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Introduction:

The concept of Tax Deducted at Source (TDS) was introduced to streamline tax collection by directly withholding taxes from the source of income. Under this principle, a person acting as a deductor, obligated to make certain payments to another person (the deductee), is required to deduct tax at the source and remit it to the Central Government’s account.

Based on Form 26AS or the TDS certificate issued by the deductor, the deductee, whose income tax has been deducted at the source, can seek credit for the deducted amount. Any surplus can then be claimed as an Income Tax Refund or adjusted against pending tax liabilities.

Tax Deducted at Source (TDS):

Tax Deducted at Source (TDS) refers to the income tax withheld from specified payments, including rent, commissions, professional fees, salary, interest, and other transactions, by the payers at the time of disbursing such amounts.

Typically, the individual receiving income bears the responsibility of paying income tax. However, through TDS provisions, the government ensures that income tax is preemptively deducted from payments made by individuals. Consequently, the recipient of income receives the net amount after TDS deduction, with the option to claim credit for the deducted amount already paid on their behalf.

Taxpayer Eligibility:

Any individual or entity making payments specified under the Income Tax Act is obligated to deduct TDS at the time of disbursing such amounts. However, no TDS deduction is necessary if the payer is an individual or Hindu Undivided Family (HUF) whose financial records do not mandate auditing.

However, for rent payments exceeding Rs 50,000 per month made by individuals and HUFs, a TDS rate of 5% must be deducted, irrespective of whether the individual or HUF is subject to a tax audit.

Your employer deducts TDS according to the applicable income tax slab rates. Banks, on the other hand, typically deduct TDS at a rate of 10% on deposits. In cases where they lack your PAN information, they may apply a higher rate of 20%. For most transactions, the TDS rate is predefined in the Income Tax Act, and the deduction is made by the payer based on these specified rates.

Where It’s Deducted:

Some types of income and expenses subject to tax deductions through TDS include:

• Interest on securities falls under Section 193.
• Prize money received from winning games like a crossword puzzle, card, lottery, etc., falls under Section 194B  
• Salary payments from the employer to the employee fall under Section 192
• Any interest, excluding interest on securities, such as interest on bank deposits, falls under Section 194A 
• Payments made to contractors fall under Section 194C 
• The maturity amount from LIC policies falls under Section 194DA 
• Insurance commissions  under Section 194D 
• Brokerage or commission (section 194H)
• Payment of rent on Plant and Machinery, Land and Building, etc.(section 194I)
•  Professional and Technical fees (section 194J)
• Online gaming (section 194BA)
• Nonresidents earning income from mutual funds in India can provide a Tax Residency certificate and avail of the benefit of the TDS rate given in the treaty (section 196A)
• TDS on listed debentures. (section 193)
• TDS on cash withdrawal by cooperative societies. ( section 194N)
• Virtual digital asset (section 194S)
• Sale of immovable property (section 194-IA)
• Commission payments
•  Payment of Rent
• Consultation fees
• Perks or benefits to any resident for carrying out any business or profession by such resident (section 194R)

When is TDS to be deducted?

TDS must be deducted in the following scenarios, along with the responsible parties for deduction:

• In certain income/payment scenarios, tax deduction at source (TDS) is mandatory for the payer, based on rates specified in the Income Tax Act, 1961. TDS is to be deducted at the time of accrual or payment of such income to the payee, whichever occurs earlier. However, if you are an “individual” or a “Hindu Undivided Family” (HUF) whose total revenue from business or professional activities does not exceed one crore rupees for business or fifty lakh rupees for a profession during the Financial Year immediately following the current financial year, no TDS is required.
• If you are employed, your employer will deduct TDS based on the relevant income tax slab rates. TDS rates are predetermined under the Income Tax Act for most transactions, and the payer deducts TDS accordingly.
• If you are an “individual” or a member of a “Hindu Undivided Family” (HUF) paying rent, even if your financial records are not subject to a tax audit, a TDS of 5% will be levied if the payable amount exceeds ₹50,000 per month. The deduction under section 194IB is PAN-based, eliminating the need for obtaining a Tax Deduction Account Number (TAN) by the individual or the HUF member.
• If you furnish your investment proofs to your employer to claim deductions under the Income Tax Act, and your total taxable income falls below the prescribed limit, it won’t be necessary to deduct TDS in this scenario. Similarly, for interest income received from a bank, if your total taxable income is below the threshold, you can submit Form 15G or Form 15H. In such cases, the bank will refrain from deducting any TDS from your interest income.
• If you neglect to provide investment proofs to your employer and they deduct the applicable TDS, you can rectify the situation by filing a return to claim a refund. However, you’re eligible for a TDS refund only if your total taxable income falls below the specified limit.

Essential Points to Remember When Filing TDS Returns Online:

Before filing your TDS return, it’s crucial to ensure several key factors. They include:

• Ensure that you possess a valid Tax Deduction and Collection Account Number (TAN) registered for e-filing.

• Utilize the Return Preparation Utility to prepare your TDS statements prior to verifying them using the File Validation Utility.

• To upload your returns using a Digital Signature Certificate (DSC), ensure you possess a valid DSC registered for e-Filing.

• If opting for Electronic Verification Code (EVC) to upload your returns, provide the DEMAT account or bank account details of your primary contact, or ensure their PAN is linked to Aadhaar.

TDS Payment Due Dates:

Each TDS payment is due on the 7th of the month following the deduction month. For example, if TDS is deducted on January 15th, it should be deposited with the Income Tax Department by February 7th, unless exceptions apply. After making the payment, you must complete a TDS return. The due date for each TDS return, except for the Jan-March quarter, is the last day of the month following the quarter in which TDS was paid. Please refer to the table below for more details:

Quarter	TDS Payment Date	TDS Return Date
Quarter 1-From April to June	7th May, 7th June, 7th July	31st July
Quarter 2-From july to Sep	7th August, 7th, September, 7th October	31st October
Quarter 3-From Oct to Dec	7th November, 7th December, 7th January	31st January
Quarter 4-From Jan to March	7th Feb, 7th March, 30th April	31st May

Exploring Penalties for Delayed Filing:

Here are the penalties imposed by the Income Tax Department for non-submission or delayed submission of your TDS return:

• Failure to submit returns: According to Section 272A (2) of the Income Tax Act, a penalty of Rs. 100 will be levied for each day the returns are not filed, up to the TDS amount limit.
• Failure to submit returns on time: According to Section 234E of the Income Tax Act, a penalty of Rs. 200 will be imposed for each day the returns are not filed, up to the TDS amount limit.
• Missing TDS statements: Section 271H of the Income Tax Act imposes a penalty ranging from Rs. 10,000 to Rs. 1 lakh if the deductor fails to meet the TDS return deadline.
• Incorrect information: Section 271H of the Income Tax Act stipulates a penalty of Rs. 10,000 to Rs. 1 lakh if the deductor provides incorrect information related to PAN, challan details, TDS amount, etc.
• For non-payment of TDS: Section 201A of the Income Tax Act stipulates a penalty and interest if TDS is not paid by the due date. In cases where some or all of the tax is deducted at the source, an interest of 1.5% per month is added from the date the tax was supposed to be deducted until it is deducted.

TDS Certificate:

The TDS certificate, provided by the deductor during payment, enables the recipient to claim tax credits; even without the certificate, credit can be claimed if TDS is reflected on the form 26AS.The deductor must timely submit the TDS certificate, adhering to criteria linked to the payment type on which TDS is deducted.

Consequences of Failing to Provide TDS Certificate:

The tax deduction coordinator will be fined Rs. 100 per day for each TDS certificate if it is not issued in the time frame specified. Furthermore, the penalty’s total amount cannot exceed the tax that must be withheld for the entire quarter.

Advantages of TDS:

Here are some of the numerous advantages of TDS:

• It serves as a mechanism to prevent tax evasion and ensure tax compliance.
• The government receives its share of taxes promptly through TDS deductions.
• As it is deducted regularly, the burden on the deductee is alleviated since the deductions are distributed evenly across the year.
• The tax collection burden on tax agencies is significantly diminished.

Union Budget 2023 Impact: Updates in TDS Regulations:

• The TDS rate on taxable EPF withdrawals has been reduced from 30% to 20%.
• For payment-based deductions, payments to MSMEs must align with agreed time frames, not exceeding 45 days, or 15 days without a written agreement; any delayed payment qualifies as an expense deduction in the year paid.
• No penalty is imposed under Sections 269SS or 269ST when a primary agricultural credit society or cooperative bank deals with loans for its members.
• The tax exemption for capital gains under Sections 54 to 54F is now limited to Rs.10 crores, with no previous minimum threshold.
• Starting from July 1, 2023, a 30% tax rate will apply to internet gambling earnings, and donations to funds like Jawaharlal Nehru Memorial Fund, Indira Gandhi Memorial Trust, and Rajiv Gandhi Foundation won’t qualify for a deduction under section 80G.