Last modified: 22 June 2016

TDS other than Salaries

Tax deducted at source (TDS)

Tax deducted at source (TDS) and Tax collection at source (TCS) aim at collection of revenue at the very source of income. It is essentially an indirect method of collecting tax which combines the concepts of "pay as you earn" and "collect as it is being earned." Its significance to the government lies in the fact that it prepones the collection of tax, ensures a regular source of revenue, provides for a greater reach and wider base for tax. At the same time, to the tax payer, it distributes the incidence of tax and provides for a simple and convenient mode of payment.

The concept of TDS requires that the person on whom responsibility has been cast, is to deduct tax at the appropriate rates, from payments of specific nature which are being made to a specified recipient. The deducted sum is required to be deposited to the credit of the Central Government. The recipient from whom income tax has been deducted at source, gets the credit of the amount deducted

Payments subject to TDS

The statutory provision regarding deduction of tax at source is dealt in Chapter XVII of the Income-tax Act, 1961 which gives the details of the relevant provision of TDS, the rates and also the exemptions where no tax is to be deducted.

The following items of payment are subject to tax deduction at source:-

  1. Interest on securities (Section 193)
  2. Dividends (Section 194)
  3. Interest other than interest on securities (Section 194A)
  4. Winnings from lottery or crossword puzzles (Section 194B)
  5. Winnings from horse race (Section 194BB)
  6. Payments to contractors and sub-contractors (Section 194C)
  7. Insurance Commission (Section 194D)
  8. Payments to non-resident sportsmen or sports associations (Section 194E)
  9. Payments in respect of deposits under National Savings Scheme etc. (Section 194EE)
  10. Payments on account of repurchase of units by a Mutual Fund or Unit trust of India (Section 194F)
  11. Commission etc. On sale of lottery tickets (Section 194G)
  12. Commission or brokerage, etc. (Section 194H)
  13. Rent (Section 194-I)
  14. Fees for professional or technical services (Section 194J)
  15. Payment of Compensation on acquisition of certain immovable property (Section 194LA)
  16. Other sums, for example, payment to a non-resident (not being a company) or a foreign company, of any interest (not being interest on securities) or any other sum subject to Income tax (non-salary)(Section 195)
  17. Income payable "net of tax" i.e. Where, under an agreement or arrangement the income-tax is borne by the person by whom the income is payable to assessee. This amount of income-tax would be added to the income of the assessee and the Income-tax would be deducted on that amount also (Section 195A)
  18. Income in respect of units, as referred in Section 115AB, payable to an Offshore Fund (Section 196B)
  19. Income from foreign currency bonds or shares of Indian company, referred to in Section 115 AC. (Sec.196C)
  20. Income of Foreign Institutional Investors from securities referred to in Section 115AD. However, if capital gain arises from transfer of securities referred to in Section 115AD, no tax is deductible on payment to a Foreign Institutional Investor (Section 196D)
  21. Section 206C prescribes collection of tax at source on specified items.

Rates for TDS

Visit TDS Rate page for TDS rates and TDS Calculator.

Deposit of Tax

Tax deducted or collected at source shall be deposited to the credit of the Central Government by following modes:

Credit of TDS

Where taxes have been deducted at source from any payment of income receivable by an assessee, the amount of tax deducted at source would be included in the income of the assessee while computing the income of the assessee and would be deemed to be the income received (Section 198). Further, credit will be given to the assessee while calculating the net tax payable by him and the tax deducted at source will be treated as a payment of tax on his behalf (i.e. to the Central Government by the payer who has deducted the tax at source) (S.199).

  1. Electronic mode: E-Payment is mandatory for
    1. All corporate assesses; and
    2. All assesses (other than company) to whom provisions of section 44AB of the Income Tax Act, 1961 are applicable.
  2. Physical Mode: By furnishing the Challan 281 in the authorized bank branch

TDS Certificate

A certificate is prescribed u/s 203, which is to be issued by person deducting tax at source. Every person deducting tax is duty bound to furnish this certificate to the person from whose income/ payment the tax has been deducted. The certificate should specify the amount of tax deducted and rate at which it is deducted. (Form No. 16A, under Rule 31). On production of this certificate, credit u/s 199, for tax paid, will be given to the person, from whose income the tax has been deducted, in his income-tax assessment for the assessment year in which the income (or payment) is assessable.

Frequently Asked Questions

What is TDS?
TDS means Tax Deducted at Source. It is the amount withheld from payments of various kinds such as salary, contract payment, commission etc. This withheld amount can be adjusted against your tax due.
Is TDS relevant for me as a businessman?
Yes. Payments may be made to you after TDS. You can adjust this against your final tax liability. You are also required to effect TDS while making business payments. Failure to do so will result in the entire of expenditure being disallowed as your business expenditure and taxed as income.
I have made some deposits with a bank on which annual interest is around Rs.15000. My income is below taxable limit. The banker wants to deduct tax. What do I do?
You can file a self-declaration to the banker in form 15H stating that your income is below taxable limit. The form is available with your banker, the local Income-Tax office and can be downloaded from this site. This form should be filed before the interests begin to accrue in the fixed deposit account, since the declaration has no retrospective effect.
I have let out a property for Rs.20,000 per month. The tenant is deducting tax that is more than my tax liability. What can I do under this circumstance?
If you compute your tax liability and find it to be lower than the tax being deducted, you may approach your assessing officer by filing Form 13. He will issue a certificate directing the tenant to make TDS at a lesser rate. This form is available with the local Income tax office or can be downloaded from the website www.incometaxindia.gov.in.
I have deducted tax from payments disbursed but used the same for some urgent financial needs. What are the consequences?
It is an offence to misuse the tax deducted at source. It should have been remitted to government account within the time allowed. The failure attracts tax, interest, penalty and also rigorous imprisonment up to seven years.
What can I do if I am unable to get the TDS certificate {form-16 or 16A]?
It is the duty of every person deducting tax to issue TDS certificate. In spite of your asking if you are denied the certificate then there is a chance that the tax deducted has not been deposited by the deductor to the government account. Please inform the department{PRO or TDS section] which will then do the needful.
I am buying a property from a person residing in USA. Should I deduct tax while making payment?
Yes u/s 195. In case you have any doubt regarding the amount on which TDS is to be made, you may file an application with the officer handling non-resident taxation who will pass an order determining the TDS to be made. Alternatively, if the recipient feels that the TDS is more he may file an application with his Assessing officer for non-deduction.
Can I use PAN to pay the TDS deducted into government account?
No. You are required to take a separate Tax Deduction Account Number{TAN] by making an application in form 49B with the Tin facilitation center of NSDL.
In case the deductee comes back stating that the original TDS certificate is lost, whether a duplicate certificate can be issued?
Yes. The deductor will have to issue the certificate in a plain paper giving necessary details of deduction and remittance.

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The visitors may visit the web site of Income Tax Department for resolving their doubts or for clarifications.