Chapter XVII-B of the Income Tax Act, 1961, (hereinafter referred to as the “Act”) contains provisions which lay down the guidelines with respect to the concept of Tax Deduction at Source, i.e. TDS. It lists down the nature of transactions for which tax is to be deducted at source by the payer, before making the payment to the payee. Section 4 of the Act provides for collection of taxes via deduction of tax at source, which helps the Government in collecting tax for the Government before the commencement of the Assessment Year.
What is Tax Deduction at Source (TDS)?
The Act has laid down that a payer while making certain specified payments such as commission, rent, salary, interest, etc., to a payee, shall withhold (deduct) a certain percentage of that money as tax on such payment, which the payer is liable to deposit with the Government within a specified period of time. The Government has incorporated over 35 provisions in the Act, under which the payer has to make such advance deduction. The gross amount is recorded by the recipient as income in their books of accounts by the recipient and the tax deducted is considered as an advance payment of tax, which is ultimately, adjusted against final tax payable by the recipient. As a result the recipient receives a net amount (i.e. the amount left after deduction of TDS from the payment received.)
The recipient at the time of filing his income tax return, receives credit for the TDS on the basis of Form 26AS or TDS certificate issued by the payer. Form 26AS is an annual statement that contains details with respect to any amount that has been either deducted at the source or collected at the source i.e. TDS or TCS from the various sources of income/ receipts of a taxpayer. Apart from such information, it also contains details regarding self-assessment tax, advance tax paid and information on any high-value transactions entered into by the taxpayer.
The main purpose behind deduction of TDS is that the Government doesn’t need to wait for the collection of income tax at the end of the financial year , when the taxpayer files their tax returns, and can receive part of income tax payable by the taxpayer throughout the year. Furthermore this creates a chain of transactions that is easy to keep track of and thus addresses points of tax evasion.
Payment of TDS (Tax Deduction at Source)
Rates of TDS
The rates at which tax is to be deducted for the specified transactions entered into are provided in the respective provisions in the Act, or the First Schedule to the Finance Act.
Deduction of TDS by individuals and HUF
No TDS is required to be deducted, when one of the payments, on which deduction of tax is required to be made, aremade by an individual or an HUF, whose books of accounts are not required to be audited under the Income Tax Act.. However in certain cases, transactions in the form of rent payments made by individuals of a HUF exceeding Rs. 50,000, may be liable for deduction of income tax @5%. TAN i.e. Tax Account Number need not be applied for by such persons.
Modes
There are two modes of payment of TDS (Tax Deduction at Source):
- Electronic Mode:All corporate assesses, and all assesses (other than company) to whom provisions of section 44AB of the Income Tax Act, 1961 are applicable.
- Physical Mode: By furnishing Challan ITNS 281 in the authorized bank branch on the Central Government portal.
Procedure
The steps to be followed by the Payer for deduction and payment of TDS (Tax Deducted at Source) are as mentioned below:
1. Evaluate the amount of tax to be deducted, considering the nature of payment, applicable provisions under the Act. The correct interpretation of the TDS provisions, and related case laws is an essential activity to determine the right amount to be deducted.
2. Deduct the amount ascertained as TDS and deposit the said deducted tax with the Central Government by the 7th of every month or other applicable
3. TDS Returns to be filed quarterly (1st Quarter – 31st July; 2nd Quarter – 31st October; 3rd Quarter – 31st January and 4th Quarter – 31st May) for most transactions. In case of TDS on transactions regarding Sale of Property or Payment of Rent such return must be filed within 30 days from the end of the month in which TDS had been deducted.
4. Issuance of TDS Certificates to the Payee. (Form 16, Form 16A, Form 16 B and Form 16 C- depending on the transaction)
It must be noted that all such tasks are to be performed by the Payer within a given timeframe, non-obedience or default of which shall lead to charging of interest,penalties, disallowance of expenditure and even prosecution in certain cases (Section 276B of the Act).
Tax Deduction at Source (TDS) Rates for FY 2022 23 AY 2023 24
The rates for Tax Deduction at Source (TDS) for Financial Year 2022-2023 are provided by the Income Tax Act, 1961. TDS Rate chart for Financial Year 2022-2023{Corresponding to Assessment Year 2023-2024} along with the relevant sections under which Tax Deducted at Source (TDS) needs to be deducted as per Financial Year 2022-2023 are given below:
To understand the rates, please also read the Guidelines to this Table
| Section under which TDS needs to be deducted | Nature of Transaction | Threshold Limit of Transaction | TDS Rates |
|---|---|---|---|
| Section 192 | Payment of Salary | Basic Exemption Limit of the employee | Slab Rates as given in the Act |
| Section 192A | Premature withdrawal from Employee Provident Fund | Rs. 50,000 | 10% |
| Section 193 |
Payment of Interest paid on Securities to a Resident |
|
10% |
| Section 194 | Payment of Dividend to a Resident | Rs. 5000 | 10% |
| Section 194A | Interest from other than securities {bank deposits- TD or RD, post office, etc.} to a Resident | Senior Citizens- Rs.50,000 Others- Rs. 40,000 |
10% |
| Interest from sources other than the ones mentioned u/s 193 and 194A above to a Resident | Rs.5000 | 10% | |
| Section 194B | Income earned from lottery winnings, card games and other games such as crossword prize, etc. | Rs.10,000 | 30% |
| Section 194BB | Income from horse race winnings | Rs.10,000 | 10% |
| Section 194C | Payment made to contractor/-sub contractor {In case of Resident Individuals or HUF} | Single transaction- 30,000 Aggregate transactions- 1,00,000 |
1% |
| Section 194C | Payment made to contractor/-sub contractor {In case of Resident other than Individuals or HUF} | Single transaction- 30,000 Aggregate transactions- 1,00,000 |
2% |
| Section 194D | Payment of Insurance commission to Resident domestic companies | Rs. 15000 | 5% |
| Section 194DA | Income for the insurance pay-out, while payment of any sum in respect of a life insurance policy to a Resident |
Rs.1,00,000 | 5% |
| Section 194E | Payment to Non-Resident or Foreign Company sportsmen/sports association | No prescribed limit | 20% |
| Section194EE | Payment of amount standing to the credit of a person under the National Savings Scheme | Rs.2,500 | 10% |
| Section 194F | Payment for the repurchase of a unit of Unit Trust of India {UTI} or a Mutual Fund | No prescribed limit | 20% |
| Section 194G | Payments, commission, etc., on the sale of lottery tickets {including payments made to Foreign Company} | Rs.15,000 | 5% |
| Section 194H | Payment of Commission or brokerage to a Resident | Rs.15,000 | 5% |
| Section 194-I | Payment made for Rent on plant and machinery to a Resident | Rs.2,40,000 | 2% |
| Section 194-I | Rent on land/ building/furniture/fitting to a Resident | Rs.2,40,000 | 10% |
| Section 194-IA | Payment in consideration of transfer of certain immovable property other than agricultural land to a Resident | Rs. 50,00,000 | 1% |
| Section 194-IB | Rent payment by an individual or HUF not covered u/s. 194-I to a Resident | Rs. 50,000 per month | 5% |
| Section 194-IC | Payment made to a Resident {Individual or HUF} under a Joint Development Agreement {JDA} | No prescribed limit | 10% |
| Section 194 J | Any payment made to a Resident: – As Fee for Professional services; – As Remuneration /Fee/Commission to a Director; – For not Carrying out any activity concerning a business and – For not sharing any know-how, copyright, patent, etc. |
-Remuneration /Fee/Commission to a Director – No Threshold Limit -Others – Rs. 30,000 |
10% |
| Section 194 J | Any payment made to a Resident: – As Fees for technical services; – As Fees for technical services, by the payee is engaged in business of operation of a call center. – For Royalty towards the sale or distribution, or exhibition of cinematographic films; |
-Rs. 30,000 | 2% |
| Section 194K | Payment of income to a Resident for units of mutual fund, for instance-dividend | No prescribed limit | 10% |
| Section 194LA | Payment to a resident in respect of compensation on acquiring certain immovable property (other than agricultural land) | 2,50,000 | 10% |
| Section 194LB | Payment of interest on infrastructure debt fund to a Non Resident or Foreign Company | No prescribed limit | 5% (Plus surcharge and health and education cess, as applicable) |
| Section 194LC | Payment of interest for the loan borrowed in foreign currency by an Indian company from Non Resident or Foreign Company or business trust against loan agreement or the issue of long-term bonds. | No prescribed limit | 5%; If long term bonds are listed on IFSC then the rate of deduction would be 4%. (Plus surcharge and health and education cess, as applicable) |
| Section 194LD | Payment of interest on bond {rupee-denominated} to FII or a QFI to a Non Resident or Foreign Company | No prescribed limit | 5% |
| Section 194LBA{1} | Certain specified income distributed by a business trust to its Resident unitholders. | No prescribed limit | 10% |
| Section 194LBA{2} | Payment of Interest income of a business trust from a Special Purpose Vehicle {SPV} distribution to its Non- Resident or Foreign Company unitholders |
No prescribed limit | 5% (Plus surcharge and health and education cess, as applicable) |
| Section 194LBA{2} | Payment of Dividend income to a Non Resident or Foreign Company of a business trust from SPV | No prescribed limit | 10% (Plus surcharge and health and education cess, as applicable) |
| Section 194LBB | Payment of Certain specified income to a unitholder of units in an investment fund | No prescribed limit | 10% in the case of a Resident ; 40% Foreign Company or a Non resident}; |
| Section 194LBC | Income from investment in securitisation fund received | No prescribed limit | 25% {Individual or HUF}- Resident 30% {Domestic Company}- Resident 40% {Foreign Company} {NRI} – Rates in force |
| Section 194M | Payment made for contractual work, carried out by Resident Individual or HUF whose books are not required to be audited |
Rs. 50,00,000 | 5% |
| Section 194N | Cash withdrawal exceeding Rs.1 Crore | Rs. 1,00,00,000 | 2% |
| Section 194N | Cash withdrawal in case person not filing ITR for the last 3 years and the original ITR filing due date has expired. |
Rs. 20,00,000 to 1,00,00,0000 Rs. 1,00,00,000 |
2% 5% |
| Section 194O | Payment made to a Resident for the sale of goods or provision of services by an e-commerce operator through its digital or electronic facility or platform. | Rs. 5,00,000 | 1% |
| Section 194P | Payment of pension or interest to specified senior citizens of age 75 years or more who is Resident. | Basic exemption limit of senior citizens or super senior citizens | Normal tax slab rates |
| Section 194Q | Payments to a Resident for the purchase of goods. | Rs.50,00,000 | 0.1% |
| Section 194R | Perquisite or benefit from a business or profession to a Resident. | Rs.20,000 | 10% |
| Section 194S | TDS on the transfer of virtual digital assets to a Resident. | Specified Persons- 50,000 Others- 10,000 |
1% |
| Section 195 | Income on investments made by NRI citizen {Non-Resident}. | No prescribed limit | 20% (individual or HUF) |
| Section 195 | Income by way of Long Term Capital Gains- LTCG referred to in Section 115E in the case of NRI. {Non-Resident} |
No prescribed limit | 10% (Plus surcharge and health and education cess, as applicable) |
| Section 195 | Income by way of LTCG under section 112{1}{c}{iii}{To either a Non-Resident and Foreign Company} Income by way of LTCG under section 112A{To either a Non-Resident and Foreign Company} |
No prescribed limit | 10% (Plus surcharge and health and education cess, as applicable) |
| Section 195 | Income by way of STCG under section 111A{To either a Non-Resident or a Foreign Company} | No prescribed limit | 15% (Plus surcharge and health and education cess, as applicable) |
| Section 195 | Any other income by way of LTCG {To either a Non-Resident or a Foreign Company} | No prescribed limit | 20% |
| Section 195 | Payment by way of Interest payable on money borrowed by the government or any Indian concern in the form of foreign currency {To either a Non-Resident or a Foreign Company} |
No prescribed limit | 20% |
| Section 195 | Payment made as royalty by the Indian concern or the Government, for the copyright in a subject referred in the First Proviso of Section 115A or computer software referred to in the Second Proviso of Section 115A. {To either a Non-Resident or a Foreign Company} |
No prescribed limit | 10% |
| Section 195 | Payment made as royalty by Government or an Indian concern in pursuance of an agreement on matters included in the industrial policy of India. {Non Resident} |
No prescribed limit | 10% |
| Section 195 | Income from royalty payable by government or Indian concern in pursuance of an agreement on matters included in the industrial policy {Foreign Company}. Agreement for royalty payment must have been entered into between 31st March 1961 and 1st April 1976 Agreement for such royalty payment is entered after 31st March 1976 |
No prescribed limit | 50% 10% |
| Section 195 | Payment made as technical fees by Government or an Indian concern in pursuance of an agreement on matters related to industrial policy {Non Resident} |
No prescribed limit | 10% |
| Section 195 | Income from technical fees payable by government or Indian concern in pursuance of an agreement on matters related to industrial policy: -Agreement for such technical fees must have been entered into between 29th February 1964 and 1st April 1976 -Agreement for such royalty payment is entered after 31st March 1976 |
No prescribed limit | 50% 10% |
| Section 195 | Any other income if not mentioned in the provisions above {Non Resident} | No prescribed limit | 30% |
| Section 195 | Any other income if not mentioned in the provisions above {Foreign Company} | No prescribed limit | 40% |
| Section 196B | Income {including Long Term Capital Gains- LTCG} from units of an offshore fund {To either a Non Resident or a Foreign Company}. |
No prescribed limit | 10% |
| Section 196C | Income {including Long Term Capital Gains- LTCG} from foreign currency bonds or Global Depository Receipt {GDR} of an Indian company {To either a Non Resident or a Foreign Company}. |
No prescribed limit | 10% |
| Section 196D | Income {excluding dividend and capital gain} from Foreign Institutional Investors {FII}{To either a Non Resident or a Foreign Company}. |
No prescribed limit | 20% |
TDS Rates for FY 2022-23 AY 2023 24 – Guiding Points:
- Transactions which do not refer the deductee, include both Resident and Non Resident persons only.
- Transactions where such deduction is applicable only on a Resident have been specifically mentioned with the
respective transactions. - Transactions where such deduction is applicable only on a Non- Resident have been specifically mentioned with
the respective transactions. - Transactions where such deduction is applicable only on a Foreign Company have been specifically mentioned with
the respective transactions. - Rate of tax above for non -resident, including a Foreign company need to be increased by applicable surcharge
and cess.
Amendments
- The Finance Bill 2021, brought into effect Section 206AB with the sole purpose of penalising persons who failed to file IT Returns within the given timelines. Section 206AB was inserted after 206AA providing for a higher rate of deduction of TDS when a specified person did not file the IT Return within the prescribed timelines. However all transactions are not covered under this provision. As per Finance Bill 2021 and the Union Budget 2022, specific transactions have been kept outside the purview of the amendment.
Section 206AB also provides for deduction at a higher rate if such specified person is unable to furnish his PAN. - Social Media Influencers will soon have to pay TDS (Tax Deduction at Source) on freebies they receive from businesses for their sales promotion at the rate of 10%. Along with these influencers, doctors are also to pay tax on the freebies they receive from pharmaceutical companies and others. Such amount is to be deducted under Section 194R. However such TDS shall not be applicable if the products are not retained and returned back to the promoting companies.
This Rule announced by the Government shall become effective from July 1, 2022.
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