Opening :

The entire economy of the world revolves around one universal statement – “Somebody’s income is somebody’s payment”. TDS drives it origin from this universal phenomenon. A school of thought struck upon the idea of taxing assessees the other way round. You may be smart enough to conceal income, but how about concealing expenditure which can go down to decrease your tax liability.TDS concept brought into main course the idea of taxing expenditure or payments, before it turns out to be somebody’s income. The expense bearer deducts tax out of the expense and deposits it into the Government dug-out, claims the expense as deduction, while the income earner, after receiving the net of tax amount, claims credit for the same while paying taxes. Live, and let live, and keep the ‘Sword of Damocles’ of IT Deptt. hang inside the scabbard.

Payments on which TDS needs to be deducted -

a. Section 192 – Payment of Salaries

b. Section 193 – Payment of Interest on Securities

c. Section 194A – Payment of interest other than Interest on Securities

d. Section 194B – Winning from Lotteries, crossword puzzle or card game or game of any sort

e. Section 194BB – Winning from Horse race (including Jackpot)

f. Section 194C – Payment to Contractor and Sub – Contractor

g. Section 194D – Payment for Insurance Commission

h. Section 194E – Payment to Non-Resident sportsman (who is not an Indian citizen or a non resident sports association or institution.

i. Section 194G – Payment for Commission on Sale of Lottery Tickets

j. Section 194H – Payment for Commission or Brokerage (To Agent)

k. Section 194I – Payment for Rent

l. Section 194J – Fees for Professional or Technical or Services or Compete Fees

m. Section 194LA – Payment of Compensation or acquisition of certain immovable property ( including enhanced compensation)

When to deduct tax at source?

a. For Section 192, 194B, 194BB, 194LA –Tax is to be deducted at the time of payment.

b. For Section 193, 194A, 194C, 194D, 194E, 194G, 194H, 194I, 194J, 195 – At the time of credit or payment whichever is earlier.

The Due Date for filing of TDS Statement Between The Government And The Non – Government Deductors Have Been Segregated In The Following Manner:

Quarter Ending

Due date for Government Deductors

Due Date for Form No. 24Q, 26Q, 27Q, 27EQ

30th June

31st July of the financial year

15th July of the financial year

30th September

31st October of the financial year

15th October of the financial year

31st December

31st January of the financial year

15th January of the financial year

31st March

15th May of the financial year following the financial year in which deduction is made

15th May of the financial year following the financial year in which deduction is made”

Form No. 24Q – Payment of Salary u/s 192

Form No. 27Q – Payment other than salary to a non resident not being a company or a foreign company or resident but not ordinarily resident.

Form No. 26Q – Payment other than salary to a resident i.e., all deductee which are not covered under 24Q and 27Q (u/s 193 to 196D)

Form No. 27EQ – Statement of collection of tax

If the deductor fails to deduct tax at source or fails to pay tax after deduction or made default while filing returns then he would be liable to pay some amount of interest and penalties. Here, Taxmantra is providing the total details regarding the interest and penalties which deductor needs to pay under different reasons are as follows:

Non compliance with TDS provisions can result in:

1. Disallowance of expenditure u/s. 40(a) (ia) of Income Tax Act, 1961 (Act) : More fatal than any interest or penalty provisions, non-deductibility of tax at source on certain expenses will not allow you to claim such expenses in computing your business income.

2. Raising of demand u/s. 201(1) of the Act.

3. Charging of Interest u/s. 201(1A) of the Act.

4. Levying penalty u/s. 271C of the Act upto the amount of tax in default –

5. Levying of penalty u/s. 221 of the Act for non-payment of demand raised.

6. Prosecution u/s.276B of the Act involving rigorous imprisonment upto 7 years with fine.

7. Penalty u/s. 271BB of the Act for failure to apply for TAN or non-quoting thereof.

8. Penalty u/s. 272A (2)(k) of the Act for non filing of TDS returns.

9. Fee U/s 234E for late filing of TDS Statement.

10. Penalty u/s. 271H  for late filing or non- filing TDS statement.

Penal provisions applicable on non-compliance of TDS provisions:-

1. Interest and Penal Provisions

Failure

Interest

Penalty

a) For failure to deduct tax at source

Interest chargeable @1% p.m. or part of the month from the date on which it was deductible to the date of on which tax is deducted [Sec 201]

Maximum penalty of 100% on amount of TDS [Sec 221]

b) For failure to pay the tax after deduction

Interest chargeable @1.5% p.m. or part of the month from the date on which it was deducted till the date of payment [Sec 201]

Maximum penalty of 100% on amount of TDS [Sec 221]

c) Default in filing of returns

Not Applicable

Rs 100/day of default(not exceeding the amount of TDS) [Sec 272A(2)]

2. Section 48 disallows the expenditure on payment on which tax had not been deducted at source.

Change in provisions related to disallowance of expenditure on account of non-compliance with TDS provisions : Budget 2010-11:-

The existing provisions of section 40(a)(ia) of Income-tax Act provide for the disallowance of expenditure like interest, commission, brokerage, professional fees, etc. if tax on such expenditure was not deducted, or after deduction was not paid during the previous year. However, in case the deduction of tax is made during the last month of the previous year, no disallowance is made if the tax is deposited on or before the due date of filing of return.

It is proposed to amend the said section to provide that no disallowance will be made if after deduction of tax during the previous year, the same has been paid on or before the due date of filing of return of income specified in sub-section (1) of section 139.

Why is a TDS Certificate required?

A tax deductor is also required to issue TDS certificate to the deductee within specified timed under section 203 of the I T Act. The certification from the deductor, for the deduction and payment of the respective TDS amount to the bank, issued to the deductee is a TDS certificate.

The deductee should produce the details of this certificate, during the regular assessment of income tax, to adjust the amount of TDS against the Tax payable by the Deductee.

Types of TDS certificate -

i. Salaries – Form 16: In case of Salaries, the certificate should be issued in FORM 16 containing the Tax computation details and the Tax deducted & Paid details. This refers to the details submitted over Form 24Q.

Due date of issue on or before – Annually next 31st May

ii. Non-salaries – Form 16A: In case of Non-Salaries, the certificate should be issued in FORM 16A containing the Tax deducted & Paid details. Separate certificates should be prepared for each Section [nature of payment]. This refers to the details submitted over Form 26Q and 27Q.

Date of issue is Quarterly as mentioned below –

Quarter Ending

Due Date

30th June

30th July

30th September

30th October

31st December

30th January

31st March

30th May

TDS Certificates Form 16A for Financial Year 2011-12 for the following categories of deductors, it is mandatory to download Form 16A from TIN Web Site and issue such downloaded certificates to deductees

1. Companies

2. Banks

3. Co-operative society engaged in banking business

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