TDS returns are the statement which contains details of all payment which attracts tax deduction under income tax act. Under income tax, certain payments are liable for tax deduction while making payment to recipient and payer is responsible to withhold tax. Every deductor of tax are liable to furnish statement (TDS returns) with income tax department within prescribed period of time and any failure on furnish of such returns are liable for penalty. Lets understand in details about Tax Deduction at Source Provisions
TDS stands for Tax Deduction at Source. As per provisions of TDS, any person (deductor) who is liable to make payment of specified nature (which attracts TDS such as salary, interest, commission, brokerage, professional fees, royalty, contract payments, etc.) to any other person (deductee) shall deduct tax at source and remit the same into specified government account. Let’s understand TDS with help of an example:
KAKA Private Limited makes a payment of INR 20,000/- towards commission fees to Mr. Kala, then KAKA Private Limited shall deduct a tax of Rs 1,000/- and make a net payment of INR 19,000/- to Mr. Kala. The amount of INR 1,000/- deducted by KAKA Private Limited will be directly deposited by KAKA Private Limited into the account of central government.
As illustrated above, supplier of services whose services attract TDS receives lesser amount as compare to their invoice value which may lead to shortage of working capital however at a same time such supplier is also liable to pay advance tax on his taxable income which is again outflow of funds. Considering both factors deduction of tax on certain payment is neutral situation for supplier of services as either way he has to pay taxes on his income, however deductee(supplier of services) from whose income tax has been deducted at source (TDS) would be entitled to get credit of the amount so deducted on the basis of Form 26AS or TDS certificate issued by the deductor. Lets understand with the help of an example:
With continiountion of above example under which TDS of INR 1000 is deducted, let’s assume Mr. Kala have taxable income of INR 3,40,000 for financial year 2019-20 on which he is not liable for tax as his taxable income is below INR 5,00,000 on which tax is not payable however KAKA Private Limited has already deducted tax on INR 1,000. In this case Mr. Kala can claim a refund of INR 1,000 from central government which was deducted by deductor.
Government has introduced TDS provisions with intent to timely collection of tax indirectly through recipient of services on behalf of person who is earning income. TDS provisions ensures that taxpayer shall not escape income as tax on such income is already been deducted. TDS provides an option on taxpayer for payment of tax in parts through tax deduction as through TDS taxpayer always receives some lesser amount and such deducted amount get credited into government account which can be claimed by taxpayers at the time of filing of ITR.
Once tax has been deducted by deductor (recipient of services) then such deductor is liable to furnish information of tax deducted with government in prescribed format. The government has prescribed certain forms in which statement of tax deducted shall be furnished and on the basis of such returns deductee shall claim credit of TDS.
Forms for TDS Return
Particulars of the TDS Return Forms
Statement for tax deducted at source from salaries
Statement for tax deducted at source on all payments other than salaries.
Statement for tax deducted at source on purchase of property
Statement for tax deducted at source on rent payment by salaried person
Statement for tax deduction on income received from interest, dividends, or any other sum payable to non residents.
Forms for TDS Return
Form 24Q, 26Q and 27Q
Q1 – 31st July
30 days from end of calendar month in which tax deducted
30 days from end of financial year
Form 26AS is annual statement of tax credit available for taxpayers. This is summary statement of all tax transaction done by taxpayer or done on behalf of taxpayers. In form 26AS, taxpayer can see all the payment received by taxpayers on which tax has been deducted by tax payers. Further it also contains details of tax paid by tax payer, refund received etc.
Form 26AS is available on income tax portal and can be view/download by deductee only. In form 26AS, taxpayer can see the deducter wise details and understand that which deductor deducted tax at what rate & corresponding amount of tax.
These forms are basically certificates issued by deducter to deductee to ensure that deducted amount has been duly deposited into government account and deductee can claim credit of such TDS directly from government.
There are various kinds of forms which have to be issued by deducter depending upon the nature of payments. Following are list of forms and corresponding transactions:
Nature of Payment
Certificate for tax deduction on Salary
Certificate for tax deduction on any payment other than where from 16/16B/16C is issued
Certificate for tax deduction on purchase of property
Certificate for tax deduction on rent payment by salaried person
As per Income Tax 1961, there are certain sections which talks about transactions on which TDS will be applicable. Further these section also talks about what would be rate at which TDS will be applicable. Under these TDS will be liable for deduction only when payments exceeds from the prescribed threshold limits. Please refer http://shorturl.at/aijL4 for detailed analysis of TDS rates
As per the provisions of income tax act, deductor is liable to deduct TDS at the time of making payment or credit in his books of account whichever is earlier hence liability to deduct TDS arise on the every of payment or credit. Once TDS is deducted it has to be deposited in account of Central Government by 7th of next month from the month in which TDS deducted. Let’s understand with the help of an Example:
LALA Private Limited is liable to make payment of INR 20,000/- towards commission fees to Mr. Kala on 13th February 2020 and record such transaction in his books on 13th February 2020 however LALA Private Limited made payment on 5th March 2020 after deduction a tax of Rs 1,000/- and made a net payment of INR 19,000/-. In this LALA Private Limited is liable to make payment of TDS to government on or before 7th March 2020 irrespective whether they actually make payment to Mr. Kala as date of credit is earlier then date of payment.
As per provisions of section 201(1A) of Income Tax Act1961, if payment of TDS is not made within due date or TDS is not deducted on due date then interest shall be leviable as per following:
- Interest shall be levied at 1% for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax was deducted.
- Interest shall be levied at 1.5% for every month or part of a month on the amountØ of such tax from the date on which such tax was deducted to the date on which such tax was actually remitted to the credit of the Government.