Tax Deducted at Source (TDS)

Tax Deducted at Source (TDS) is a concept employed for collection of tax with an aim to collect tax from the very source of income. Based on this, a person who is liable to make payment of specified nature to any other person shall deduct tax at source and remit the same into the account of the Central Government.  The person who is making the payment is known as deductor and the person from  whom the deduction is effected is known as deductee. The deductee gets credit of the amount so deducted on the basis of Form 26AS or TDS certificate issued by the deductor. The deductee can take into account the TDS made by the deductor at the time of submitting his annual income tax return.

Rates for TDS

TDS shall be made at the rates specified in the relevant provisions of the Act or the First Schedule to the Finance Act. However, if the deductee is a non-resident person, the withholding tax rates specified under the Double Taxation Avoidance Agreements (DTAA) shall also be considered.

A DTAA or Double Taxation Avoidance Agreement is a tax treaty signed between two or more countries. The objective of DTAA is exempting the tax-payers in these countries from being taxed twice for the same income. A DTAA comes into picture when a tax-payer resides in one country and earns income in another. The benefit of DTAA can be availed by residents of those countries with which India is having such agreements. To claim double taxation relief, deductee shall produce Tax Residency Certificate along with declaration in Form 10F and PAN.  If tax Residency certificate for the relevant period is not submitted, deductee will deduct tax  at normal rates.

Withholding tax is an amount that is directly deducted from the employee’s earnings by the employer and paid to the central government of India as a part of individual’s tax liability. In India, the Central Government is responsible and authorised for levying and collecting taxes. Tax is charged based on the income categorized into various slabs.  The income attracts different rates of taxes based on the income slabs prescribed in the Income Tax Act. The withholding tax is almost similar to Tax deducted at source. In India, the withholding tax is applicable on various sources of income namely: Salary, work contract, Commission, Rent, Interest, Technical Services, Income from Business, Professional services, etc.

Whether TDS  is applicable on GST component?

Circular 23/2017 dated 19th July, 2017 issued by Central Board of Direct taxes (CBDT)  specifies that TDS shall be  on the amount paid or payable without including Goods and Service Tax component in the invoice. Hence TDS is not applicable for the GST component.

How to pay Tax Deducted/Collected at source?

The deductee shall deposit the amount on account of TDS to the credit of the Central Government by following modes:

1) Electronic mode: E-Payment is mandatory for

a) All corporate assesses; and

b) All assesses (other than company) to whom provisions of section 44AB of the Income Tax Act, 1961 are applicable.

2) Physical Mode: By furnishing the Challan 281 in the authorized bank branch

Where the deductee is a government office, it can remit tax to the Central Government without production of income-tax challan. In such case, the Pay and Accounts Officer or the Treasury Officer or the Cheque Drawing and Disbursing Officer or any other person by whatever name called to whom the deductor reports the tax so deducted and who is responsible for crediting such sum to the credit of the Central Government, shall submit a statement in Form No. 24G.to NSDL with prescribed time-limit.

Frequency for Issue of TDS certificate

TDS deductors have to issue TDS certificates downloaded from www.tdscpc.gov.in to all deductees where PAN is available on a quarterly basis in Form no. 16A. The certificates can be downloaded only after filing the quarterly TDS returns (Form no. 26Q and 27Q). The due date for filing TDS returns and issuing TDS certificate are as provided below: