The document provides information about Tax Deducted at Source (TDS) in India. It explains the logic and purpose of TDS, how TDS works, applicable rates and due dates for different types of transactions like salaries, rent, professional fees, etc. It also discusses compliance requirements and penalties for non-compliance with TDS obligations. Special cases are illustrated for better understanding of TDS calculations.

1. ™
MAKING
TDSNOT
SO TEDIOUS
A performance enablement company
An entrepreneur’s guide to withholding taxes in India
360 FINANCE for recurring business services transactions

2. What is the logic behind TDS?
What is the basic applicability of TDS? UNDERSTANDING TDS
TDS is a tax compliance
mechanism adopted by
the Government at the
source of transaction
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TDS is a way of
augmenting working
capital of the
government and
checking tax evasion
Serves as a way of
collecting tax as the
income is earned as
against at the end of
the year
1 2 3
GOODS vs SERVICES
TANGIBILITY vs INTANGIBILITY
TRADING vs RENDERING

3. What does TDS mean to the provider of services?
Why TDS is important for Business? HOW TDS WORKS
Illustration:
Client Private Limited (Client) is hiring NOTDS Private Limited to provide IT Development Services. They charged a fee of INR 100,000.
Assume the following for ease of understanding, about the above transaction:
 It falls within the ambit of TDS (Professional Fees)
• Rate of TDS deduction applicable is 10% (Section 194J) | NOTDS Private Limited received INR 100,000 – INR 10,000 = INR 90,000
• Hence NOTDS Pvt Ltd.'s profit during the year is Income (INR 100,000) less expenses (say INR 40,000) = INR 60,000
Assuming, the NOTDS Private Limited's Income Tax rate is 30%.
Scenario 1 – Where TDS was deducted
Revenue 100,000
Expenses (40,000) Expense is deductible
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for Tax Purposes
Profit 60,000
Tax @ 30% 18,000
Less: TDS 10,000
Income Tax to be paid 8,000 Payable with interest
on INR 8,000
Scenario 2 – Where TDS was not deducted by Client
Profit as per Company 100,000
Expenses 40,000 Expense is deductible for
Tax Purposes
Profit for Tax Calculation 60,000
Tax @ 30% 18,000
Less: TDS Nil
Income Tax to be paid 18,000 Payable with interest on
INR 18,000

4. When do I need to comply with TDS?
DUE DATES FOR PAYMENT OF
TDS
April May June July Aug Sept Oct Nov Dec Jan Feb
31st
of the month
immediately
following the
month of
transaction
March for transactions up to March 30
of April for transactions on March 31 30th
7th
March

5. What are the transactions that attract TDS?
TRANSACTIONS THAT ATTRACT
TDS
Salaries Interest
Payments to
Contractors/
Sub
Contractors
Commission
or Brokerage
Professional
and
Technical
Services
Rent

6. Payment Covered Taxable Salary of the employee
Time of deduction At the time of payment only
Threshold Limit On any amount which does not exceed the
Rate At an average rate of tax, computed based on
Exception if PAN is not
Provided
basic exemption limit after deductions and/or
exemptions
the slab rate for the relevant Assessment Year
The rate of TDS will be higher of, the rate in
force or 20%
All emoluments by
what ever name
called which are
taxable
This applies to all the
remaining
transactions on which
TDS is applicable
SALARIES Section 192

7. Payment Covered Amount Payable as Interest
Time of deduction At the time of payment or credit, whichever is
earlier
Threshold Limit INR 10,000 per annum
Rate @10% of the amount exceeding the Threshold
Limit as above
Applies only to
Interest earned from
Depositing money in
banks or other
institutions
INTEREST Section 194 A

8. Payment Covered Consideration payable towards Contracts and/or
Sub Contracts
Time of deduction At the time of payment or credit, whichever is
earlier
Threshold Limit In case of a Single Payment = INR 30,000
In case of Multiple Payments = INR 75,000
(Considered per annum per Payee)
Rate 1% if the payee is Individual or HUF
2% if the payee is any other category of Person
• Advertising
• Goods Carriage
• Catering
• Job Work
• Broadcasting and
telecasting etc.
(examples not
limited to above)
CONTRACTORS Section 194 C

9. Payment Covered Amount Payable as Commission or Brokerage
Time of deduction At the time of payment or credit, whichever is
earlier
Threshold Limit INR 5,000 per annum
Rate @10% of the amount exceeding the Threshold
Limit as above
Includes any payment
received or receivable,
directly or indirectly, by a
person acting on behalf of
another person or for any
services in the course of
buying or selling of goods,
not being securities.
COMMISSION / BROKERAGE Section 194 H

10. Payment Covered Amount Payable as Rent
Time of deduction At the time of payment or credit, whichever is
earlier
Threshold Limit INR 180,000 per annum
Rate – Land and building
Rate – Plant & Machinery
@10% of the amount exceeding the Threshold
Limit as above
@2% of the amount exceeding the Threshold
Limit as above
• Land
• Building
• Land Appurtenant to
Building
• Machinery
• Plant & Machinery
• Equipment
• Furniture & Fixtures
RENT Section 194 I

11. Payment Covered Amount Payable as Fees for Professional
and/or Technical Services and Royalty
Time of deduction At the time of payment or credit, whichever is
earlier
Threshold Limit INR 30,000 per annum
Rate @10% of the amount exceeding the Threshold
Limit as above
• Professional Services are
those notified by the Income
Tax Dept
• Technical Services means any
consideration for the
rendering of any managerial,
technical or consultancy
services”.
PROFESSIONAL / TECHNICAL Section 194 J

12. 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..
Payment of TDS
Am I required to make payment of TDS electronically?
Any Company Yes. Compulsory electronic payment
Any other person
(say, Firm/ Proprietor etc.)
Compulsory electronic payment if covered by Tax
Audit
FAQs

13. Special
Case
Fact 1
On April 1, 201X, XYZ Ltd. has engaged Mr. X to perform services in the
nature of professional services. He has to be paid the following sums:
June
INR 10,000
July
INR 10,000
August
INR 5,000
CALCULATING TDS
Action Payments made were as follows:
June
July
August
INR 10,000
INR 10,000
INR 5,000
No TDS deduction made
as the aggregate does
not exceed threshold of
INR 30,000 for Sec 194J
Base
scenario
Payments for professional fees were made to Mr. A as follows in the
month of January of INR 100,000:
Fees payable INR 100,000 TDS @ 10%
AMOUNT PAYABLE TO
Mr. A
January INR 100,000 INR 10,000 INR 90,000

14. Action Payments made 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
July
August
INR 1,000
INR 1,000
INR 500 INR (2,500)
Total payment (after recovering earlier TDS dues as threshold limit
was crossed during the FY) INR 6,500
Special
Case
Fact 1
On September 1, 201X, XYZ Ltd. Decided to extend further work to Mr. X for which
the payment would be:
September
INR 10,000
October
INR 10,000
November
INR 10,000
CALCULATING TDS

15. If NON-COMPLIANCE OF TDS you haven’t done TDS, What’s the impact?
Illustration:
ABC & Co. provided IT Advisory Services to CLIENT Pvt Ltd. They charged a fee of INR 10,000 which was paid to them by CLIENT Pvt Ltd.
Assume the following for ease of understanding, about the above transaction:
 It falls within the ambit of TDS
• Rate of TDS deduction applicable is 10%
• Hence CLIENT Pvt Ltd.'s profit during that year is INR 20K – 10K = INR 10K
Assuming, the CLIENT Pvt Ltd.'s Income Tax rate is 30%.
Scenario 1 – Where TDS was deducted and paid to Govt
Revenue 20,000
Expenses (10,000) Expense is deductible for Tax
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Purposes
Profit 10,000 Profit as per Company
Tax @ 30% 3,000
Scenario 1 – Where TDS was not deducted/ not paid
Profit as per Company 10,000
Expenses added back 10,000 Expense is NOT deductible
for Tax Purposes
Profit for Tax Calculation 20,000
Tax @ 30% 6,000
• Extra Income Tax burden for the Defaulter
• TDS Provisions dictate a 12% Interest on Non deduction and
• 18% Interest on Non payment of the same to Govt.
• Reporting in Tax Audit report
NON DEDUCTION IMPLICATIONS

16. © Prequate 2014
What are the other transactions that attract TDS I should be
aware about though I may not encounter everyday?
OTHER TRANSACTIONS THAT ATTRACT
TDS
Winnings from
Lottery, Game
Shows, Horse
Races
Crossword
Puzzles
Interest on
Bonds,
Debentures,
Deposits etc. –
other than those
in the Bank
Long Term
Capital Gain on
sale of Fixed
Assets, Forex
Bonds, GDR’s
etc.
Payments in
respect of NSC,
Mutual Funds
and Dividends
Income of FIIs
from Securities
Payments to Non
Resident
sportsmen and
Associations

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