When Should TDS be Deducted and By Whom in India?

Demystifying TDS Deductions: When and By Whom Should Tax be Deducted at Source in India?

Introduction:

Tax Deducted at Source (TDS) is a crucial component of India’s tax ecosystem, ensuring that a portion of the tax due on income is collected upfront. While the concept of TDS is well-established, many individuals and businesses often find themselves grappling with the question of when and by whom TDS should be deducted. In this comprehensive article, we’ll shed light on these crucial aspects, equipping you with the knowledge to navigate the intricate world of TDS deductions like a pro.

When Should TDS be Deducted?

The Income Tax Act, 1961, provides a comprehensive list of payments that are subject to TDS deductions. However, the general principle is that TDS should be deducted at the time of making specified payments to the recipients. These payments include, but are not limited to:

  • Salary payments by employers (Section 192)
  • Interest payments by banks and financial institutions (Sections 193 and 194A)
  • Rent payments for immovable properties (Section 194-I)
  • Professional fees or commission payments (Sections 194J and 194H)
  • Payments to contractors or sub-contractors (Section 194C)
  • Payments for the purchase of immovable property (Section 194-IA)
  • Winnings from lotteries, crossword puzzles, card games, etc. (Section 194B)
  • Income from online gaming (Section 194BA – new provision introduced in Budget 2023)

It’s important to note that the timing of TDS deduction may vary depending on the nature of the payment. For instance, TDS on salary is typically deducted at the time of payment, while TDS on rent or purchase of immovable property may be deducted within 30 days from the end of the month in which the deduction was made.

By Whom Should TDS be Deducted?

The responsibility of deducting TDS lies with the person or entity making the specified payment, commonly referred to as the “deductor.” This can include:

  • Employers (for TDS on salary)
  • Banks and financial institutions (for TDS on interest)
  • Companies, firms, or individuals (for TDS on rent, professional fees, commission, etc.)
  • Buyers of immovable property (for TDS on property purchase)
  • Lottery or game organizers (for TDS on winnings)

It’s important to note that certain exceptions apply to individuals and Hindu Undivided Families (HUFs) whose books are not required to be audited. In such cases, TDS may not be required to be deducted for certain payments, subject to specific conditions.

Obtaining a Tax Deduction Account Number (TAN):

Most deductors are required to obtain a Tax Deduction Account Number (TAN) from the Income Tax Department. This unique identification number is used for depositing TDS and filing TDS returns. However, there are exceptions where deductors can use their Permanent Account Number (PAN) instead of a TAN, such as for TDS on rent payments by individuals or HUFs (Section 194-IB) and TDS on certain payments by individuals or HUFs (Section 194M).

Rates of TDS:

The rates of TDS deduction vary depending on the nature of the payment and the recipient’s residency status. For instance, TDS on salary is deducted at the average rate of income tax applicable to the employee, while TDS on interest from banks is typically deducted at a flat rate of 10%. In cases where the deductee does not furnish their PAN, TDS may be deducted at higher rates, as per Section 206AA of the Income Tax Act.

Consequences of Non-Compliance:

Failure to deduct TDS when required, deposit the deducted amount with the government, file TDS returns, or issue TDS certificates can attract interest, penalties, and even prosecution in severe cases. It’s crucial for deductors to maintain accurate records, adhere to due dates, and seek professional assistance when necessary to ensure seamless TDS compliance.

Conclusion:

Understanding when and by whom TDS should be deducted is a critical aspect of tax compliance in India. By adhering to the guidelines set forth in the Income Tax Act and following the prescribed procedures, individuals and businesses can contribute to the efficient functioning of the nation’s tax system while avoiding potential penalties and legal consequences.

At Filingwala.com, we recognize the complexities involved in TDS deductions and offer comprehensive services to guide you through the process. Our team of experts can assist you in identifying TDS-applicable payments, calculating the correct deduction rates, obtaining a TAN, and ensuring timely deposits and filings. Visit www.filingwala.com or contact us today to learn more about how we can support you in mastering the art of TDS deductions and achieving tax excellence.

How Does TDS Work in India?

how does tds work in india

Unraveling the Intricacies: A Step-by-Step Guide to How TDS Works in India

Introduction:

Tax Deducted at Source (TDS) is a pivotal mechanism in India’s tax collection system, ensuring that a portion of the tax due on income is deducted upfront. While the concept of TDS may seem straightforward, understanding the intricate workings of this system is crucial for individuals and businesses to ensure compliance and avoid potential penalties. In this comprehensive guide, we’ll delve into the nitty-gritty of how TDS operates in India, shedding light on the various stages and processes involved.

The TDS Lifecycle:

The TDS system follows a well-defined lifecycle, with each stage playing a crucial role in ensuring efficient tax collection and compliance. Let’s break down the process step by step:

Step 1: Identification of Specified Payments

The first step in the TDS process is to identify the payments that are subject to TDS deduction. The Income Tax Act, 1961, outlines various sections that define the types of payments attracting TDS, such as salary (Section 192), interest (Sections 193 and 194A), rent (Section 194-I), professional or technical fees (Section 194J), and many others.

Step 2: Deduction of TDS

Once a specified payment is identified, the payer (deductor) is responsible for deducting TDS at the prescribed rate. These rates vary depending on the nature of the payment, the recipient’s residency status, and other factors outlined in the Income Tax Act. For instance, TDS on salary is deducted at the average rate of income tax applicable to the employee, while TDS on interest from banks is typically deducted at a flat rate of 10%.

Step 3: Depositing TDS with the Government

After deducting TDS, the deductor is obligated to deposit the deducted amount with the government within the prescribed due dates. These due dates vary based on the type of payment, with most non-salary TDS payments required to be deposited by the 7th of the following month. For TDS on rent and purchase of immovable property, the due date is within 30 days from the end of the month in which the deduction was made.

Step 4: Filing TDS Returns

Filing TDS returns is a mandatory requirement for all deductors. These returns provide detailed information about the TDS deductions made, including the TAN (Tax Deduction Account Number), the amount of TDS deducted, the type of payment, and the PAN (Permanent Account Number) of the deductees (recipients). TDS returns are typically filed quarterly, with different forms prescribed for various types of payments (e.g., Form 24Q for TDS on salary, Form 26Q for TDS on non-salary payments).

Step 5: Issuing TDS Certificates

After deducting TDS and filing the returns, the deductor is required to issue TDS certificates to the deductees. These certificates serve as proof of the tax deducted and are essential for claiming credit when filing income tax returns. The different types of TDS certificates include Form 16 (for TDS on salary), Form 16A (for TDS on non-salary payments), Form 16B (for TDS on the sale of immovable property), and Form 16C (for TDS on rent payments).

Step 6: Claiming TDS Credit

The final step in the TDS process involves the deductees claiming credit for the TDS deducted when filing their income tax returns. This is achieved by reporting the gross income (payment received plus TDS deducted) and claiming credit for the TDS amount, as evidenced by the TDS certificates issued by the deductor. The claimed TDS credit is then adjusted against the deductee’s final tax liability, potentially resulting in a refund or additional tax due.

Compliance and Penalties:

Compliance with TDS regulations is crucial to avoid penalties and legal consequences. Failure to deduct TDS, deposit the deducted amount with the government, file TDS returns, or issue TDS certificates can attract interest, penalties, and even prosecution in severe cases. It’s essential for deductors to maintain accurate records, adhere to due dates, and seek professional assistance when necessary to ensure seamless TDS compliance.

The Role of Technology:

In recent years, the Indian government has taken significant strides in leveraging technology to streamline the TDS process. Online platforms like the Income Tax Department’s e-filing portal have simplified the filing of TDS returns and the issuance of TDS certificates. Additionally, services like the Tax Information Network (TIN) facilitate the verification of TDS deductions and credits, enhancing transparency and accuracy.

Conclusion:

Understanding how TDS works in India is crucial for individuals and businesses alike. By following the step-by-step process outlined in this guide, you can ensure compliance with TDS regulations, avoid penalties, and contribute to the efficient functioning of the nation’s tax system.

At Filingwala.com, we understand the complexities of TDS and offer comprehensive services to guide you through the entire process. Our team of experts can assist you with TDS calculations, deductions, deposits, return filings, and issuance of certificates, ensuring hassle-free compliance. Visit www.filingwala.com or contact us today (9284041780) to learn more about how we can support you in navigating the intricacies of TDS and achieving tax excellence.

What is TDS in India?

what is tds india?

Unraveling the Mystery of TDS: What is Tax Deducted at Source in India?

Introduction:

In the realm of taxation, few concepts are as misunderstood and yet as crucial as Tax Deducted at Source, or TDS. This intricate system of tax collection has been an integral part of the Indian tax landscape for decades, but many individuals and businesses still find themselves grappling with its nuances. In this comprehensive article, we’ll shed light on the fundamental question – what is TDS in India? By the end, you’ll not only understand the concept but also appreciate its significance in the nation’s tax ecosystem.

What is TDS?

TDS, or Tax Deducted at Source, is a method of collecting income tax in advance from specific payments made by individuals or entities. It’s a way for the government to ensure that a portion of the tax due on income is deducted at the source, before the money reaches the recipient. The concept behind TDS is simple: when a person or entity makes a specified payment, such as salary, rent, commission, or interest, a portion of that payment is deducted as tax and deposited with the government.

The provisions for TDS are outlined in the Income Tax Act, 1961, which is the primary legislation governing income tax in India. Various sections of the Act, such as Sections 192 (TDS on salary), 194A (TDS on interest other than securities), and 194C (TDS on payments to contractors), among others, provide the legal basis for TDS deductions.

The Rationale Behind TDS:

The primary objective of TDS is to streamline the tax collection process and improve compliance. By deducting taxes at the source, the government can ensure that a portion of the tax due is collected upfront, reducing the burden on taxpayers and minimizing the risk of tax evasion. Additionally, TDS helps in widening the tax base by capturing income that might otherwise go unreported.

The TDS Ecosystem:

The TDS system involves several key players, each with specific roles and responsibilities. These include:

Deductors:

These are the individuals or entities responsible for deducting TDS from specified payments. Examples include employers (for TDS on salary), banks (for TDS on interest), and companies (for TDS on rent or professional fees).

Deductees:

These are the recipients of the payments from which TDS is deducted. They can be employees, landlords, contractors, or any other individual or entity receiving income subject to TDS.

Tax Deduction Account Number (TAN):

Most deductors are required to obtain a TAN, which is a unique identification number used for depositing TDS and filing TDS returns.
Income Tax Department: The government agency responsible for administering and regulating the TDS system, ensuring compliance, and processing TDS returns and refunds.

The TDS Process:

The TDS process involves several steps, each crucial for ensuring compliance and smooth tax collection. Here’s a simplified overview:

  • The deductor deducts TDS at the prescribed rate from the specified payment.
  • The deducted TDS amount is deposited with the government within the prescribed due dates.
  • The deductor files TDS returns, providing details of the deductions made and the deductees’ Permanent Account Numbers (PAN).
  • The deductor issues TDS certificates (Form 16, Form 16A, etc.) to the deductees, certifying the amount of tax deducted.
  • The deductees include the gross amount (payment received plus TDS deducted) in their income and claim credit for the TDS deducted when filing their income tax returns.

Importance of TDS:

TDS plays a pivotal role in the overall tax ecosystem of India. By ensuring that a portion of the tax due is collected upfront, it helps in:

  • Improving tax compliance and reducing tax evasion
  • Widening the tax base by capturing income that might otherwise go unreported
  • Providing a steady stream of revenue for the government
  • Simplifying the tax filing process for individuals and businesses

Furthermore, TDS helps in creating a transparent tax system, where income and tax deductions are properly documented and accounted for.

Conclusion:

Understanding TDS is crucial for individuals and businesses operating in India. It’s not just a legal requirement but also a responsible practice that contributes to the nation’s economic growth and development. By demystifying the concept of TDS and grasping its intricacies, you’ll be better equipped to navigate the complexities of the tax system and ensure compliance with the relevant laws and regulations.

At Filingwala.com, we understand the importance of TDS and offer comprehensive services to help you stay on top of your tax obligations. Our team of experts can guide you through the TDS process, ensuring accurate deductions, timely filings, and hassle-free compliance. Visit www.filingwala.com or contact us today (9284041780) to learn more about how we can assist you in mastering TDS and achieving tax excellence.

GSTR-7: A Comprehensive Guide to Return Filing, Format, Eligibility and Rules

Introduction

Filing GSTR-7, the monthly Tax Deducted at Source (TDS) return, is a compliance requirement for all individuals deducting TDS under Goods and Services Tax (GST). This comprehensive guide will explain everything you need to know about GSTR-7, including the filing format, eligibility, due dates, and other key rules.

Whether you are an accountant helping clients file GSTR-7 or a business owner deducting TDS for the first time, this article will provide clarity on all aspects of GSTR-7. Read on for a detailed understanding of this important GST return.

What is GSTR-7?

GSTR-7 is a monthly return that must be filed by every individual who deducts Tax Deducted at Source (TDS) under GST. It contains details of all:

  • TDS deducted
  • TDS paid
  • TDS payable
  • Any TDS refunds claimed

In simple terms, GSTR-7 provides the government with insights into TDS compliance for the filer. It enables tax authorities to cross-check if the right TDS amounts were deducted and paid correctly.

Filing GSTR-7 is mandatory for all GST registrants who deduct TDS, irrespective of their business type, size or industry. It is an important compliance requirement under GST.

Who Can Deduct TDS under GST?

As per GST laws, the following individuals or entities can deduct TDS:

  • Central or State Government Departments and Establishments
  • Local Authorities
  • Government Agencies
  • Persons or entities notified by the Central or State Governments on recommendation of the GST Council

Additionally, the following can also deduct TDS as per Notification No. 33/2017 – Central Tax dated 15th September 2017:

  • Authorities, boards, or bodies established by Parliament, State Legislatures, or governments and having 51% or more government equity
  • Societies registered under the Societies Registration Act, 1860 and established by the Central or State Governments or local authorities
  • Public Sector Undertakings

These deductors are required to deduct TDS when the total value of a contract exceeds Rs. 2.5 lakhs. The TDS rate is 2% divided as 1% CGST and 1% SGST for intrastate supplies. For interstate supplies, the TDS rate is 2% IGST. However, no TDS will be deducted if supplier and recipient locations are different.

Why is GSTR-7 Important?

Filing GSTR-7 is crucial for:

  • Providing Visibility of TDS Compliance: The government can verify if the right TDS amounts were deducted and deposited correctly each month.
  • Enabling ITC for Suppliers: Suppliers can claim the TDS amount reflected in GSTR-7 as Input Tax Credit (ITC). This helps improve working capital.
  • Avoiding Discrepancies: Any mismatch between GSTR-7 and GSTR-2A can be identified and resolved proactively.
  • Claiming TDS Refunds: Taxpayers can claim TDS refunds seamlessly through GSTR-7 if excess TDS was deducted and taxes paid.

Overall, GSTR-7 return filing ensures disciplined TDS compliance under GST for smooth ITC claims and tax administration.

Due Date for Filing GSTR-7

The due date for filing GSTR-7 is the 10th of the next month. For example, the GSTR-7 deadline for TDS deducted in October 2023 is November 10, 2023.

Strict adherence to the monthly deadline is vital to avoid interest and late fees. The table below summarizes the due dates for GSTR-7 filing for different months:

MonthDue Date for Filing GSTR-7
October 2023November 10, 2023
November 2023December 10, 2023
December 2023January 10, 2024

Penalties for Not Filing GSTR-7

Late filing of GSTR-7 attracts the following repercussions:

  • Late Fees: Rs.50per day (Rs. 25 CGST + Rs. 25 SGST) with a maximum cap of Rs. 2,000
  • Interest: 18% annual interest on TDS amount till date of payment

These penalties apply even if the delay is just by 1 day. Hence, taxpayers must prioritize on-time GSTR-7 filing every month.

How to Revise GSTR-7?

Unlike GSTR-1 and GSTR-3B, GSTR-7 filed for a month cannot be revised.

Any corrections must be reported in the GSTR-7 of the subsequent month. For example, if there is an error in the GSTR-7 filed for October 2023, it can be rectified only through GSTR-7 for November 2023.

Based on the corrections filed, GSTR-7A (the TDS certificate) will also be amended. So taxpayers must be extremely careful while filing GSTR-7 and cross-check all details.

Details Required in GSTR-7

GSTR-7 must be filed online on the Government Portal and contains the following sections:

1. GSTIN

Auto-populated based on login details

Auto-populated from registration data

3. Details of TDS

Covers GSTIN of deductee, total and TDS amount (CGST, SGST, IGST)

4. Corrections in Earlier Periods

Original and revised details of past month’s TDS

5. Tax Deducted and Paid

Tax amount deducted and paid (CGST, SGST, IGST)

6. Interests and Late Fees

Interest, late fee payable and paid on TDS

7. Refund Claimed

Details for claiming refund of excess TDS

8. Cash Ledger Credits

Auto-populated credits from return filing

Filers must report all information accurately as per their TDS deducted, paid, and pending. Declarations regarding the correctness of data must also be submitted along with the return filing on the portal.

Frequently Asked Questions

Q: Can I file a revised GSTR-7?

A: No, GSTR-7 once filed for a month cannot be revised. Any changes have to be reported in next month’s GSTR-7.

Q: Is there any offline utility for filing GSTR-7?

A:Yes. GSTR 7 return can be filed through offline mode also.

Q: Can I claim refund of excess TDS through GSTR-7?

A: Yes, filers can claim refund of any excess TDS amount through GSTR-7.

Q: What is the maximum late fee for delayed GSTR-7 filing?

A: Maximum Rs. 2,000 (Rs. 1000 CGST + Rs. 1000 SGST)

Conclusion

File error-free GSTR-7 on time every month to avoid penalties and seamlessly enable ITC claims for suppliers. Ensure you report accurate details of all TDS deducted and paid. Double check form accuracy before filing as revisions are not permitted.

Filing GSTR-7 does not have to be confusing or intimidating. By understanding the key rules and formats outlined above, you can discharge your GST TDS compliance with confidence. Reach out to accounting services like Filingwala for any assistance with TDS filing under GST. Their team of experts can help you stay compliant with GSTR-7 filings in a hassle-free manner every month.

How to Pay Income Tax Online in India: Income Tax Challan

How to Pay Income Tax Online in India: Income Tax Challan

Dreading the confusion of filling out lengthy income tax forms and waiting in endless queues to make payments? Well, fret no more! The income tax department has now introduced a state-of-the-art e-Pay Tax system that allows you to seamlessly pay all your taxes online from the comfort of your home.

In this quick yet comprehensive guide, you will learn how even a tax-filing novice can easily navigate the user-friendly income tax portal and conveniently pay their self-assessment tax, advance tax, TDS or outstanding demand in just a few simple steps.

I will walk you through the re-imagined digital tax payment process – from getting oriented with the revamped e-Pay Tax section to correctly submitting your payment on the portal and receiving instant confirmation. Read along to save yourself hours of agony this tax-filing season and join millions of Indians who have already embraced online income tax payment by equipping yourself with this e-Pay Tax know-how.

So, without further ado, let me provide you a sneak peek of the income tax department’s efficiency-focused e-governance initiative that makes compliance easier for taxpayers like you and also improves transparency.

Navigating the Income Tax Portal for e-Pay Tax

The first step to pay your income tax online is simply locating the e-Pay Tax link on the Income Tax Department’s portal (www.incometax.gov.in). While this may sound straightforward, the portal contains so much information that the specific link you need can easily get lost in the clutter.

Follow our guide below to easily find the e-Pay Tax link:

Step 1: Visit www.incometax.gov.in

Step 2: On the homepage, scroll down until you see the “Quick Links” section on the left sidebar

Step 3: Under the Quick Links section, click on the link labelled “e-Pay Tax”

Alternatively, you can simply use the search bar at the top of the homepage to directly search for “e-Pay Tax”.

Once you click the e-Pay Tax link, you will be redirected to the e-Pay Tax payment page.

Note: Make sure you carefully enter the URL https://onlineservices.tin.egov-nsdl.com in your browser to access the genuine e-Pay Tax facility. Avoid using public access systems or cyber cafes to pay your taxes in order to prevent misuse of your financial data.

The next step in the process is entering your Permanent Account Number (PAN) along with your registered mobile number and email ID. Your PAN number ensures correct linking of your tax payment to your income tax account with the IT Department.

Filling in Payment Details

After entering your PAN and personal details on the e-Pay Tax portal, you will need to fill in the exact amounts to be paid under different tax categories.

Follow these steps for accurately filling in the tax payment screen:

Step 1: Select Financial Year & Payment Type

  • Under the ‘Type of Payment’ drop down, choose ‘Income Tax’
  • Next, select the relevant ‘Assessment Year’ (which is the financial year following the payment year)
  • Lastly, select payment type as ‘Advance Tax’ or ‘Self Assessment Tax’

Step 2: Enter Amounts Under Each Tax Category

  • The system provides various tax categories like tax, interest, fees etc.
  • For self-assessment tax, fill tax amount under section 300A
  • For advance tax, fill amounts under section 100
  • Refer to your income tax calculator or automated prefilled challan for exact amounts

Step 3: Account for Any Previous Tax Credits

  • If you already have partial tax credits for advance tax paid or TDS deducted, account for that under the ‘Amount claimed to be deducted/collected’ column. The system will automatically calculate the final amounts due.

Step 4: Verify Total Tax Amount Due

  • Preview and verify if the total tax amount shown on the final screen tallies with your own calculation.
  • You can go back and edit any amounts entered if needed.

Filling out all details accurately is crucial to ensure your payment reaches and credits the right sections. Still unsure about calculations? Our expert Chartered Accountants at Filingwala.com can provide full income tax calculation support and help you determine precise tax liability.

Completing the Tax Payment

Once you have carefully filled out all the income tax payment details on the e-Pay Tax portal, the last step is to actually make the payment and get confirmation.

Follow these simple steps:

Step 1: Select Payment Mode

  • On the payments page, choose your preferred payment method – netbanking, UPI, debit card, credit card, prepaid wallet, RTGS/NEFT etc.
  • For convenience, internet banking or UPI payments are recommended

Step 2: Make Payment & Get Confirmation

  • If using netbanking, it will automatically open your bank’s payment page after submission
  • Complete the bank payment formalities for successful tax payment
  • On successful payment, you will get an instant payment confirmation message along with a challan reference number

Step 3: Download or Print Confirmation

  • Be sure to save a copy of the payment confirmation challan for income tax filing and future reference
  • The challan has your unique BSR code and challan number which may be required later

And you’re all set! With these simple 7-8 steps, you can pay your advance tax or self-assessment tax online without any hassles or worries, directly on the official Income Tax Portal.

Stay tuned for our next sections where we decode those tricky tax terms for you and answer all your other income tax payment FAQs. You’ll be a tax payment expert in no time!

Understanding Key Tax Concepts

Paying income tax often involves navigating tricky terminology that can confuse taxpayers. In this section, we’ll clearly explain key tax concepts for you:

Self-Assessment Tax

  • Tax paid voluntarily at the time of filing returns if tax due exceeds TDS or advance tax paid
  • Needed to successfully submit ITR without interest or penalty
  • Paid under section 140A using challan 280
  • Includes tax plus interest under sections 234A, 234B and 234C

Advance Tax

  • System of paying taxes on estimated income in the current financial year
  • Applicable if tax liability exceeds Rs 10,000
  • Paid in installments – 15th June, September, December and March
  • Non payment attracts interest under sections 234B and 234C

Tax Deducted at Source (TDS)

  • Tax deducted in advance by employer on salary income or by banks on interest income
  • Deducted at prescribed rates from total payment
  • Already collected tax, so adjusted against final tax liability

Outstanding Tax Demand

  • Additional tax liability arising due to underreporting of income or as per assessment
  • Pay such demands under challan 280 to close outstanding dues
  • Failure to pay demands raised results in penalties or prosecution

So in a nutshell, advance tax and self-assessment tax helps close the gap between taxes already paid via TDS deductions and your final tax liability determined at the time of filing ITR.

Confused between all the different sections and interest implications? Our tax experts at Filingwala.com can help identify your exact tax liability down to the last rupee and ensure optimized, headache-free tax payment and filing!

Updating Tax Payment Status for Return Filing

You may have successfully paid your advance tax or self-assessment tax online. But don’t forget the crucial last step to link it with your income tax returns before filing!

Follow the steps below to complete this linkage:

Step 1: Log in to the e-filing portal using your credentials

Step 2: Go to ‘My Account’ → ‘My Tax Credits (Form 26AS)’

Step 3: Click on ‘View Tax Credit’ to open your tax credit statement

Step 4: Check if the recent tax payment entry along with relevant amounts has updated here

Step 5: If yes, it means the tax payment linkage is updated at the IT Department’s end

Alternately, you can also manually link the tax payment details by submitting the tax challan details under the ‘Taxes Paid and Verification’ section while e-filing your ITR.

However, we recommended getting your returns prepared and e-filed by experts like Filingwala.com for 100% accurate, end-to-end management of the entire process.

So what are you waiting for? Pay your taxes conveniently online using our DIY guide and connect with Filingwala.com experts to optimize, file, and verify your income tax returns stress-free!

Frequently Asked Questions

We get a lot of recurring doubts and questions from taxpayers on how to correctly pay income tax online. We’ve compiled some helpful responses below to address these queries:

Q: Do I have to compulsorily pay taxes electronically online?

A: E-payment of taxes is mandatory only for companies and taxpayers that need to get accounts audited under Section 44AB. However, the online method is recommended for all taxpayers as it more convenient and enables real-time updates.

Q: What all tax payments can be done electronically?

A: Almost all types of taxes can now be paid online via the e-Pay Tax facility including advance tax, self assessment tax, TDS, TCS, Equalisation levy and more.

Q: What documents do I need to make e-payment?

A: You primarily need two documents – your PAN card to link the tax to your income tax account and authorized internet banking activated on your linked bank account to actually make the payment.

Q: I selected the wrong assessment year when paying tax. What should I do?

A: Even if you have selected the wrong AY, go ahead and file your returns normally. Later you can request your assessing officer via rectification request u/s 154 to correct the error in your returns and related challans.

We hope these answers help resolve some of your common doubts. Need more personalized assistance? Our tax experts at Filingwala.com are here to help with your unique queries and even complete handling of tax payment and return filing!

Paying Income Tax Made Simple

While paying income tax may seem complex and confusing, the online e-Pay Tax facility has made the process much easier for taxpayers. With just your PAN and basic details, you can pay self-assessment tax, advance tax, and settle outstanding demands directly on the Income Tax Portal.

We hope this comprehensive, step-by-step guide helped demystify the entire process for stress-free online income tax payment. Whether you have to pay interest, calculate advance tax or file returns – our expert Chartered Accountants at Filingwala.com can handle everything end-to-end for maximum refunds and minimum headaches!

So why struggle with complex tax calculations and filings on your own? Leave it to the experts with just a few clicks. Focus on growing your income – and let us manage the taxes! Visit Filingwala.com or call us right away to get started.

What is TDS in Income Tax? Guide for Taxpayers

What is TDS in Income Tax? Guide for Taxpayers

Tax Deducted at Source (TDS) is one of the most important concepts in income tax for taxpayers in India. It refers to the tax deducted on certain types of payments and incomes before the amount is paid to the recipient.

The Income Tax Act enforces the mandatory deduction of TDS on specific types of payments, such as salaries, interest, commission, rent, and professional fees. The payer, before making the payment, must actively deduct tax at the prescribed rates and deposit it with the Income Tax Department.

TDS ensures regular collection of taxes and prevents tax evasion. It also provides an easy way for taxpayers to pay taxes on incomes on which TDS is deducted. They get credit for the TDS against their overall tax liability.

In this comprehensive guide, we will cover everything you need to know about TDS in income tax, including:

  • Who is Required to Deduct TDS?
  • Types of Payments on Which TDS is Applicable
  • TDS Rates and Threshold Limits
  • TDS on Salary Income
  • TDS on Interest Income
  • TDS on Rent Payments
  • TDS on Commission or Brokerage
  • TDS on Professional Fees
  • TDS on Contractor Payments
  • TDS on Ecommerce Transactions
  • How to Claim TDS Credit and File TDS Returns
  • Consequences of Non-deduction and Short Deduction of TDS
  • Frequently Asked Questions

So let’s get right into understanding this important tax concept in detail!

Who has the responsibility to deduct TDS?

Specific types of payments exceeding certain limits require individuals and businesses to deduct TDS. These include:

  • Companies
  • Partnership firms
  • Proprietorships
  • Co-operative societies
  • Individuals/HUFs with business/professional income
  • Trusts/Associations
  • Central and state governments

The responsibility of TDS deduction lies with the payer or depositor of income. For example, if you are receiving rent above Rs 50,000 per month, your tenant will have to deduct 5% TDS on the rent paid to you.

Some key points about who must deduct TDS:

  • Employers must deduct TDS on the salary paid to their employees.
  • Banks must deduct TDS on interest paid on deposits
  • Businesses deduct TDS on payments to contractors, professionals, commissions etc.
  • Individuals/HUFs deduct TDS on rent or professional fees if it exceeds threshold

Non-residents who do not have a permanent establishment in India also have to deduct TDS on payments over specified limits to residents.

Failing to deduct TDS can attract penalties and interest under the Income Tax Act. Therefore, it is crucial for taxpayers making payments above threshold limits to understand TDS compliance.

Types of Payments on Which TDS is Applicable

As per the Income Tax Act, the following types of payments by residents to residents require compulsory TDS deduction if they exceed the threshold limits:

  • Salaries
  • Interest
  • Rent
  • Professional/technical fees
  • Contract payments
  • Commission
  • Brokerage
  • Payment of NSS deposits
  • Winning from lotteries/puzzles
  • Insurance commission
  • Dividend
  • Payment for property purchase

Ecommerce platforms must actively deduct TDS of 1% on Gross sales (goods or services or both) exceeding Rs 5 lakh provided through their platform. Incase PAN and Aadhar not provided it would be 5% on Gross Sales.

The TDS rates and limits vary for each payment type, which we have covered in detail later in this guide.

TDS Rates and Threshold Limits

The Income Tax Act has specified varying TDS rates and threshold limits for different types of payments. No TDS needs to be deducted if the payment amount is below the threshold in a financial year.

Here are the TDS rates and cut-off limits prescribed by the Income Tax Department:

Payment TypeTDS RateThreshold Limit
SalariesApplicable tax slab rateNo minimum threshold
Interest from banks, post office10%Rs 40,000
Interest on securities10%Rs 5,000
Rent for land, building, machinery5%Rs 50,000 per month
Rent for furniture, fittings5%Rs 200,000 per year
Professional fees10%Rs 30,000 per transaction
Work contract payments1-2%Rs 50 lakh per year
Commission, brokerage5%Rs 15,000 per transaction
NSS interest10%Rs 2,500 per year
Insurance commission5%Rs 15,000 per year
Dividend10%Rs 5,000 per year
Winnings from lotteries, puzzles30%Rs 10,000 per event
Payment for property purchase1%Rs 50 lakh per transaction
Ecommerce transactions1% on Gross SalesRs 5 lakh per year

This table summarizes the key TDS rates and limits you must keep in mind for incomes that are subject to tax deduction at source.

TDS on Salary Income

Companies, businesses, and professional firms must actively deduct TDS on the salary paid to employees if it exceeds the basic exemption limit, making it a ubiquitous example of TDS in action.

  • The TDS rate depends on the employee’s applicable tax slab and surcharges. It is deducted after considering tax exemptions and deductions.
  • No minimum income threshold for TDS on salary. Even salaries below the exemption limit are subject to TDS if tax liability arises.
  • The employer issues Form 16A showing TDS deducted and deposited with IT department.
  • Employees can claim TDS credit while filing ITR to reduce overall tax liability.
  • If employer does not deduct proper TDS, employee can face demand notice and penalties.

Let’s understand with an example:

Rohit’s gross monthly salary is Rs 80,000. After all deductions under Section 80C and 80D, his taxable income comes to Rs 7 lakh.

  • His applicable tax slab is 20%.
  • So his employer will deduct TDS @20% on his monthly salary after standard deduction.
  • This TDS will be adjusted when Rohit files his ITR.

Ensuring proper TDS deduction on salary is important for employees to avoid high tax liability.

TDS on Interest Income

Financial institutions like banks and post offices have to deduct TDS on the interest paid on deposits, savings accounts, fixed deposits etc.

  • In the case of fixed deposits and recurring deposits, if the interest earned surpasses Rs. 40,000 in a financial year, TDS at a rate of 10% will be deducted.
  • Interest on savings bank account: TDS applies if interest exceeds Rs 40,000 per year (Rs 50,000 for senior citizens)
  • TDS also applies on interest from bonds, debentures, securities if it exceeds Rs 5,000.
  • To avoid TDS, you can submit Form 15G/15H if your total income is below taxable limit.
  • To claim TDS credit during ITR filing, you must obtain Form 16A, a TDS certificate.

For example, if your total interest income for FY 2022-23 is Rs 45,000, the bank will deduct Rs 4,500 (@10%) as TDS. You can claim refund by reporting this in your ITR if your total income is below Rs 2.5 lakh.

TDS on Rent Payments

TDS applies on rent paid for real estate properties if it exceeds Rs 50,000 per month.

  • Renters must deduct 5% TDS if the monthly rent payment exceeds Rs 50,000.
  • For commercial or residential properties taken on rent, owners can ask for TDS if rent exceeds this limit.
  • The threshold for rent paid for machinery, equipment, or furniture is lower at Rs 200,000 per year.
  • Renters must issue Form 16B, a TDS certificate, and submit it during ITR filing.

Ensure proper documentation for rented properties to avoid disputes regarding TDS deduction.

TDS on Commission or Brokerage

Individuals, HUFs and firms making commission or brokerage payments above Rs 15,000 in a single transaction must deduct 5% TDS.

  • Applicable for commission agents, insurance agents, brokers, etc.
  • The payer must issue Form 16A showing TDS details.
  • If a PAN is not provided, you must deduct 20% TDS.

For instance, If a broker receives a one-time commission of Rs 20,000 from a client, they must deduct 5% of the amount, equivalent to Rs 1,000, as TDS.

TDS on Professional Fees

TDS at 10% applies on any technical, professional or consultancy fee exceeding Rs 30,000 per transaction.

  • Fees paid to lawyers, CA, CS, contractors, designers, doctors, etc. attract TDS.
  • No TDS needed if the annual fees to a single professional are below Rs 30,000.
  • Professionals should ensure clients issue Form 16B for claiming TDS credit.

For example, if a CA’s consultation fees for one assignment is Rs 50,000, the client will deduct Rs 5,000 (@10%) as TDS and pay Rs 45,000.

TDS on Contractor Payments

Under Section 194C, businesses or individuals making payments to contractors/sub-contractors have to deduct TDS if annual payments exceed Rs 50 lakh.

  • Applicable for all types of work contracts including advertising, catering, maintenance etc.
  • TDS @1% is deducted on individuals and HUF contractors.
  • In case of firms, TDS @2% is deducted.
  • The contractor should obtain Form 16A for claiming TDS credit.

Make sure contracts specify the TDS deduction terms to avoid financial disputes later.

TDS on Ecommerce Transactions 

The Finance Act 2020 introduced mandatory TDS for business-to-consumer ecommerce transactions.

  • Ecommerce operators like Amazon, Flipkart, etc have to deduct 1% TDS on goods sold and 5% TDS on services provided using their platform.
  • This applies if gross payments to a seller/service provider exceeds Rs 5 lakh in a financial year.
  • Ecommerce operators must furnish quarterly TDS statement in Form GSTR-8.

For instance, if a seller on Amazon sells goods worth Rs 10 lakh in 2022-23, Amazon will deduct 1% i.e. Rs 10,000 as TDS and pay Rs 9.9 lakh.

How to Claim TDS Credit and File TDS Returns

If tax has been deducted on your income, you can claim TDS credit in the following ways:

1. Obtain TDS Certificate

The deductor must issue a TDS certificate in Form 16A or Form 16B providing details of TDS deducted. This certificate is required while filing income tax returns.

2. File ITR

To claim TDS credit, you must report the income on which TDS was deducted and submit the TDS certificate along with your ITR. The TDS amount will be adjusted against your overall tax liability.

3. Claim Refund

If the TDS deducted is more than your actual tax liability for that income, you can claim refund of the excess TDS amount when filing returns.

4. File Revised Return

If TDS credit was missed or deducted in wrong assessment year, you can file a revised return to claim TDS benefit.

5. Rectify Defective TDS Credit

If there is a mismatch in TDS claimed in ITR vs deposited by deductor, you can submit a rectification request to the Income Tax Department.

TDS Returns

Meanwhile, the tax deductor must file quarterly TDS returns in Form 24Q, 26Q, 27Q, etc stating details of TDS deducted and deposited within the due dates. Proper filing of TDS returns ensures the deductee gets full TDS credit.

Consequences of Non-deduction and Short Deduction of TDS

Not deducting TDS or deducting lower TDS than required can attract the following consequences:

  • Penalty equal to the TDS amount for non-deduction or short deduction of tax
  • Interest @1% per month for delay in payment of TDS to the government
  • Disallowance of expenses on which TDS was not deducted or short deducted
  • Deductee losing out on tax credit if TDS not properly deposited
  • Prosecution in extreme cases if the TDS default exceeds Rs 1 lakh

Therefore, taxpayers making payments above the threshold limits should be careful in deducting proper TDS and filing timely TDS returns. This will avoid penalties under Section 201 of the Income Tax Act.

Frequently Asked Questions

Q: What if my total income is below taxable limit? Do I still need to deduct TDS?

A: Yes, threshold limits are applicable only for the recipient or deductee. As a tax deductor, you must deduct TDS if the payment amount exceeds the specified threshold, irrespective of the deductee’s tax liability.

Q: How can I verify if TDS was properly deposited by the deductor with Income Tax?

A: You can check your Form 26AS through the e-filing portal to verify tax credits and see if the TDS deposited matches with your income. Raise a grievance if there is any discrepancy.

Q: Is TDS applicable on payments to non-residents?

A: You must deduct TDS if you make payments to non-residents without a permanent establishment in India that exceed the applicable thresholds. The rates may vary according to DTAA rules.

Q: Can I avoid TDS by furnishing declaration in Form 15G/15H?

A: Form 15G/15H can only exempt TDS on interest income if your total income is below the taxable limit. It does not apply to TDS on other incomes like professional fees, salary, etc.

Q: Where can I get assistance with TDS compliance and filing correct TDS returns?

A: Reputed platforms like Filingwala.com offer end-to-end assistance with TDS calculation, deduction, filing TDS returns, issuing TDS certificates, and resolving any TDS disputes or demands. Their tax experts follow the latest compliance requirements.

We hope this detailed guide on all aspects of TDS in income tax helps you understand your obligations as a tax deductor. Make sure you deduct the correct TDS on time, issue TDS certificates, and file accurate TDS returns every quarter. This will avoid problems during scrutiny and ensure smooth processing of income tax returns.

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