TDS IT Act Sections

                                       

                                     TDS

                         IT Act Sections

TDS is basically a spot tax, deducted from the actual source of income. The same is described in the indirect tax section of Income tax Act 1961. It is implied on the income received from financial products like interest received on fixed deposits, incentives from the employer, commission’s payments, dividends on bonds, sale/purchase or rent of any immovable property and money earned as lottery or awards. The TDS rate applicable under different sections & subsection of is between 1%- 30%.

IT Section	Threshold Limit*	TDS Rate
Section 192	As per applicable income slab	As per income tax slab rate
Section 193	₹ 5000 for debenture payment	10% of the interests earned on security investments.
Section 194	₹ 2500	10% of proceeds from any deemed dividends
Section 194A	₹ 10,000	10% of proceeds from interests earned on investments other than securities
Section 194B	₹ 10,000	30% of prize money on lottery or gaming related winnings
Section 194BB	₹ 10,000	30% of prize money from horse racing
Section 194C	₹ 30,000 which is for each contract, whereas ₹ 100,000 is for p.a.	Proceeds from any contracts /  sub contracts •                    Individuals or HUF  @ 1% •                    Non Individual/corporate @ 2%
Section 194D	₹ 15,000	5% of earning as insurance commissions
Section 194EE	₹ 2,500	20% of expense in NSS deposits
Section 194F	NIL	20% of investment in MF or UTI units
Section 194G	₹ 15,000	5% of the commission money from lottery ticket selling.
Section 194H	₹ 15,000	5% of the brokerage earnings
Section 194I	₹ 1,80,000	2%  on rental amount of plant & machinery/ 10% on the rent of land & building
Section 194J	₹ 30,000 p.a	10% on the technical/professional services
Section 194LA	₹ 2,50,000	10%  on the transfer money paid to any resident while acquiring an  immovable property

*Threshold amount is the max. amount exempt from TDS. The above rates are indicative and may change based on government notification.

Other indirect taxes such as service tax, TDS are also collected prior release of a payment. The TDS rates and collection is regulated by CBTD (Central Board for Direct Taxes).

TDS is a spot tax, deducted from the actual source of income. The same is described in the indirect tax section of Income tax Act 1961. It is implied on receiving income from various financial products. TDS is charged on various incomes generated in the form of incentives, commissions, payment & dividends earned for a variety of sale, services, rent or purchase of a property, interest earned on term deposits, etc.

The rates at which TDS is applied may vary as per the nature of income which could be between 1% – 30%. The onus to collect TDS and deposit the same lies on the service provider or the seller.

Rationale for TDS Deduction

• TDS is applied on any income or overheads such as incentive (over & above salary), interests on fixed deposit from banks, lotteries, commission payment and rent payment. While making payments in any of these heads, a fixed rate is applied and the tax liability is deducted prior making the payment. If one has deducted more than the required tax amount, you will be eligible for a TDS Refund if you file your TDS Return
• The source or person who deducts TDS is referred as “Deductor”. The person to whom the payment is being done is termed as “Deductee.”. For example, a deductor is an employer/ organization paying salary or incentive to their employee who would be a deductee.
• The employer or Deductor is accountable to provide Form 16 /16A (TDS certificate) to the employee with the computation of the tax deducted amount. No TDS certificate can be issued for nil tax holding such as those payments which are exempted.

TDS Deduction Exemptions

There are few cases when the TDS is exempted. TDS is not levied on payments in favor of RBI, or towards any other recompense to the central government. Apart from this, TDS is exempted from the payment of interest from the following:

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• Banking companies
• Financial corporations formed under the finance bill of union government or any state
• Income Tax refund
• Direct taxes interest payment
• LIC, UTI and investments in co-operative societies
• Interests earned in recurring deposit or any savings account held with any commercial banks or cooperative societies
• Interest earned on Indira Vikas Patra (IVP), NSC or KVP
• Interest earned on NRE account
• Any institutions notified as Nil TDS organization

Apart from the above, TDS might not be pertinent on various other avenues as well. For example interest earned on the compensation granted from Motor Vehicles Claims Tribunal.

TDS Deduction on Fixed Deposit Interest Earnings

a)    The tax deduction at source in cases of interest earned on fixed deposit is calculated and applied beyond a threshold limit.
b)    The current applicable limit is Rs. 10,000 in a financial year. This has been increased to Rs. 40,000 annually from FY 2019-20 onwards.
c)    In case, an individual earns interest more than the threshold limit on fixed deposit on either single or consolidated interest for all fixed deposits held with the same PAN number, then TDS will be applicable at a rate of 10% from the interest payout or maturity proceeds whichever happens earlier Let’s understand with an example. Mr. X is holding a Fixed Deposit of Rs. 15 Lakh booked for 1 year term & rate of interest is 10% p.a. He would earn ₹ 150,000 as interest on maturity after 1 year. The bank in such as case will deduct TDS @ 10% of ₹ 150,000 i.e. ₹ 15,000 and deposits the TDS amount with Income Tax Department on the behalf of customer Mr. X.  In return, Mr. X would receive a TDS certificate, which is generally referred as Form 16A in taxation terms.

For Fixed deposits, TDS is only applicable on the payee when he/she exceeds the interest earning of Rs. 10,000 in a financial year.  Payee furnishing PAN are liable to pay 10% on the interest earned through fixed deposits, else they need to pay 20% if PAN is not possessed. For Senior Citizens (60 years or older) are exempted to a limit of Rs. 50,000, earlier it was Rs. 10,000.

TDS Rate on Sale of the Immovable Property

a)    According to section 194-IA in the Income Tax provision, TDS is applied on the sale of any immovable property at 1%.
b)    In case, the buyer is unable to furnish a pan card, the TDS rate may be levied at a higher rate of up to a maximum limit of 20%.
c)    The transferee of the property is liable for deducting TDS prior paying the amount to the seller (transferor) while selling the property.
d)    The immovable property includes any residential or commercial building, plots excluding the notified agricultural land, and any portion of a building.
e)    The transaction can be made via cheque cash or draft by the transferee.

TDS Rate on Rent of  an Immovable Property

a)    Resident individual, other than an HUF member, paying rent for an immovable property to the resident landlord is accountable for withholding tax at source.
b)    However, TDS would be applicable at the rate of 10% only in cases where the annual rent amount exceeds ₹ 1,80,000 in a single financial year.
c)    The rent would include any payment in the form of lease rental, sublease or other valid agreement for using the building, furniture, land or fittings, etc.
d)    The property-owner is also liable to provide a valid rent receipt on each and every payment, which duly mentions any TDS deducted.
e)    At the end of financial year, the landlord should also provide Form 16 (TDS certificate) to the lessee for all TDS amount deducted in the said financial year.
f)    The transaction can be made via cheque cash or draft by the transferee.

TDS Rate on Purchase of the Immovable Property

a)    For the purchase of any property involving the exchange of money between the owner and buyer, TDS @ 1% shall be applicable.
b)    However, agricultural land is not considered under this provision of TDS.
c)    The transferee should make the transaction via cash or cheque or draft or other agreed payment modes.

TDS Rate on Transfer of the Immovable Property

a)    A transfer of residential property attracts TDS @ 1%. This is, however, not applicable in the case of agricultural lands.
b)    The buyer or transferee deducts the applicable tax amount prior making payment to the transferor.
c)    The transaction can be made via cheque cash or draft by the transferee.

TDS Rate on the Immovable Property (in the case of NRI)

a)    Under section 195 of Income Tax Act, the provision for TDS for NRI on immovable property is explained.  According to this section, any buyer who is making payment to a non-resident individual is liable for deducting TDS as per the rate applicable.
b)    The Capital gains duly received post selling any immovable property by  any NRI in India is subjected to income tax. The transaction can be made via cheque cash or draft by the transferee.

TDS Rate on Under-Construction Immovable Property

For any under construction properties where the net worth of the property is calculated as more than ₹ 50 lakhs, the TDS will be applicable on the installments paid on or after 1st of June, 2013. The transaction can be made via cheque cash or draft by the transferee.

TDS Rate on Withdrawal of EPF

TDS is applicable on the withdrawal of EPF in case an employee withdraws PF amount ₹ 50,000 & above with less than five years of continuous service at a rate mentioned below:

a)    10% in case Form-15G/15H are not submitted. However, PAN is submitted.
b)    34.608% or maximum marginal rate if the employee is unable to provide PAN number.

TDS Rates Charts for FY 2018-19 (AY 2019-20)

The TDS calculation rates as applicable to the fiscal year 2018 -19 are given below.

Nature of payment	TDS Rate	Applicable Section
Salary Payment	Regular slab rate	Section 192
Interest earned on securities	@ 10%	Section 193
Dividend accrued (apart from the dividend as mentioned in the section 115-O	@ 10% (20%, in case of invalid/no PAN)	Section 194
Income earned other than securities	@ 10%	Section 194A
Income earned on the prize money of lotteries, game or crosswords	@ 30%	Section 194B
Commission payment for Insurance agents	@ 5% (20%, in case of invalid /no PAN) (in case Form 15G/15H is filled)* *effective from 1st June 2017.	Section 194D
Premium paid for any life insurance policy	@ 1%	Section 194DA
Rental income	For plant and machinery @2% Land, furniture, fitting and furniture @10%	Section 194-I
Payment is done for transfer of any  immovable property exclusive of the agricultural land	@ 1%	Section 194IA

TDS Rates for Non-Resident Indians (NRIs)

Nature of Payment	% of TDS	Applicable Section
Salary Payment	Normal slab rate	Section 192
Payment of accrued provident fund balance	@ 10%	Section 192A
Income from prize money on lotteries, card games, crossword puzzles or games within the ambit of Indian Law	@ 30%	Section 194B
Income due to prize money in horse racing	@ 30%	Section 194BB
Deposit made under the National Savings scheme	@ 10%	Section- 194EE
Investment in any Mutual Fund or UTI bonds	@ 20%	Section 194F
Commission money earned for selling lottery tickets	@5%	Section 194G

TDS Rates on Salary

Under section 192, employer is eligible to deduct TDS from the estimated income of the employee. No tax will be deducted if the employee hasn’t exceeded the minimum tax slab in the given financial year. TDS will not be deducted if the employee’s total income is less than INR 2,50,000. The TDS on salary is required to be deducted on the basis of average rate of income tax of the taxpayer in the financial year.  However, exceeding above the minimum limit, TDS will be charged at the rate of 20%, if PAN is not possessed by the employee.

TDS Rates for Salaried Individuals

S.No	Taxable Income	TDS Rate	Applicable section
1	Up to ₹ 2.5 lakhs	Nil	Section 192
2	₹ 2.5 lakhs to ₹ 5 lakhs	@ 5%	Section 192
3	₹ 5 lakhs to ₹ 10 lakhs	@ 20%	Section 192
4	Above ₹ 10 lakhs	@ 30%	Section 192

TDS Rates for Senior Citizens

The TDS rates are different for the senior citizens (aged 60 -80 years) and super senior citizens (80 years and above).
Senior Citizens

S. No	Income Slabs	TDS  Rate
1	Up to ₹ 3 Lakhs	Nil
2	₹ 3 Lakhs – ₹ 5 Lakhs	@ 5%
3	₹ 5 Lakhs – ₹ 10 Lakhs	@ 20%
4	Above ₹ 10 Lakhs	@ 30%

TDS Rates for Super Senior Citizens

S. No	Income Slabs	TDS Rate
1	Up to ₹ 5 lakhs	Nil
2	₹ 5 lakhs – ₹ 10 lakhs	@ 20%
3	Above ₹ 10 lakhs	@ 30%

TDS Rates on Insurance Commission

With effect from June 2016, the exemption limit for TDS on Insurance commission is Rs. 15,000, earlier it was 20,000. Section 194 D deals with the provisions and responsibilities of any person who is authorised to pay any income by way of remuneration or reward to the resident. Any resident who has possessed PAN card is charged at the rate of 5%, otherwise 20% if PAN is not furnished.

There are also other forms of commissions charged at different rates mentioned below:

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1. Section 194 G– Commission, etc., on sale of lottery tickets. Charged at the rate of 5%
2. Section 194 H- Commission or brokerage. Charged @ of 5%
3. Section 194 J- Remuneration/fee/commission to a director. Charged at the rate of 10%

TDS Rate on Income from Services

Under section 194 J, any person is liable to deduct TDS in for the following payment made to resident person except individual or HUF:

a) Fee for professional services

b) Fee for technical services

c) Royalty

d) Remuneration/fee paid to a director

In cases where the payee possesses PAN Card, he/she will be charged at the rate of 10% (excluding cess and surcharge). However, in cases where the payee does not furnish PAN card, he/she is liable to pay higher of the following rates:

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• At the rate or rates in force, i.e., the rate prescribed in the Finance Act
• At the rate of 20%
• At the rate specified in the relevant provision of the Income-tax Act

TDS Rates on Contracts

Section 194 C is applicable when any payment is made to contractor/sub-contractor for any work which includes-

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• Advertising contract.
• Telecasting and broadcasting including the production of such programs
• Carriage of passengers and goods by any mode of transport (exception: Railways)
• Catering services
• Supplying or manufacturing a product as per the requirement or the specification of a customer by using the materials that are supplied by such customer
• Supply of labour for works contract

The rate of TDS applicable on contracts under section 194 C is 1% for Residential Individuals and HUF. However, for resident other than individual or HUF are liable to pay 2%. Payee not possessing PAN card will be liable to pay at the rate of 20%.

TDS Rates on Interest Income

Section 194 A deals with the provisions relating to TDS on interest income such as fixed/recurring deposits. Every payer who is liable to pay interest to a resident is liable to deduct TDS. The payer or deductor can only deduct TDS when the amount of interest paid during the previous year exceeds more than Rs. 10,000 in case of banks and Rs. 5,000 in other cases.

Under section 194A rate of TDS is –

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1. 10%, if the payee possesses PAN
2. If the payee does not have PAN, he/she is liable to pay 20%

Completed by Sachin Kumar Mishra