TDS and TCS Compliance
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While paying some expenses, the parties are obliged to Deduct Tax at Source (TDS). Similarly, TCS is collected for qualified sales. We help you comply with TDS and TCS provisions and file returns.
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Tax Deducted at Source (TDS)
TDS is an abbreviated form of Tax Deducted at Source which is required to be deducted while making payment to parties at a given rate. There are some identified expenses/payments against which income tax department has prescribed a specific rate of deduction and the threshold limit on which it is required to be deducted.
Every business, whether a startup or an existing company, is certain to incur some expenses or to make payments to its parties irrespective of its size and scale. Thus TDS provisions apply to all types and size of businesses. It applies in the same or similar way to a proprietor, firm, LLP or a company registered under the companies, Act. 2013. The payment of expense by a person is an Income in the hands of the recipient. Thus the payor is under a liability to deduct the tax at applicable rates while making payment to the party. For small payments, the provision of TDS does not apply until it crosses a threshold limit as prescribed. It must be noted that the TDS is applicable only on the specified payment and after it reaches the threshold limit. The most common types of expenses on which TDS is applicable is provided hereunder.
Key Points of TDS Deduction & Payment
Step 1: Payment of TDS Deducted
The tax deducted at source (TDS) while making payment to parties for qualified expenses must be deposited before 7th of next month. For example, the TDS deducted in November 2017 is payable on or before 7th December 2017. The challan number for making TDS deposit is 281. while making TDS Payment care must be exercised while selecting the appropriate section/nature of the payment.
Step 2: The Consequence of Non-Compliance
The non-compliance of TDS provisions is a grave offence and is punishable under section 271 (C) of the Income Tax Act 1961, wherein the minimum penalty is 10,000 which can go up to Rs. 1,00,000/-. Further section 276B applies to all such cases where a willful default is established, in all those cases the punishment is 3 Years rigorous imprisonment which can go up to seven years.
Step 3: Interest on Non Payment of TDS
The TDS deducted by a person need to be deposited within 7th day of the next month. Any failure or delay in depositing the TDS is punishable under section 271 C or/and Section 276 B. The defaulter is further liable to pay interest on delayed payment at the rate of 1.5% per month or part thereof. There is no provision in law where the interest can be waived; hence the assessee should be very careful.
Step 4: Filing of TDS Return
After making the payment of TDS to the income tax, the taxpayer is required to file a quarterly return where the TDS deposited is mapped against the PAN of the person from which TDS was deducted. The TDS Return is filed within 30th of the month succeeding the quarter. For example, the first quarter ends on 30th June, hence the TDS Return must be submitted before 30th July.
Step 5: Interest on Non-Deduction of TDS
When a person while making payment for which he ought to have deducted TDS fails in deducting TDS or deducts an amount less than the required amount. In all such cases, the deductor is liable to pay an interest @ 1% per month or part of the month, till the date on which TDS is deducted. Hence, a businessperson must be prudent while making payment to parties and ensure that TDS is deducted.
Step 6: Other Consequences of Default on TDS
The expenses on which TDS was required to be deducted shall be disallowed as an expense under section 40(a) while computing the total taxable income. To understand it quickly let’s take an example of business where the income is 10 lac and the expense is also 10 lac, then effectively there shall be zero income tax, However, if the TDS is not deducted then the tax shall be three lacs (30% of 10 lac).
TDS Rate Chart for The FY-2019-2020 (AY: 2020-21)
| Section | Nature of Payment | Basic Cut-off (Rs.) Per Annum | Individual and HUF | Other Than Individual/HUF | PAN is not Submitted |
|---|---|---|---|---|---|
| 192 | Payment of Salaries by Employers | Slab rate | Slab rate | Not applicable | 30% |
| 192A | Premature payment by PF Organization from EPF A/c (i.e. before 5 Years). | 50,000 | 10% | Not applicable | 20% |
| 193 | Payment of Interest on Securities by company | 10,000 | 10% | 10% | 20% |
| 194 | Payment of Dividend other than dividend as referred to Section 115O by company (i.e. Dividend on which Dividend Distribution Tax is not paid) | 2,500 | 10% | 10% | 20% |
| 194A | Payment of Interest by bank | 40,000 (Non Sr.Citizen) 50,000 (Sr. Citizen) | 10% | 10% | 20% |
| 194A | Payment of Interest by others | 5,000 | 10% | 10% | 20% |
| 194B | Payment of prize from Wining from Lotteries by any person. | 10,000 | 30% | 30% | 30% |
| 194B | Payment of prize from Wining from Horse Race by any person. | 10,000.00 | 30% | 30% | 30% |
| 194C | Payment to Contractors by any person. | 30,000 (Single bill) or 1 Lakh aggregate bills during the year. | 1% | 2% | 20% |
| 194C | Payment to Transporter Covered u/s. 44E and submit declaration in prescribed format. (i.e. owning less than 10 goods carriages) | - | 0 | 0 | 20% |
| 194C | Payment to Transporter not covered u/s. 44E (i.e. owning more than 10 goods carriages) | 30,000 (Single bill ) or 75,000.00 aggregate bills during the year. | 1% | 2% | 20% |
| 194D | Payment of Insurance Commission to agents by Insurance Company. | 15,000 | 5% | 10% | 20% |
| 194DA | Payment in respect of maturity of Life Insurance Policy by Life Insurance Company. | 1 Lakh | 1% | 1% | 20% |
| 194DE | Payment to NRI sportsman or association by any person or organization | - | 20% | 20% | 20% |
| 194EE | Payment out of deposit under National Saving Scheme (NSS) | 2,500 | 10% | 10% | 20% |
| 194F | Payment with respect to repurchase of units by Mutual Fund Companies. | - | 20% | 20% | 20% |
| 194G | Payment of Lottery Commission | 15,000 | 5% | 5% | 20% |
| 194H | Payment of commission or Brokerage | 15,000 | 5% | 5% | 20% |
| 194I | Payment of rent on land, building, furniture and fittings. | 240,000 | 10% | 10% | 20% |
| 194I | Payment of rent on plant, machinery or equipments. | 240,000 | 2% | 2% | 20% |
| 194IB | Payment made on account of transfer of immovable property other than agriculture land. | 50 Lakh | 1% | 1% | 20% |
| 194IA | Rent payable by individual not covered u/s. 194I for land, building, furniture and fittings | 50,000 PM | 5% | 5% | 20% |
| 194J | Payment of Professional Fees other than call centers | 30,000 | 10% | 10% | 20% |
| 194J | Payment of Professional Fees to call centers. | 2% | 2% | 20% | |
| 194LA | Compensation on transfer of certain immoveable property than Agriculture Land | 250,000 | 10% | 10% | 20% |
| Section | Nature of Payment | TCS Rate (%) |
|---|---|---|
| 206C | Scrap | 1 |
| 206C | Tendu Leaves | 5 |
| 206C | Timber obtained under a forest lease or other mode | 2.5 |
| 206C | Any other forest produce not being a timber or tendu leave | 2.5 |
| 206C | Alcoholic Liquor for human consumption | 1 |
| 206C | Parking Lot, Toll Plaza, Mining and Quarrying | 2 |
| 206C | Minerals, being coal or lignite or iron ore (applicable from July 1, 2012) | 1 |
| 206C | Sale of motor vehicle of the value exceeding Rs. 10 Lacs (wef 01.06.2016) Motor vehicle clause not applicable on Central Government, a State Government, an embassy, a High Commission, Legation, Commission, Consulate and the Trade Representation of a foreign State; Local Authority; a Public Sector Company which is engaged in the business of carrying passengers (wef 01.04.2017) | 1 |
Note: TDS deducted in a month is required to be paid before 7th day of next month. While making TDS mention correct section in the challan number 281. For TDS payment use separate challan while making payment for specific type (section). Interest on Late Payment is- 1.5% per month or part thereof, The penalty on Late filing of TDS Return is Rs. 200 per day, however it is limited to the TDS amount.
Due Date of Payment of TDS & FIling of TDS Return
| S NO. | PARTICULAR | DUE DATE | TYPE OF EVENT |
|---|---|---|---|
| 1 | Payment of TDS deducted under various sections of the income tax act | Before 7th day of Next Month | Monthly |
| 2 | 1st Quarter TDS Return ( 1st April to 30th June) | 31st July | Quarterly |
| 3 | 2nd Quarter TDS Return ( 1st July to 30th September) | 31st October | Quarterly |
| 4 | 3rd Quarter TDS Return ( 1th October to 31st December) | 31st January | Quarterly |
| 5 | 4th Quarter TDS Return ( 1st January to 31st March) | ||
Note: TDS deducted in a month is required to be paid before 7th day of next month. While making TDS mention correct section in the challan number 281. For TDS payment use separate challan while making payment for specific type (section). Interest on Late Payment is- 1.5% per month or part thereof, The penalty on Late filing of TDS Return is Rs. 200 per day, however it is limited to the TDS amount.