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A complete guide on Tax Deducted at Source (TDS)

What is TDS?

Tax Deducted at Source (TDS) is a mechanism that has been introduced by the Income Tax Department. Under this, the responsible person is supposed to deduct a certain percentage of tax before making the payment to the receiver. The payment includes salary, commission, professional fees, interest, rent, etc.

ABC Ltd. makes a payment of 50,000 INR by the way of fees to Mr. X. In this case, the company shall deduct a tax amounting to 5,000 INR. The net payment will be 45,000 INR. This amount will then be deposited to the Government’s account by ABC Ltd.

Who is supposed to deduct tax at source?

Every person who is responsible for making payment of nature covered under the TDS provisions of Income Tax Act, 1961 shall be liable to deduct tax at source. In case of payments made u/s 194A, 194C, 194H, 194I and 194J, all assesses other than individual and HUF whose accounts are not subject to Tax Audit Under Section 44AB of the Income-tax Act, 1961 during the preceding financial year, is required to deduct tax at source.

Which persons fall under this category?

  The Principal Officer of a company responsible for deducting tax at source. It includes the employer in case of private employment or an employee making payment on behalf of the employer.

  Drawing and Disbursing Officer (DDO) in case of Govt. office any officer designated as such.

  In the case of “interest on securities” other than payments made by or on behalf of the Central Govt. or the State Government, it is the local authority, corporation or company, including the Principal Officer thereof.

  The person who deducts the tax is called Deductor while the person from whom the tax is deducted is called Deductee.

  The tax must be deducted at the time of payment in cash or cheque or credit to the payee’s account whichever is earlier. Credit to payable account or suspense account is also considered to be a credit to payee’s account and TDS must be made at the time of such credit.

What are the forms to file TDS/TCS returns?

1.   Form 24Q for salaries

2.   Form 26Q for other than salaries

3.   Form 26QB for Section 194IA

4.   Form 26QC for Section 194IB

5.   Form 26QD for Section 194M*

6.   Form 27Q for Non-resident

7.   Form 27EQ for TCS

* If an individual/HUF (who is not required to deduct tax u/s 194C, 194H or 194J) paid more than Rs. 50 lakh during the year to a resident then section 194M is applicable and tax is required to be deducted at the rate of 5% on such payment.

What is a TDS Certificate?

Under section 203 of the Income Tax Act, the tax deductor requires to issue a TDS certificate to the deductee within a stipulated period. This certificate is proof regarding the deduction and payment of the respective TDS amount to the bank. The deductee needs to produce the details of the certificate during the regular assessment of income tax for the adjustment of the TDS amount against the tax payable by the deductee or assesse.

What are the types of TDS Certificates?

For Salaries:

In this case, the certificate should be issued in FORM 16 containing details like computation, deductions, and payment of taxes. This refers to the details submitted in Form 24Q.

For Non-salaries:

The certificate, in this case, should be issued in FORM 16A containing the tax deducted and tax paid. For each section, separate certificates should be issued. This refers to the details submitted in Form 26Q and Form 27Q.

TDS in case of Section 194IA:

The certificate, in this case, should be issued in FORM 16B containing the amount of property, tax deducted amount and address of the property, etc. For each seller, a separate certificate should be issued.

TDS in case of Section 194IB:

The certificate, in this case, should be issued in FORM 16C containing the amount of rent, tax deducted amount and address of the property, etc. For each landlord, a separate certificate should be issued.

TDS in case of Section 194M:

The certificate, in this case, should be issued in FORM 16D containing the amount of payment, tax deducted amount and nature of the transaction, etc.

For TCS:

The certificate, in this case, should be issued in FORM 27D containing the tax collected and paid. This refers to the details submitted in Form 27EQ.

What is the process of filing e-TDS returns?

1.   Select the relevant format for the e-TDS return.

1.   The ASCII format with “txt” as the file name extension for e-TDS.

1.   Validation and Verification of e-TDS.

1.   Rectification of errors.

1.   Submission of e-TDS.

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