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What is tax deducted at source?
For quick and efficient collection of taxes, the Income-tax Law has incorporated a system of deduction of tax at the point of generation of income. This system is called as “Tax Deducted at Source”, commonly known as TDS. Under this system tax is deducted at the origin of the income. Tax is deducted by the payer and is remitted to the Government by the payer on behalf of the payee. 
The provisions of deduction of tax at source are applicable to several payments such as salary, interest, commission, brokerage, professional fees, royalty, contract payments, etc. In respect of payments to which the TDS provisions apply, the payer has to deduct tax at source on the payments made by him and he has to deposit the tax deducted by him to the credit of the Government.

What are the payments covered under the TDS mechanism and the rates for deduction of tax at source?

​​​​​​​​​​Tax is deductible at source at the rates given in table (infra). If PAN of the deductee is not intimated to the deductor, tax will be deducted at source by virtue of section ​206AA e​ither at the rate given in the table or at the rate or rates in force or at the rate of 20 per cent, whichever is higher. Further, under section 94A(5), if payment or credit is made or given to a deductee who is located in a notified jurisdictional area, tax is deductible at the rate given in the table or at the rate of 30 per cent, whichever is higher. TDS rates for the financial year 2019-20 are as follows—

CATEGORY A - WHEN RECIPIENT IS RESIDENT
Nature of payment TDS (SC : Nil, EC : Nil, SHEC : Nil)
Sec. ​192 - Payment of salary Normal Tax Rate plus surcharge and education cess
Surcharge: 10% (if total income exceeds Rs. 50 lakh but doesn’t exceed Rs. 1 crore), 15% (If total income exceeds Rs. 1 crore but doesn’t exceed Rs. 2 crore), 25% (If total income exceeds Rs. 2 crore but doesn’t exceed Rs. 5 crore), 37% (If total income exceeds Rs. 5 crore)
HEC : 4%
Sec. ​192A - Payment of taxable accumulated balance of provident fund10
Sec. 193 - Interest on securities— 
 a.  interest on (a) debentures/securities for money issued by or on behalf of any local authority/statutory corporation, (b) listed debentures of a company [not being listed securities in demat form], (c) any security of the Central or State Government [i.e., 8% Savings (taxable) Bonds, 2003 or 7.75% savings (Taxable) Bonds, 2018, but not any other Government security]10
 b.  any other interest on securities (including interest on non-listed debentures) 10
Sec. 194 - Dividend— 
 a.  deemed dividend under section 2(22)(e) Nil
 b.  any other dividend Nil
Sec. 194A - Interest other than interest on securities10
Sec. 194B - Winnings from lottery or crossword puzzle or card game or other game of any sort30
Sec. 194BB - Winnings from horse races30
Sec. 194C - Payment or credit to a resident contractor/sub-contractor— 
 a.  payment/credit to an individual or a Hindu undivided family1
 b.  payment/credit to any person other than an individual or a Hindu undivided family2
Sec. 194D - Insurance commission10
 -  if recipient is a resident (other than a company)5
 -  if recipient is a domestic company10​
​• Sec. 194DA - Payment in respect of life insurance policy1
Sec. 194EE - Payment in respect of deposits under National Savings Scheme, 198710
Sec. 194F - Payment on account of repurchase of units of MF or UTI20
Sec. 194G - Commission on sale of lottery tickets 5
Sec. 194H - Commission or brokerage 5
Sec. 194-I - Rent— 
 a.  rent of plant and machinery2
 b.  rent of land or building or furniture or fitting10
Sec. 194-IA​ - Payment/credit of consideration to a resident transferor for transfer of any immovable property (other than rural agricultural land)1
Sec. 194-IB​ - Payment of rent by an individual or HUF not subjected to tax audit under Section 44AB5
Sec. 194-IC​ - Payment under Joint Development Agreement to a resident individual or HUF who transfers land or building as per such agreement10
Sec. 194J - Professional fees, technical fees, royalty or remuneration to a director
Note: 2% if payee is engaged in the business of operation of call center
10
Sec. 194LA - Payment of compensation on acquisition of certain immovable property10
Sec. 194LBA(1) - Payment of the nature referred to in section 10(23FC) or section 10(23FC)(a) or section 10(23FCA) by business trust to resident unit holders10
Sec. 194LBB - Payment in respect of units of investment fund specified in section 115UB 10
Sec. 194LBC(1) - Payment in respect of an investment in a securitisation trust specified in clause (d) of the Explanation occurring after section 115TCA (with effect from June 1, 2016)-
section 194M – Payment of contractual work, commission (not being insurance commission referred to in section 194D), brokerage or professional fees, by an individual or a HUF not covered under section 194C, section 194H and 194J5%
section 194N – Payment in cash by banking company or co-op. bank or post office2%
 -  if recipient is an individual or a Hindu undivided family25
 -  if recipient is any other person3​0

CATEGORY B - WHEN RECIPIENT IS NON-RESIDENT OR FOREIGN COMPANY

Aggregate payment or credit subject to TDS during the financial year 2019-20

If recipient is non-resident Individual/HUF/AOP/BOI/Artificial juridical person

 

If recipient is non-resident co-operative society/ firm If recipient is non-domestic company
Rs.50 lakh or less More than Rs. 50 lakh but not more than Rs. 1 crore More than Rs. 1 crore Rs. 1 crore or less More than Rs. 1 crore Rs. 1 crore or less More than Rs. 1 crore but not more than Rs. 10 crore More than Rs. 10 crore
Nature of payment TDS (inclusive of SC:  Nil, Health & Exducation cess: 4%) TDS (inclusive of SC:  10%, Health & Exducation cess: 4%) TDS (inclusive of SC:  15%, Health & Exducation cess: 4%) TDS (inclusive of SC: Nil, Health & Exducation cess: 4%) TDS (inclusive of SC: 12%, Health & Exducation cess: 4%) TDS (inclusive of SC: Nil, Health & Exducation cess: 4%) TDS (inclusive of SC: 2%, Health & Exducation cess: 4%) TDS (inclusive of SC: 5%, Health & Exducation cess: 4%)
Sec. 192 - Payment of salary Normal Tax RateNormal Tax Rate  plus SC, EC and SHECNormal Tax Rate  plus SC, EC and SHEC
  • Sec. 192A- Payment of taxable accumulated balance of provident fund
10.411.4411.96-----
Sec. 194B - Winnings from lottery or crossword puzzle or card game or other game of any sort31.234.3235.8831.234.94431.231.82432.76
Sec. 194BB - Winnings from horse races31.234.3235.8831.234.94431.231.82432.76
Sec. 194E - Payment to a non-resident foreign citizen sportsman/entertainer or non-resident sports association20.822.8823.9220.823.29620.821.21621.84
Sec. 194EE - Payment in respect of deposits under National Saving Scheme, 198710.411.4411.96 NA NA NA NA NA
Sec. 194F - Re-purchase of units of MF or UTI20.822.8823.92 NA NA NA NA NA
Sec. 194G - Commission on sale of lottery tickets5.25.725.985.25.8245.25.3045.46
Sec. 194LB - Payment/credit by way of interest by infrastructure debt fund5.25.725.985.25.8245.25.3025.46
Sec. 194LBA(2) - Payment of the nature referred to in  Section 10(23FC) [or (with effect from June 1, 2016) section 10(23FC(a)]by business trust to unit holders 5.25.725.985.25.8245.25.3045.46
Sec. 194LBA(3) - Payment of the nature referred to  in section 10(23FCA) by business trust to unit holders31.234.3235.8831.234.94441.642.43243.68
Sec. 194LBB - Payment in respect of units of investment fund specified in Sec. 115UB               31.234.3235.8831.234.94441.642.43243.68
Sec. 194LBC(2) - Payment in respect of an investment in a securitisation trust specified in clause (d) of the Explanation occurring after section 115TCA (with effect from June 1, 2016) 31.234.3235.8831.234.94441.642.43243.68
Sec. 194LC - Payment/credit of interest by an Indian specified company on foreign currency approved loan/long-term infrastructure bonds (with effect from October 1, 2014, any bond) from outside India5.25.725.985.25.8245.25.3045.46
Sec. 194LD - Interest on a rupee denominated bond of an Indian company or Government security (from June 1, 2013)5.25.725.985.25.8245.25.3045.46
Sec. 195 - Payment/credit of other sum to a non-resident —        
a. income of foreign exchange assets payable to an Indian citizen20.822.8823.92 NA NA NA NA NA
b. income by way of long-term capital gains referred to in section 115E or  section 112(1)(c)(iii)10.411.4411.9610.411.64810.410.60810.92
c. income by way of long-term capital gains referred to in section 112A10.411.4411.9610.411.64810.410.60810.92
d. short-term capital gains under  Sec. 111A15.617.1617.9415.617.47215.615.91216.38
e. any other long-term capital gains [not being covered by  Section 10(33) 10(36) and  112A]20.822.8823.9220.823.29620.821.21621.84
f. income by way of interest payable by Government/Indian concern on money borrowed or debt incurred by Government or Indian concern in foreign currency (not being interest referred to in Sec. 194LB or Sec. 194LC 20.822.8823.9220.823.29620.821.21621.84
g. royalty [see Note 5]10.411.4411.9610.411.648

 

10.4

 

10.608

 

10.92

h. royalty [not being royalty of the nature referred to in (fsupra] [see Note 6] –        
□ where the agreement is made after March 31, 1961 but before April 1, 197610.411.4411.9610.411.6485253.0454.6
□where the agreement is made on or after April 1, 197610.411.4411.9610.411.648

 

10.4

 

10.608

 

10.92

i. fees for technical services [see Note 7] –        
□ where the agreement is made after February 29, 1964 but before April 1, 197610.411.4411.9610.411.64851.5253.0454.6
□ where the agreement is made on or after April 1, 197610.411.4411.9610.411.648

 

10.4

 

10.608

 

10.92

j. any other income31.234.3235.8831.234.94441.642.43243.68
Sec. 196B - Payment/credit of income from units (including long-term capital gains on transfer of such units) to an offshore fund10.411.4411.9610.411.64810.410.60810.92
Sec. 196C - Payment/credit of interest of foreign currency bonds or GDR (including long-term capital gains on transfer of such bonds) (not being dividend referred to in  sectgion 115-O)10.411.4411.9610.411.64810.410.60810.92
Sec. 196D - Payment/credit of income from securities (not being dividend, short-term or long-term capital gain) to Foreign Institutional Investors20.822.8823.9220.823.29620.821.21621.84

Notes :

1. Under sections 192​ tax is deductible from salary. The payer shall calculate salary taxable in the hands of recipient. The amount so determined is subject to tax deduction under sections 192. Under sections 192A, tax is deductible on taxable accumulated balance of provident fund. Under section 195, tax is deductible only if income is taxable in the hands of recipient in India. In any other case, gross payment or credit (without GST, if GST is shown separately) is subject to tax deduction.

2. In Category B, tax is deductible at the above rates or the rates specified in ADT agreements entered into by the Central Government under section 90 (whichever is lower) [ section 2(37A)(iii)].

3. Tax is not deductible under section 192A, section 193, 194, 194A, with effect from 1/6/2017 194D, 194DA, 194-I, or 194EE if the recipient makes a declaration in Form No. 15G/15H under the provisions of section 197A.

4. Under section 197 the recipient can apply the Assessing Officer in Form No. 13 to get a certificate of lower/no tax deduction. This benefit is, however, not available if tax is deductible under section 192A, section 194B, 194BB, 194E, 194EE, 194F, 194-IA, 194LBA, 194LB, 194LC, 196B, 196C or ​196D​.

5. Royalty payable by Government or an Indian concern in pursuance of an agreement made by non-resident with the Government or the Indian concern after March 31, 1976, where such royalty is in consideration for the transfer of all or any rights (including the granting of a licence) in respect of copyright in any book on a subject referred to in the first proviso to ​section 115A(1A) to the Indian concern or in respect of computer software referred to in the second proviso to ​section 115A(1A), to a person resident in India.

6. Not being royalty of the nature referred to above, payable by Government or an Indian concern in pursuance of an agreement made by non-resident with the Government or the Indian concern and where such agreement is with an Indian concern, the agreement is approved by the Central Government or where it relates to matter included in the industrial policy, the agreement is in accordance with that policy.

7. Fees for technical services payable by Government or an Indian concern in pursuance of an agreement made by non-resident with the Government or the Indian concern and where such agreement is with an Indian concern, the agreement is approved by the Central Government or where it relates to matter included in the industrial policy, the agreement is in accordance with that policy.​

Is there any minimum amount upto which tax is not deducted?

​The Income-tax Act has prescribed a different threshold limit for deduction of tax at source under various sections. If the expenditure incurred/payment made during the year is below the threshold limit, then there is no requirement to deduct tax at source.

The threshold limit for deduction of tax at source under various sections is as follows:

 

S.No. Particulars Section Threshold limit
1.No deduction of tax at source from salaries 192If net taxable income is less than the maximum amount which is not chargeable to tax (i.e. Rs. 2,50,000 for an individual other than senior citizen, Rs. 3,00,000 for Senior Citizens and Rs. 5,00,000 for Super Senior Citizens)
1A.No TDS from payment of accumulated balance of provident fund account due to an employee 192AIf taxable premature withdrawal amount is less than Rs. 50,000.
2.No TDS from interest paid on debentures issued by a company in which public are substantially interested. Provided interest is paid by account payee cheque to resident individual or HUF 193If amount of interest paid during the financial year does not exceed Rs. 5,000
3.No TDS from interest paid on 8% Saving (Taxable) Bonds 2003 or 7.75% Savings (Taxable) Bonds, 2018 (applicable from A.Y 2019-20) to resident persons 193If amount of interest  paid or likely to be paid during the financial year does not exceed Rs. 10,000
3A.No TDS from interest on 6.5% Gold bonds, 1977 or 7% Gold bonds, 1980 paid to resident individual 193If bonds held by other than non-resident individual (or behalf of any other person) and makes declaration to the payer that the nominal value of such bonds does not exceed Rs. 10,000 at any time during the period to which interest relates.
4.No TDS from dividend paid by Indian company by an account payee cheque to individual 194If aggregate amount of dividend paid or credited during the financial year does not exceed Rs. 2,500.
5.No TDS from interest other than on securities paid by a banking company or co-operative society engaged in carrying on the business of banking 194AIf amount of interest  paid or credited on time deposit during the financial year exceeds Rs 10,000 (*) (for all type of payee)/Rs 50,000 (from 01/04/2018 if payee is resident senior citizen)
(*) w.e.f. 01/04/2019, the threshold limit is increased from Rs. 10,000 to Rs. 40,000.
6.No TDS from interest on any deposit with a post office under Senior Citizens Saving Scheme Rules, 2004( Notified scheme) 194AIf amount of interest  paid or credited on time deposit during the financial year exceeds Rs 10,000 (*) (for all type of payee)/Rs 50,000 (from 01/04/2018 if payee is resident senior citizen)
(*) w.e.f. 01/04/2019, the threshold limit is increased from Rs. 10,000 to Rs. 40,000.
7.No TDS from interest other than on securities if payer is any other person other than post office or banking company or co-operative society engaged on the banking. 194AIf amount of interest paid or credited on time deposit during the financial year exceeds Rs 5,000.
8.No TDS from Lottery / Cross Word Puzzles 194BIf amount paid during the financial year does not exceed Rs. 10,000.
9.No TDS from winnings from horse races 194BBIf amount paid during the financial year does not exceed Rs. 10,000.
10.No TDS to contractor to resident person 194C

a) If sum paid/credited to a contractor in a single payment does not exceed Rs. 30,000

b) If sum paid/credited  to contractor in aggregate does not exceed Rs. 1,00,000 during the financial year (Rs. 1,00,000 w.e.f. 01/06/2016)

11.No TDS from insurance commission paid or payable during the financial year to resident person 194DIf amount paid or credited  during the financial year does not exceed Rs. 15,000
12No TDS from sum payable under a life insurance policy (including bonus) to a resident person (w.e.f. 01-10-2014) 194DAIf amount paid or payable during the financial year is less than Rs. 1 lakh.
13.No TDS from payments made out of deposits under NSS 194EEIf amount of payment or aggregate amount of payments in financial year is less than Rs. 2,500. In case of payment is received by legal heirs no tax shall be deducted.
14.No TDS from commission paid on sale of lottery tickets 194GIf amount of income  the financial year does not exceed Rs. 15,000
15.No TDS from payment of commission or brokerage 194HIf amount paid or credited during the financial year does not exceed Rs. 5,000 (Rs. 15,000 w.e.f. 01/06/2016). Further no tax to be deducted from commission payable by BSNL/ MTNL to their Public call office franchisees.
16.No TDS on payment of rent in respect of any land or building, furniture or fittings or plant and machinery to a resident person 194-I

If amount paid or credited during the financial year does not exceed Rs. 1,80,000 (Rs. 2,40,000 w.e.f. 01/04/2019).

No tax deductions shall be made under this section if rent is paid to a business trust, being a real estate investment trust, in respect of any real estate asset, referred to in section 10(23FCA), owned directly by such business trust.

17.No TDS on payment of consideration for purchase of an immovable property(other than agriculture land) to a resident transferor 194-IAIf consideration paid or payable for transfer of an immovable property is less than Rs. 50 Lakhs.
17A.No TDS on payment of rent of any land or building or both by an individual/HUF [whose books of account are not required to be audited under section 44AB to resident person. 194-IB If amount of rent does not exceed Rs. 50,000 for a month or part of a month.
18.No TDS on payment of fee for professional services, fee for technical services, royalty, any sum referred to in section 28(va) to a resident person 194J

If amount paid or credited  during the financial year does not exceed Rs. 30,000

.

19.No TDS on payment of compensation/enhanced compensation  on compulsory acquisition of immovable property (other than Agricultural Land) to a resident person 194LAIf such sum amount does not exceed Rs. 2​,50,000  during a financial year.
20.No TDS is required to be deducted on sum payable to a person with respect to contractual work, commission, brokerage or for professional services 194MIf the aggregate amount paid or credited during the financial year does not exceed Rs. 50 lakhs
21.No TDS is required to be deducted on the amount withdrawn in cash from any account 194NIf the aggregate amount withdrawn does not exceed Rs. 1 crore during the previous year.

 

Can the payee request the payer not to deduct tax at source and to pay the amount without deduction of tax at source?
​​​​​​​​A payee can approach to the payer for non-deduction of tax at source but for that they have to furnish a declaration in Form No. 15G/15H, as the case may be, to the payer to the effect that the tax on his estimated total income of the previous year after including the income on which tax is to be deducted will be nil.
Form No. 15G is for the individual or a person (other than company or firm) and Form No. 15H is for the senior citizens.

What are the consequences a deductor would face if he fails to deduct TDS or after deducting the same fails to deposit it to the Government’s account?
​​​​​​​A deductor would face the following consequences if he fails to deduct TDS or after deducting the same fails to deposit 

it to the credit of Central Government’s account:-
a) Disallowance of expenditure

As per section 40(a)(i) of the Income-tax Act, any sum (other than salary) payable outside India or to a non-resident, which is chargeable to tax in India in the hands of the recipient, shall not be allowed to be deducted if it is paid without deduction of tax at source or if tax is deducted but is not deposited with the Central Government till the due date of filing of return.
However, if tax is deducted or deposited in subsequent year, as the case may be, the expenditure shall be allowed as deduction in that year.
Similarly, as per section 40(a)(ia), any sum payable to a resident, which is subject to deduction of tax at source, would attract 30% disallowance if it is paid without deduction of tax at source or if tax is deducted but is not deposited with the Central Government till the due date of filing of return.
However, where in respect of any such sum, tax is deducted or deposited in subsequent year, as the case may be, the expenditure so disallowed shall be allowed as deduction in that year.

As per Section 58(1A) (as amended with effect from the assessment year 2018-19), the provisions of section 40(a)(ia) and 40(a)(iia) shall also apply in computing the income chargeable under the head “Income from other sources”.


b) Levy of interest

As per section 201 of the Income-tax Act, if a deductor fails to deduct tax at source or after the deducting the same fails to deposit it to the Government’s account then he shall be deemed to be an assessee-in-default and liable to pay simple interest as follows:-
(i) at one per cent 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 is deducted; and
(ii) at one and one-half per cent for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid.​

c) Levy of Penalty
Penalty of an amount equal to tax not deducted or paid could be imposed under section 271C​.

Under what circumstances a deductor would not be deemed as an assessee-in-default even after he fails to deduct TDS or after deducting the same fails to deposit it to the Government’s account?
​​​​​​​A deductor who fails to deduct the whole or any part of the tax on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee-in-default in respect of such tax if such resident—
(i) has furnished his return of income under section 139​;
(ii) has taken into account such sum for computing income in such return of income; and
(iii) has paid the tax due on the income declared by him in such return of income,
and the deductor furnishes a certificate to this effect in Form No.26A from a chartered accountant.

However, w.e.f. 01-09-2019, sum paid to non-resident will be covered by above provisions.

​​In such a case, the payee can claim the refund of entire/excess amount of TDS (as the case may be) by filing the return of income.​​

If the payer does not deduct tax at source, will the payee face any adverse consequences by means of action taken by the Income-tax Department?

​It is the duty and responsibility of the payer to deduct tax at source. If the payer fails to deduct tax at source, then the payee will not have to face any adverse consequences. However, in such a case, the payee will have to discharge his tax liability. Thus, failure of the payer to deduct tax at source will not relieve the payee from payment of tax on his income. ​

What are the duties of the person deducting tax at source?
​Following are the basic duties of the person who is liable to deduct tax at source. 
He shall obtain Tax Deduction Account Number and quote the same in all the documents pertaining to TDS.
He shall deduct the tax at source at the applicable rate.
He shall pay the tax deducted by him at source to the credit of the Government (by the due date specified in this regard*).
He shall file the periodic TDS statements, i.e., TDS return (by the due date specified in this regard*).
He shall issue the TDS certificate to the payee in respect of tax deducted by him (by the due date specified in this regard*).
*Refer tax calendar for the due dates.

How can I know the quantum of tax deducted from my income by the payer?
​​
To know the quantum of the tax deducted by the payer, you can ask the payer to furnish you a TDS certificate in respect of tax deducted by him. You can also check Form 26AS​ from your e-filing account at https://incometaxindiaefiling.gov.in
You can also use the “View Your Tax Credit” facility available at www.incometaxindia.gov.in


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