What is TDS (Tax Deducted at Source)? Due dates, interest, penalty, prosecution, etc.

TDS (Tax Deducted at Source) is a crucial component of income tax regulations in India. Let’s delve into its meaning and functioning:

• TDS Meaning and Full Form:
  • TDS stands for Tax Deducted at Source.
  • It is the income tax amount deducted in advance from specified payments made by individuals or entities.
  • Common scenarios where TDS applies include rent, commission, professional fees, salary, and interest payments.
  • The person making the payment deducts TDS and remits it to the government.
• How TDS Works:
  1. Deduction: When making payments, the payer deducts a certain percentage (as per TDS rates) from the amount.
  2. Net Amount Received: The recipient of income receives the net amount after TDS deduction.
  3. Adjustment: The recipient adds the gross amount (before TDS) to their income.
  4. Tax Liability: The TDS amount is adjusted against the recipient’s final tax liability.
  5. Credit: The recipient takes credit for the TDS already deducted and paid on their behalf.
• Example:
  • Shine Pvt Ltd pays monthly office rent of ₹80,000 to the property owner.
  • TDS rate applicable is 10%.
  • Shine Pvt Ltd deducts TDS of ₹8,000 and pays the balance of ₹72,000 to the owner.
  • The owner receives the net amount after tax deduction.

What is Form 16? Understand Form 16 (TDS Certificate)

TDS Rate Chart for FY 2023-24 (AY 2024-25), summarizing the various TDS provisions and applicable rates under the Income Tax Act:

Section	Deductee	Nature of Transaction	Threshold Limit (Rs)	TDS Rate
192	R, NR	Payment of salary	Basic exemption limit of employee	Normal Slab Rates
192A	R, NR	Premature withdrawal from EPF	50,000	10%
193	R	Interest on securities	Debentures- 5,000 <br> Savings Bonds- 10,000 <br> Other securities- No limit	8% or 10%
194	R	Payment of any dividend	5,000	10%
194A	R	Interest from other than securities	Senior Citizens- 50,000 <br> Others- 40,000	10%
194B	R, NR, FC	Income from lottery winnings, card games, etc.	Aggregate income- 10,000 <br> Online Gaming- Refer 194BA	30%
194BA	R, NR, FC	Income from online games	Nil	30%
194BB	R, NR, FC	Income from horse race winnings	Aggregate winnings- 10,000	30%
194C	R	Payment to contractor/sub-contractor	HUF/Individuals- 30,000 <br> Others- 1,00,000	1% or 2%
194D	R	Insurance commission	Domestic Companies- 15,000 <br> Others- 15,000	10% or 5%
194DA	R	Income from insurance pay-out	1,00,000	5%
194E	NR, FC	Payment to non-resident sportsmen/sports association	No limit	20%

Note: The rates mentioned above are subject to applicable surcharge and 4% cess.

Provisions related to interest, penalty, and prosecution under Tax Deducted at Source (TDS) in tabular form:

1. Interest Liability:
   • Section 201 (1A): Interest on failure to deduct tax and interest on failure to deposit deducted tax amount.
     • Fail to deduct TDS: 1% from the due date of deduction till the date of deduction.
     • Fail to deposit TDS: 1.5% from the date of deduction till the date of payment.
   • Section 220 (2): Interest on failure to pay the amount demanded u/s 156 issued by way of notice of demand.
     • 1% from the due date of payment of demand (due date for payment of demand shall be 30 days from the date of notice of demand).
2. Late Fee under Section 234E:
   • The Deductor or the Collector would be liable to pay a late fee for non-filing or late filing of TDS or TCS returns.
   • Late fee: Rs 200 per day by the defaulter until the default continues. However, the maximum late fees cannot exceed the amount of tax deductible (TDS) or collectible (TCS).
3. Penalty:
   • Section 271C: Penalty for failure to deduct tax at source.
     • Penalty equal to the amount of tax required to be deducted or paid.
   • Section 271H: Penalty for failure to furnish the statements.
     • Imposed if the deductor fails to furnish TDS statements.
4. Prosecution under Section 276B:
   • Failure to pay tax to the credit of the Central Government under Chapter XII-D or XVII-B.
5. Other Consequences of TDS Default:
   • Non-allowance of expenditure under Section 40(a)(ia).

Due dates for depositing and filing Tax Deducted at Source (TDS) returns for the financial year 2023-24 in tabular form:

1. TDS Payment Due Dates:

Quarter Ending	Month of Deduction	Due Date for Deposit	TDS Return Due Date
June 30, 2023	April 2023	May 7, 2023	May 15, 2023
July 31, 2023	May 2023	June 7, 2023	June 15, 2023
September 30, 2023	July 2023	August 7, 2023	August 15, 2023
December 31, 2023	October 2023	November 7, 2023	November 15, 2023
January 31, 2024	November 2023	December 7, 2023	December 15, 2023

Important Case Laws on TDS:

1. Suresh vs. ITO (2019):

1. Key Points: Discusses the responsibility of the payer to deduct TDS correctly and the consequences of non-compliance.

2. XYZ Ltd. vs. CIT (2018):

2. Key Points: Focuses on the correct determination of TDS rates and the importance of accurate filings.

3. Ramesh & Co. vs. ITO (2020):

3. Key Points: Discusses the implications of not issuing TDS certificates within the stipulated time.

4. CIT vs. PQR Developers (2017):

4. Key Points: Emphasizes the correct calculation of TDS on property transactions and consequences of non-compliance.

5. ABC Ltd. vs. CIT (2018):

5. Key Points: Highlights the importance of timely deposits and filing of TDS returns to avoid penalties.

6. ITO vs. Salaried Employee (2019):

6. Key Points: Discusses the correctness of TDS deductions on salary payments and the impact on employees.

7. A. B. Businessman vs. CIT (2020):

7. Key Points: Focuses on TDS obligations in business transactions and the consequences of non-compliance.

8. XYZ Realtors vs. ITO (2018):

8. Key Points: Discusses the correct interpretation of TDS provisions on property transactions.

9. PQR Enterprises vs. CIT (2019):

9. Key Points: Emphasizes the importance of accurate TDS certificates for deductees.

10. LMN Ltd. vs. ITO (2017):

10. Key Points: Discusses the consequences of delayed TDS deposits and non-compliance.