Law Legends


TDS Deduction Under Business and Profession

Topic Covers:

  1. Introduction
  2. Persons require deducting TDS
  3. Time of Deduction of TDS :
  4. Payment, Return filing and TDS Certificate:
  5. Penalty Provisions:

The Income Tax Act introduces a tax deduction scheme as and when the revenues are generated, to facilitate the quick and efficient collection of taxes. The payer of the income deducts the tax and remits it to the government on behalf of the payee. Payments, such as salaries, interest, commissions, brokerages, professional fees, royalties, contracts etc., are covered under the provisions relevant to tax deductions at source(TDS).

The payer of the income is responsible to deduct tax at the source for payments as per the relevant provision, and also responsible for depositing the deducted tax to the Government's account. As per the Income Tax Act, any person must deduct tax at the source as per the provisions of the act.

Persons require deducting TDS

There are two parties involved in every transaction, the payer and the payee. According to the provisions, specified persons are required to deduct tax at a rate prescribed in the law and remit the same to the government. Certain individuals who are required to deduct Tax Deducted at Source (TDS) for specified payments are notified by government:

  1. Individuals and Hindu Undivided Families (HUFs) must deduct tax if they meet the following criteria:
  2. Individual /HUF engaged in a business with a turnover of ₹1 crore or more in the previous financial year, or
  3. Individuals engaged in a profession with receipts of ₹50 lakh or more in the previous financial year,
  4. Any other entity besides Individuals and HUFs, such as Partnership Firms, Limited Liability Partnerships (LLPs), Private Limited Companies, Co-operative Societies, etc.

There are also instances where individuals or HUFs are required to deduct tax even if they are not engaged in any business or profession, such as the purchase of immovable property or payment of rent for land or buildings exceeding the threshold limit.

Time of Deduction of TDS :

Deduction of Tax depends on the type of payment being made. Generally, TDS is supposed to be deducted either at the time of credit of the income or at the time of payment, whichever is earlier. This applies to payments such as Commission, Professional fees, Consultancy, contract, etc. However, there is an exception to this rule. In certain cases, TDS is to be deducted at the time of payment, as in the case of Dividends, winnings from lottery, crossword puzzles, or horse races. The provisions regarding TDS deduction are provided under sections 192 to 195 of the Income Tax Act. These sections specify the threshold limit and the rates at which TDS is to be deducted.

Payment, Return filing and TDS Certificate:

The deductor of TDS is required to deposit the amount of Tax deducted to the Government within the prescribed time limit and submit returns quarterly containing such information.

The TDS certificate displays the deducted and deposited tax amount by the deductor. It is obligatory for the deductor to furnish the TDS certificate to the deductee within the given time limit. It is recommended to acquire the certificate from the deductor to confirm the tax has been deposited and accurate reporting of Deductee PAN.

Penalty Provisions:

Under income tax act there are provisions for penalty and interest in cases where Tax is required to be deducted but not deducted or deducted but not deposited, or late deposited, return not filed, or certificate is not issued.

  1. TDS is not deducted: In case tax is deducted after the due date, interest at the rate 1% per month or the part of the month shall be levied for the late deduction. Interest shall be levied for period starting from the date on which TDS is deductible to the date of actual deduction.
  1. TDS is deducted but payment is made lately: In case tax is deducted but deposited late, interest at the rate 1.5% per month or the part of the month levied for the period. The period will start from the date on which Tax is deductible to the date of actual deduction.
  1. Late filing fee under section 234E:
    • For any delay in furnishing the TDS statement Penalty of ₹ 200 per day shall be levied.
    • The total late filing fees should not exceed the total amount of TDS reported in the return.
  1. Penalty for not filing TDS statement: If the statement of TDS is not filed within one year from the due date of furnishing of TDS return, then a penalty under section 271H of the income tax act can be levied.
  2. Penalty for not issuing TDS certificate: TDS certificate is required to be provided to the deductee within the specified date. For any delay in issuing TDS certificate a penalty of ₹ 500 per day shall be imposed. The amount of penalty should not exceed the total amount of TDS reported in the return.

In Conclusion, the implementation of TDS might have been aimed at reducing the chances of tax evasion by the recipient of income. It is obligatory by law to deduct TDS and submit it along with all the necessary details in the specified format and within the specified time limit. Non-compliance with this provision can result in penalties. TDS deduction is applicable only in specific transactions as specified by the act. Seek customized professional guidance when necessary and particularly in situations where complications arise.

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