How to TDS

MAKINGTDS NOTSO TEDIOUS An entrepreneur’s guide to TDS for recurring business transactions Page 1

UNDERSTANDING TDS First things first, we need to understand TDS and why we do TDS to avoid making things tedious: • TDS is actually tax paid in advance for the year against the expected tax for the year • It is collected on a premise that one would file return of income • TDS is normally done by the buyer and paid to the government on behalf of the payee Page 2

TRANSACTIONS THAT ATTRACT TDS Other transactions: • Interest on Securities Normal business transactions • Dividends • Salaries • Winnings from Lotteries or crossword puzzles • Winnings from Horse Races • Interest other than Interest on • Insurance Commission Securities • Payment to Non-resident sportsmen or sports association • Payments to Contractors and • Payment in respect of NSC Sub-contractors • Payments in respect of Repurchase of units of • Commission or Brokerage Mutual Funds or UTI • Commission on Sale of Lottery Tickets • Rent • Payment of Compensation on acquisition of • Fees for Professional or certain immovable property • Other Sums Technical Services • Long term capital gain • Income or Long term capital gain from Foreign Currency bonds/Global Depository Receipts • Income of Foreign Institutional Investors from Securities Page 3

SALARIES Section 192Payment Covered Taxable Salary of the employeeTime of deduction At the time of payment onlyMaximum amount which can be On any amount which exceeds the basicpaid without tax deduction exemption limit after deductions/exemptionsRate At an average rate of tax, computed based on the slab rate for that Previous YearException If PAN is not provided by the employee, the rate of TDS will be higher of rate in force or 20% Page 4

INTEREST OTHER THAN INTEREST ONSECURITIES Section 194APayment Covered Amount payable as interestTime of deduction At the time of payment or at the time of credit, whichever is earlierMaximum amount which can be INR 5,000 per annumpaid without tax deductionRate 10% - Payee = Resident Non-corporate 20% - Payee = Resident Corporate Page 5

PAYMENTS TO CONTRACTORS ANDSUB-CONTRACTORS Section 194CPayment Covered Any amount of consideration payable towards contracts for workTime of deduction At the time of payment or at the time of credit, whichever is earlierMaximum amount which can be If a single payment exceeds INR 30,000/- orpaid without tax deduction If total aggregate payments exceed INR 75,000/- per annum per contractorRate 1% if Payee = Individual/ HUF 2% if Payee = OthersException If PAN is not quoted by the employee, the rate of TDS will be 20% Page 6

PAYMENTS TO CONTRACTORS ANDSUB-CONTRACTORS Section 194C COMMISSION OR BROKERAGE Section 194H Payment Covered Amount of commission or brokerage Time of deduction At the time of payment or at the time of credit, whichever is earlier Maximum amount which can be Any amount exceeding INR 5,000 paid without tax deduction Rate 10% 20% in cases where PANis not quoted by the deductee Page 7

RENT Section 194I Payment Covered Amount payable as Rent Time of deduction At the time of payment or at the time of credit, whichever is earlier Maximum amount which can be INR 180,000 per annum per payee paid without tax deduction Land & Building 10% - If payable to an Individual Rate 20% - If payable to any other person Plant & Machinery 2% - Rent of Plant & Machinery Rate Exception For assesses whose books of accounts are required to be audited under Section 44AB in the immediately preceding financial year have to compulsorily do TDS on ALL TRANSACTIONS covered by the list of transactions above. Page 8

FEES FOR PROFESSIONAL OR TECHNICALSERVICES Section 194J Payment Covered Amount payable as Professional services, technical services or Royalty Time of deduction At the time of payment or at the time of credit, whichever is earlier Maximum amount which can be INR 30,000 per annum per payee paid without tax deduction Rate 10% Exception For assesses whose books of accounts are required to be audited under Section 44AB in the immediately preceding financial year have to compulsorily do TDS on ALL TRANSACTIONS covered by the list of transactions above. Page 9

COMMON QUERY TDS on FEES FOR PROFESSIONAL OR TECHNICAL SERVICES & PAYMENTS TO CONTRACTORS AND SUB-CONTRACTORS When Service tax is charged on Amount of consideration by the Payee, should I make TDS on Invoice amount or the amount exceeding Service tax? TDS has to be made on the entire amount of the Invoice including Service Tax. TDS on RENT When Service tax is charged on Amount of RENT paid to the Payee, should I make TDS on Invoice amount or the amount exceeding Service tax? TDS has to be made only on the amount of RENT. Service Tax should not be included while making TDS.. Page 10

CALCULATING TDS Base Payments for professional fees were made to Mr. A as follows in the month scenario of January of INR 100,000 will be: AMOUNT PAYABLE Fees payable INR 100,000 TDS @ 10% TO Mr. A January INR 100,000 INR 10,000 INR 90,000 Special On April 1, 201X, XYZ Ltd. has engaged Mr. X to perform services in the nature Case of professional services. He has to be paid the following sums: Fact 1 June INR 10,000 July INR 10,000 August INR 5,000 Action Payments made were as follows: June INR 10,000 July INR 10,000 August INR 5,000 Page 11

CALCULATING TDS Special On September 1, 201X, XYZ Ltd. Decided to extend further work to Mr. X for Case which the payment would be: Fact 1 September INR 10,000 October INR 10,000 November INR 10,000 Action Payments made were as follows in the month of September will be: Fees payable TDS PAYABLE Invoice amount INR 10,000 INR 1,000 INR 9,000 TDS Recovered June INR 1,000 July INR 500 August INR 1,000 INR (2,500) INR 6,500 Page 12

WHEN IS THE DUE DATE FOR PAYMENT OF TDS April DUE DATE FOR PAYMENT TO THE May June July August 7th of the month immediately following GOVERNMENT September the month of payment or credit, whichever is October earlier (as applicable) November December January February Transactions up March 31 to March 30 of the same month Transactions of May 31 March 31 of the immediately following Page 13

FILING RETURNS OF TDS Other Other If you are a Salary payments to a payments to a Resident Non-Resident Company OR Form 27Q in Person whose books are required Form 24Q in Form 26Q in Electronic to be audited in immediately Electronic Electronic format preceding u/s 44AB format format + OR + + Number of Deductees in any Form 27A Form 27A Form 27A quarter return of immediately (Quarterly) preceding year exceed 20 Form 27Q Any other person Form 24Q Form 26Q (Quarterly) Due Date April – June, July – September, 15 days from last day of each quarter October – December Due Date 31 May immediately following January – March Page 14

CONSEQUENCES OF DEFAULTING ON TDS DEFAULT EFFECT The expenditure for which TDS to be deducted gets DISALLOWED for Income taxes Non deduction + Penal interest @1.5% for every month up to date of deduction The expenditure for which TDS deducted but not paid Non payment gets DISALLOWED for Income taxes us 40a The amount short deducted is Less deduction required to be paid along with penalty Penal interest @1.5% for every month Late Payment from date of deduction to the date of payment. Page 15

Disclaimer The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. Neither the author nor Prequate Mindworks and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon. No part of this document should be distributed or copied (except for personal, non‐commercial use). Page 16

Get in touch Pradyumna Nag Rakesh Bordia Rishabh Pahariya Director Director Director +91 988 63 44 590 +91 988 63 87 858 +91 988 68 21 280 nag@prequate.in bordia@prequate.in rishabh@prequate.in Prequate Consultants Private Limited 11/2, 3 Cross, Wilson Garden Bangalore – 560 027 +9180 22 22 50 40 Page 17

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How to TDS

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