All You Need to Know About TDS (Tax Deducted at Source)

Latest News on Income Tax e-Filing

File TDS By June 30 or Pay Twice The TDS

You might have to pay TDS at higher rates starting July 1, 2021 if you haven’t filed TDS in the last 2 years, and TDS duducted every year exceeds INR 50,000. As per Section 206AB which was introduced in Budget 2021, the final TDS rate will be the highest amongst the following:

1. A 5% rate
2. Twice the rate in effect
3. Twice the rate that is specified under the section

The last date of filing TDS — for the 4th quarter of FY 2020-21 — which was May 31, 2021 earlier has been extended to June 30, 2021 by the Central Board of Direct Taxes (CBDT). Similarly, the last date to issue Form 16 has also been moved up to July 15, 2021.

It’s important to note that the new Section 206AB will not hold for the following:

• TDS on puzzle, lottery, crossword, card games, horse race winnings etc., under Section 194B or 194BB.
• TDS on withdrawal of PF funds (Section 192A) and salary (Section 192)
• Cash withdrawals exceeding INR 1 crore (Section 194N)
• Trust Income (Section 194LBC)
• NRIs who do not have permanent establishment in India

What is TDS?

TDS or Tax Deducted at Source is the tax levied by the Government of India on the income of Indian individuals. According to the Income Tax Act, the payer or employer or the firm must deduct TDS at source before paying the fee to the payee or employee, if their annual income is likely to cross the minimum threshold of the tax exemption.

It is, then, the responsibility of the deductor (payer or firm) to deposit the deducted TDS amount with the Income Tax Department as TDS payment in favour of the deductee (payee or employee).

The TDS system of tax collection was introduced by the Government of India with the idea to collect tax at the very source of income to prevent tax evasion. TDS is applicable to different types of payments, which includes:

• Salaries
• Bank interest payments
• House rent payments
• Payment of commission
• Professional fees
• Consultation fees

TDS should be deducted, regardless of the payment method, viz. cheque, cash or credit, and should be deposited with the Income Tax Department under the PAN number of the deductee.

TDS types and TDS rates

Mentioned are the different types of TDS and the corresponding rates for TDS, as per the Income Tax Department:

Challan for TDS payment

In the year 2004, the manual tax collection process was replaced with the Online Tax Accounting System (OLTAS). The technology was introduced to minimise human intervention and to bring in more efficiency and transparency into the tax collection process. The online process not just reduces errors but facilitates online tax collection, deposit and refund, etc. The OLTAS system issues a challan on the same day when the tax gets deposited to the corresponding PAN number. This single copy challan helps taxpayers track their e-challan or challan status.

Depending on the category of the taxpayer, challan is divided into the following three types:

• Challan ITNS-280: Issued on depositing the income tax TDS (including Advance Tax, Self-Assessment Tax, Regular Assessment Tax, Surcharge, Tax on income or Distributed Profits and others). This challan can be filed online or offline.
• Challan ITNS-281: Issued on depositing Tax Collected at Source (TCS) and Tax Deducted at Source(TDS). This challan is mainly issued by corporate or non-corporate entities. TDS or TCS is mainly collected by the seller from the buyer while processing the sale of the specific goods. The TDS challan 281 can be filed online as well as offline. Challan Identification Number (CIN) will be issued after the TDS payment is done online or through the bank.
• Challan ITNS-282: Issued on depositing, wealth tax, gift tax, Securities Transaction Tax(STI) and other direct taxes.

The due date for TDS payment

Ideally, the TDS collected or deducted by the payer or employer or deductor must be deposited with the Income Tax Department by the 7th of the next month. However, due to the COVID-19 pandemic, companies are under constant pressure to meet the compliance requirements of the Income Tax Act. The Finance Ministry of the Government of India has made certain changes to the TDS payment due date, keeping in mind the struggles companies are facing due to the pandemic and the lockdown. Thus, the government has reintroduced new dates for TDS payments for FY 2020-21. They are as outlined below.

What is TDS returns?

The payer or deductor or employer must file a TDS return after depositing the tax with the Income Tax Department for the given PAN number.

TDS return is essentially a quarterly statement that must be provided to the IT department by the payer or employer. It is mandatory for TDS deductors to submit the TDS return by the prescribed due date. The details needed to file the TDS return include:

• PAN of deductee and deductor
• The amount paid as tax to the Income Tax Department
• TDS challan
• Other details, if any

How to file TDS return online?

• Step 1: Go to the TIN portal of the Income Tax Department and select the appropriate section for which you need to fill a TDS/TCS return, along with the file format.

• Step 2: The TDS/TCS return as per the file format must be filled in clean text ASCII format. The file name extension should be ‘txt’. The TDS/ TCS return form can be filled by using Return Preparation Utility software offered by NSDL or from any other third-party software.

• Step 3: After the TDS return has been filled according to the prescribed file format, it must be verified with the File Validation Utility (FVU) offered by NSDL.

• Step 4: If the return form contains errors, then the FVU will provide a report of the errors. Rectify the inaccuracies and verify the form again with FVU.

• Step 5: The successfully generated FVU file could be submitted at TIN-FC, or you can upload it on the e-filing website.

What is the TDS certificate?

Every employer or payer, who deducts tax at source, has to provide a TDS certificate to the employee or payee.

TDS certificate is essentially a certificate that provides all details about TDS/RCS deductions done by the deductor on the deductee’s income. A TDS certificate is generally known as Form 16/ Form 16A.

When is TDS not applicable?

While TDS is applicable to most types of income earned by the individual, there are certain scenarios where TDS deduction rules are not applicable to the income. They are:

• When the payment is done towards notified mutual funds as per section 10(23D)
• When the payment is done towards a government body or to the government and Reserve Bank of India.
• If the deductee has a non-deduction certificate as per section 192 of the Income Tax Act
• When payment is done towards central or state financial corporations
• Interest paid or credited to:
• A banking company or banks
• National Savings Certificate
• Unit Trust of India, Life Insurance Corporation or different insurance companies
• Banking Co-operative Society
• Kisan Vikas Patra
• Non-Resident External Account
• A notified body for TDS non-deduction
• Savings account deposits, recurring deposits of banks as well as co-operative societies

TDS deduction limit on salary

According to the Income Tax Act, the employer can deduct tax at source at the time of salary paying salary to their employee. The employer can deduct tax only while making the payment if the total annual salary of the employee goes beyond the minimum tax exemption limit. This means that if the total salary income of the employee is above ₹2,50,000/-, then the employer is liable to deduct tax as per the TDS slab rates specified by the Income Tax Department. The TDS slab rates or tax slab rates are applicable for both men as well as women below 60 years of age.

Note: 4% as health and education cess over and above the tax slabs.

Latest news on TDS

IT Filing Deadline Extended: Taxpayers Who Will Have To Pay Double TDS

In the wake of the second wave of Covid, the Central Board of Direct Taxes (CBDT) has extended the TDS filing deadline to July 15, 2021 for the last quarter of FY 2020-21. It’s also important to note that starting July, 2021 some taxpayers may need to pay higher TDS.

As per Section 206AB (Budget 2021), non-filers in the last 2 years with aggregate TDS exceeding INR 50,000 in each year will have to comply with the Income Tax Department’s higher deductions when filing ITR. The TDS rate will either be 5% or twice the rate specified in the relevant section, whichever is higher.

To check if the rule applies, the taxpayer on the IT portal, under “Compliance check for Sections 206AB & 206CCA” can enter single PAN or multiple PANs (bulk search) and get a response if the deductee is a specified person.