carriages.

Insurance commission   a)  a)

Tax will be deducted If amount exceeds Rs 5000 In case of person, resident of India 10% plus surcharge, if any + education cess @3% In case of domestic company 20% plus surcharge, if any +education cess @ 3%.

Section 194E – Payment to Non Resident Sportsman/Sports Association (a) Any person responsible for paying any income to a non resident sportsman including an athlete who is not a Citizen of India or a non-resident Sports Association or Institution is required to deduct tax at source. (b) The tax is required to be deducted at the time of credit of such income to the account of payee or at the time of payment in cash or by issue of cheque or draft or by any other mode whichever is earlier.

Section 194EE – Payment in respect of deposits under National Savings Scheme 

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(a) Any person responsible for paying to any person any amount referred to in Section 80CCA(2) is required to deduct Income Tax. (b) No deduction is required to be made where the amount of such payment or the aggregate amount of such payments during the financial year is less than Rs.2,500/-.

Section 194F – Payment on account of Repurchase of Units by Mutual Funds or UTI

Any person responsible for paying to any person any amount referred to in Section 80CCB(2) is required to deduct tax at source at the time of payment without any exemption.

Section 194G – Commission etc. on the sale of Lottery Tickets 

Any person who is responsible for paying commission, remuneration or prize to any person who is or has been stocking, distributing, purchasing or selling lottery tickets is required to deduct tax at source on such tickets on an amount exceeding Rs.1,000/-.

Section 194H – Commission or Brokerage a) Any person other than an individual or Hindu Undivided Family who is responsible for paying on or after 1st June, 2001, to a resident, any income by way of commission (other than insurance commission referred to in section 194D), or brokerage, is required to deduct tax. (b) No deduction is required to be made where the amount of such income or the aggregate of the amounts of such income credited/paid during the

Section 194 I – Rent (a) Any person other than an individual or Hindu Undivided Family responsible for paying rent to resident any income by way of rent is required to deduct tax a) 15% if the payee is individual or HUF b) 20% in other cases. This provision does not applicable if total rent not exceed Rs.1,20,000.

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Sec.194J-Fee for professional or technical services

It provide for deduction of tax at rate of 5% at time of payment or credit. No tax shall be deducted at source : a) Any amount credited or paid before 1/7/1995 b) If amount does not exceed Rs.20,000. 

Sec.194K-TDS on units of UTI and Mutual funds Tax shall be deducted at prescribed rates(10.5%) on any income distributed by UTI or Mutual Funds under u/s 10(23D). No TDS in following cases:  If amount of income does not exceed 2500 Rs. Or  If amount paid to a person whose total income including this income does not exceed Rs.50,000 and who is an individual or HUF and submits a declaration in form 15H  If assessing officer issues a certificate allowing no TDS. 

Section 195 

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Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being interest on securities) or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries" )shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force : Provided that in the case of interest payable by the Government or a public sector bank within the meaning of clause (23D) of section 10 or a public financial institution within the meaning of that clause, deduction of tax shall be made only at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode . 

Sec.196BIncome from unit of offshore funds. In case of any income is payable in respect of offshore, tax at the rate of 10% shall be deducted at source at the time of making payment or credit the amount to the account of payee. This provision has come into effect from 01.10.1991

Section 196C INCOME FROM FOREIGN CURRENCY BONDS OR

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SHARES OF INDIAN COMPANY

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In case of income by way of interest or dividend is paid or payable in respect of bonds or shares of indian companies as refferred in sec.115ac, income tax at the rate of 10% shall be deducted at source. This amendment has been inserted by the finance act 1992 and is effective from 01.06.1992

Section 196D Income of Foreign Institutional Investors

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from securities

(1) Where any income in respect of securities referred to in clause (a) of sub-section (1) of section 115AD is payable to a Foreign Institutional Investor, the person responsible for making the payment shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of twenty per cent. (2) No deduction of tax shall be made from any income, by way of capital gains arising from the transfer of securities referred to in section 115AD, payable to a Foreign Institutional Investor.

OTHER IMPORTANT POINTS REGARDINGS DEDUCTION OF TAX AT SOURCE Payment to the Government or Reserve Bank (Sec 196) : No tax will be deducted at source if the payment is made to : i)The Government or ii)The Reserve Bank of India iii)Any Statutory Corporation whose income is exempt from income tax or iv)A Mutual Fund specified in Sec10(23d) 1.

at lower rate (Sec 197) : In case of any income of any person under Sections 192 to 195 on an application being made by an assessee,the Assessing Officer, may if satisfied,issue a certificate that either his income is not taxable or taxable at lower rate . In such a case the person making the payment shall either not deduct tax at all or deduct it at lower rate stated in the certificate 2.

Tax deduction

3. No Deduction of tax at source in certain cases(Sec 197A) a.) No deduction of tax at source shall be made from(U/S 194 and 194EE)(i)Dividends ,(ii)payments in respect of deposits under NSS,if following conditions are satisfied: - Recipient of such income is an individual and resident in India - Such a person furnishes a declaration in writing in duplicate,in the prescribed form that the tax on his estimated total income of the previous will be nil.

b) No deduction of tax at source shall be made from(U/S 193 and 194A) (i)interest on securities ii)interest other than securities , if following conditions are satisfied: - Recipient of such income is a person not being a company or a firm - Such a person furnishes a declaration in writing in duplicate, in prescribed form that the tax on his estimated total income of the previous year will be nil

c.)If the income of a person is unconditionally exempt u/s 10 and who is not required to file return of income u/s 139,there would be no requirement for TDS since the income is exempt d.)No deduction of tax shall be made if the following conditions are satisfied: The assessee is an individual and resident of india He is of the age of 65 years or more at any time during previous year He furnishes a declaration in prescribed form in duplicate to the person responsible for paying any income of the following nature stating that the tax on his estimated total income for the relevant previous year is nil: - Interest on securities - dividends - interest other than interest on securities - payment in respect of deposit under NSS

e.) No deduction of tax shall be made by the Offshore Banking Unit from the interest paid: - On deposit made after 31.3.2005 by a non resident or a person not ordinarily resident in india - On borrowing after 31.3.2005 from a non resident or a person not ordinarily resident in india The payer of the income aforesaid will deliver to the Chief Commissioner or Commissioner of Income Tax one copy of the declaration on or before the 7th day of the month next following month in which the declaration is furnished . If he fails to do so he will be liable to a penalty of Rs 100 per day during which the default continues

4) Tax deducted is income (Sec 198) The tax deducted at source is deemed to be the income of the person from whose income the tax has been deducted at source 5) Credit for tax deducted : The tax deducted at source and paid to the central government is deemed to have been paid on behalf of the person from whose income the deduction was made or the owner of the security , or of the depositor or of the owner of property ,or of the unit holder .or the shareholder, as the case may be

6.)Duty of tax payer : It is the duty of the person responsible for deducting tax at source that he must pay it to the government within the prescribed limit 7.) Issue of certificate (Sec 203): The person deducting the tax at source or the employer paying the tax on the value of perquisites,has to issue a certificate of deduction/payment to the assessee stating the amount of tax deducted at source or paid in the prescribed Form No.16/16AA in case of salaries and Form No. 16A in all other sources

8.)Tax deduction and collection account number (Sec 203A) : Every person, deducting tax or collecting tax at source, who has not been alloted a tax deduction account number or a tax collection account number,shall apply in duplicate in Form No. 49B within one month from the end of the month in which the tax was deducted or collected to the A.O for the allotment of a tax collection account number

9.)Furnishing of statement of tax deduction(Sec 203AA) : The Director General of Income Tax or the person authorised by him shall,within prescribed time after the end of each financial year beginning on or after 1.4.2008 prepare and deliver to every person from whose income the tax has been deducted or in respect of whose income tax has been a statement in the prescribed form specifying the amount of tax deducted or paid or collected at source 10.)Bar against direct demand from assessee(Sec 205): Where tax has been deducted at source, the assessee shall not be liable to pay tax himself to the extent it has been deducted even the deductor has failed to pay it to the government .

Persons responsible for deducting tax at source ( Section 204) In case of salaries  In case of interest on securities payable by a person other than State or Central Government  In case of any other sum paid or credited under the provisions of the Act 

Tax deduction account number section (203A) Every person who is responsible for deducting tax at source is allotted a TAN number

Such account number shall be quoted on following documents  - all the challans for payment of tax  - all tax deductions at source certificates  - any other documents so prescribed

NUMERICAL      

Ascertain amount of Tax deducted at source from the following incomes/receipts during the financial year 200809 Lottery winnings of Rs 100000 payable to Mr. X, resident in India Winnings from horse race Rs 50000 payable to Mr. Y , non resident in India Dividends from a domestic company Rs 40000 Insurance commission payable by resident of India Rs. 14000 Commission to lottery agent Rs. 15000 Income from interest on securities Rs. 6000

SOLUTION

CONCLUSION TDS is one of the modes of collecting Income-tax from the assesses in India. Tax deducted at source needs to be deposited in the Government treasury and assigned to the Central Government, within a stipulated time period

SECTION OF THE ACT

NATURE OF PAYMENTS

RATES IN % FOR COMPANIES

RATES IN % FOR OTHERS

192

Salaries

193

Interest ON Securities

20

10

194 A

Interest other than 20 interest on securities

10

194BB

Winning from horse 30 race

10

194D

Insurance commission

10

10

194 H

Commission on brokerage

5

5

194i

Income from rent>120000

20

15 & 20

194 B

Winnings from lottery> 5000

30

30