TDS 101(Tax Deducted at Source)

Objective: To understand what TDS actually. To understand situations when TDS is applicable. To understand what compliance is required for TDS.

Jaydeep S. Halbe

Disclaimer:This is based on provisions of the Indian Income Tax Act, 1961 and these provisions change from time to time!

TDS - Objective

• TDS is tax deducted at source.

• The objective is to check tax evasion by people. Only 1% of the Indian Population files an income tax return.

• That means it’s this 1% who is paying for the politicians and development of the nation!

• The Income Tax Department introduced the concept to check tax evasion and create a situation where people file return of income.

TDS - Fundamentals

• As per the TDS provisions, there are a bunch of payments for which TDS is applicable.

• Where ever TDS is applicable, you need to deduct the tax (based on specified percentage) from the payment you’re making and deposit it with the government.

TDS Applicability

TDS provisions are applicable to:

An Individual who is running a business. A partnership firm who is running a business. A Pvt. Ltd. Company A Public Limited Company An LLP

194 J– Professional / Consultant

• Money paid to any professional, freelancer, consultant is covered under section 194J of the Income Tax Act, 1961.

• The section says, 10% must be deducted from every payment made to a professional / freelancer / consultant.

• This is only applicable if payments made are more than Rs. 30,000 in one financial year.

194 I – Rent

• Money paid to a landlord is covered under section 194I of the Income Tax Act, 1961.

• The section says, 10% must be deducted from every payment made to a landlord.

• This is only applicable if the rent is more than Rs. 180,000 in one financial year. Further the rental agreement must be in the name of the company / firm / LLP or sole proprietor.

194 C – Contractor

• Money paid to a contractor / agency which is not a professional or consultant is covered under section 194C of the Income Tax Act, 1961.

• The section says, 1% / 2% must be deducted from every payment made to the party. It’s 2% if the contractor / agency is a Limited Company, else it’s 1%.

• This is only applicable if the payment is more than Rs. 30,000 in one financial year.

PS: Advertising agency payments are covered here.

194 H – Commission / Brokerage

• Money paid to a commission agent / broker is covered under section 194H of the Income Tax Act, 1961.

• The section says, 10% must be deducted from every payment made to the party.

• This is only applicable if the payment is more than Rs. 5,000 in one financial year.

PS: Housing Broker payments are covered here.

192 B – Employee Salaries

• Money paid to an employee is covered under section 192B of the Income Tax Act, 1961.

• The section says, TDS must be deducted which is equal to the amount of tax payable by the employee after considering all income, allowable expenditure and deductions for the employee.

• An employee needs to pay tax if his taxable salary is more than Rs. 200,000 per financial year.

PS: Taxable Salary = Actual Salary – Allowable Expenditure / Deductions.

When to pay TDS

Now that you deducted TDS from payments made to the people covered in the previous slides, what to do with that money?

You need to pay it the account of the government before 7th of the subsequent month.

Suppose you paid a freelance designer Rs. 50,000 in April 2014, you need to pay 10% TDS which is Rs. 5,000 by 7th May 2014.

PS: Ensure you have a TAN (tax deduction account number). Without this, you can’t make TDS payments.

TDS Return Filing

Now that you paid the TDS to the account of the government on a monthly basis, you now need to give the government a summary of what you paid and for what all parties you deducted and paid TDS.

This summary is called a TDS return and needs to be filed on a quarterly basis. Ask your auditor / accounting service firm more about this.

This return needs to be filed by 15th of the subsequent quarter. Return for April – June 2014 needs to be filed by July 15th.

PS: Ensure you file your TDS returns on time. Else the penalty is Rs. 200 per day of delay.

So now, think if you have made any payments to Freelancers, Consultants, professionals, contractors, brokers, landlords etc. Apply the TDS principles and see if it’s applicable to you.

For any queries, you can contact me:

E-mail: jay@kenspire.comTwitter: @jayhalbe