A person who is paying to any person is required to deduct tax at source (TDS). These taxes are a form of advance tax which is a direct income to the government. The provisions relating to TDS are given under Section 190 of Income Tax Act. There are various concerns for non-deduction or late deduction of TDS like interest payment, assesses in default, disallowance of income under PGBP (Section 40a) etc.
In this article we would cover the followings
1. What is TDS?
2. Who is liable to deduct TDS?
3. Time limit for compliance of TDS
4. Consequences of failure to deduct TDS or late deductions [Section 201]
5. Credit for tax deducted at source
6. Mandatory requirement of furnishing PAN in all TDS related transaction
1. What is TDS?
TDS is a deduction to be allowed as the income is being generated. It is a deduction from the source of income by a person who is paying. It is for the government to ensure that tax is deducted as soon as income is earned. By deduction of tax at source rather than at a later date, government minimizes tax evasion.
2. Who is liable to deduct TDS?
In every case or transaction, the person responsible to deduct tax is the person who is paying source of income to other person. However, if the following below conditions fulfilled then only the person paying sources required to deduct the TDS.
· Amount is crossing the threshold for deduction of TDS
· In case of Individual & HUF liable for tax audit then only they would be required to deduct the TDS
· Sources of payment should be covered under the chapter of TDS (i.e. all the payments would not be liable for deduction for TDS)
3. Time limit for compliance of TDS
1. Prescribed time and mode of payment of TDS or tax paid under section 192(1A)
i. All sums deducted in accordance with TDS chapter of Income tax shall be paid to the credit of the Central Government on - on or before seven days from the end of the month in which the deduction is made or
income-tax is due under section 192(1A), where income tax challan is produced
-on or before 30th April, where the income or amount is credited or paid in the month of March.
ii. In special cases, the Assessing Officer may, permit quarterly payment of the tax deducted under section 192/ 194A/194D or 194H on or before 7th of the month
2. Submission of quarterly statements
Every person responsible for deduction of tax should provide the following quarterly statements in accordance with section 200(3) of income tax act, 1961: (i) Statement of TDS under section 192 in Form No.24Q (for employer who is required to deduct the TDS on salary income of employees); (ii) Statement of TDS under other sections from section 193 in Form No.26Q
Due date for submitting quarterly report are
4. Consequences of failure to deduct TDS or late deductions [Section 201]
1. Deemed assesses-in-default
Any person who is required to deduct any sum in accordance with the provisions of the Act; or an employer paying tax on non-monetary perquisites under section 192(1A) shall be deemed to be an assesses-in-default if he does not deduct the tax or after deducting fails to remit to the government account
However, the deeming provision of assesses in default would not be applicable if
any person who fails to deduct the tax on the amount credited or payment made to a payee shall not be deemed to be an assesses-in-default in respect of such tax if such payee – (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 payer furnishes a certificate to this effect from an accountant in such form as may be prescribed
2. Interest Liability
A person deemed to be an assesses-in-default under section 201(1), for failure to deduct tax or to pay the tax after deduction, is liable to pay simple interest @ 1% for every month or part of month from the date on which tax was deductible to the date on which such tax was actually deducted and simple interest @ 1½% for every month or part the month from the date of tax actually deducted to actual payment of tax
3. Disallowance of income under PGBP (Section 40a)
According to Income Tax Act, 1961 if TDS was deductible and has not deducted then expenses pertaining to non-deduction of TDS are disallowed under the head Profit and Gains from business or Profession under section 40a.
Rate of disallowance is as follows
30% of the amount on which TDS is not deducted for all domestic payee
100% of the amount on which TDS is not deducted for all domestic payee
5. Credit for tax deducted at source
Tax deducted at source and paid to the credit of the Central Government shall be treated as payment of tax on behalf of the-
(i) person from whose income the deduction was made; or (ii) owner of the security; or (iii) depositor; or (iv) owner of property; or (v) unit-holder; or (vi) shareholder.
At the time of filing of the income tax return, such person can claim this TDS as their tax paid for such year in which TDS has deducted.
6. Mandatory requirement of furnishing PAN in all TDS related transaction
Section 206AA, states that every person liable for deduction of its TDS on income should furnish PAN to the deductor, failing which, deduct tax at source at higher of the following rates – (i) the rate prescribed in the Act; (ii) at the rate in force i.e., the rate mentioned in the Finance Act; or (iii) at the rate of 20%. Tax would be deductible at the above-mentioned rate also in cases where the taxpayer files a declaration in Form 15G or 15H (under section 197A) but does not provide his PAN.
Note: Form 15G or 15H would be required to be submitted when your income is less than amount of income where you required to pay tax and prevent deduction of your TDS .
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