Tax Deduction At Source (TDS)

Nothing is as tangled and knotty as the TDS provisons. While some TDS rates are
specified in the individual section which deal with the tax treatment of the particular
stream of income, some rates are included as part of a separate schedule. To make
matters worse, these rates get tampered and modified every year. This result in so
much chaos and confusion, that sometimes those who have to apply TDS, do not have
a clue about what rate to use. Imagine the plight of tax payer.

The genasis of the problem lies in the complicated nature of the tax laws. The
authorities complain that less than 2% of our population actually pays taxes.
However, simpliflying the provisions is not viewed as a possible solution. On the
other hand, in an effort to bring more and more people into the tax net, the lawmakers
simply endup complicating the law. And the rule is simple more the complexity more
the room.

TDS is final tax payable- at the time of filling his returns, the assessee pays the
balance if any or asks for refund, as the case maybe. Ergo, it behooves the Department
to have a standard uniform rate -convenient both for itself as well as the taxpayers.

The most unfortunate part is that we could have easily done away with any TDS
provided the deparrtment had good infrastructure to apprehend assessees avoiding tax
only through TDS.

Types Of Payment, Relevant Provisions, Person Responsible For

Deduction Of Tax And Type Of Payee

TDS necessary
S Person Responsible for
Nature of Payment when payment
No deduction of tax at source
is made to
All Governments,
Companies, Co operartive Any individual
Salary and all positive incomes
societies, Local authorities, having taxable
under any head on income but not
University, Institutions, salary during the
1. including loss under the head
Associations or Body , previous year
income under the House property
Trustees of a recognized from any number
(Sec 192)
Provident Fund or of employers
Superannuation Fund
2. Interest on Securities (Sec 193) Any person Any person
3. Dividend from Domestic Principal Officer of a A resident
Companies or companies which Domestic Company. shareholder
have made prescribed arrangement when total
for declaration/payment of dividend paid
dividend within India (Excluded exceeds Rs
 from TDS w.e.f. 1.6.97 by Finance
2,500/-
Act, 97) (Sec 194)
Interest other than interest on Any person other than
4. A resident
securities (Sec 194A) individual or HUF
Winnings from Lottery or
5. Any person Any person
crossword puzzles (Sec 194B)
Book maker or person
Winnings from horse races (Sec holding a licence for horse
6. Any person
194BB) racing, wagering or betting in
any race course
Central, State Government,
local authority; Central, State
or provincial Corporation;
Company ; Co-operative
i. Payment to Contractors in
Society; trust; University; a
pursuance of any work of contract Any resident
constituted authority engaged
including supply of labour contract person
7. (Sec 194C) in housing and planning &
development of Cities,Towns
and Villages; and firm (firm
included w.e.f. 1.7.95 vide
Finance Act, 1995)
ii. Payment to sub-contractors (Sec Any Contractor other than Any resident
194C) individual or HUF person
Insurance Commission covering all
Any person responsible for
8. payments for procuring Insurance A resident
payment
business(Sec 194D)
Any non-
Payment to non-resident sportsman
resident
(including athlete) or sports
sportsman who
association or institution. In case of
is not a citizen of
non-resident sportsman, it includes Any person responsible for
9. India and any
payments in respect of payment
non-resident
advertisements as well as articles
sports
on any game or sports in India in
association or
newspapers, magazines etc. (194E)
institution
Person responsible for Any person
Payments in respect of deposits making payment in respect of except when the
10.
under NSS (194EE) amount referred to in Section payment is made
80CCA (2)(a). to the heirs.
Person responsible for
Payment on account of repurchase
making payment in respect of
11. of Units by Mutual Fund or UTI Any person
amount referred to in Section
(194F)
80CCB (2).
12. Commission to Stockists, Person responsible for Any person
distributors, buyers and sellers of making payment to such
Lottery tickets including agent
remuneration or prize on such
 tickets (sec 194G)
13. Commission brokerage (sec 194H) Not applicable w.e.f. 1.6.92 -
Any person responsible for
14. Payment of rent (sec 194I) making payment excluding Any person
individual & HUF.
Fees for professional & technical
services; professional services
include legal, medical,
engineering, architectural,
accountancy, technical
consultancy, interior decoration,
Any person responsible for
advertising & any profession
15. making payment except an A resident.
notified under Section 44AA ;
individual & HUF.
Technical fees mean any
consideration for rendering any
managerial , technical or
Consultancy service including
provision of services of technical
or other personnel(sec 194J)

Rates For TDS In India.

During the Financial Year 1998-1999 Tax is to be Deducted by the peerson
responsible for making the necessary payments at following Rates.

A. Salary to an employee.
B. In the case of payment to a resident other than a company.
C. In the case of payments to a domestic company.
D. In the case of payment to a non-resident other than a company.
E. In the case of payments to a non-domestic company.

Rate of
deduction of
tax(as
Nature of payment Surcharge Total
percentage of
payment
made)
At regular tax rates in force See
A. Salary to an employee
sub-module Tax Rates
Top
B. In the case of payment to a resident other
than a company:
1.interest other than interest on securities 10 1 11
2.winning from lotteries and crossword puzzles 40 4 44
3.winning from horse races 40 4 44
4.insurance commission 10 1 11
5.interest on debentures or securities other than a
security of the Central or a State Government for
money issued by or on behalf of a local authority or 10 1 11
a statutory corporation or listed debentures of a
company
6.rent to an individual or a Hindu undivided family 1.5 1.5 16.5
7.rent to a person other than an individual or a
20 2 22
Hindu undivided family
8.payment in respect of deposit under National
20 2 22
Savings Scheme, 1987
9.payment on account of repurchase of units by
20 2 22
Mutual Fund of UTI [section 80CCB(2)
10.commission on sale of lottery tickets 10 1 11
11.payment to contractor ( in the case of advertising
1 0.1 1.1
contracts : 1 per cent)
11A. Payment to a contractor other than an
2 0.2 2.2
advertising contract
12.payment to sub contractor 1 0.1 1.1
13.fees for professional or technical services 5 0.5 5.5
14. Payment exceeding Rs. One lakh of
compensation/consideration or enhanced
compensation/consideration on account of 10 1 11
compulsory acquisition of any capital asset
(applicable upto May 31st 2000)
15.any other income 20 2 22
Top
C. In the case of payments to a domestic
company:
1.interest other than interest on securities 20 2 22
2.winning from lotteries and crossword puzzles 40 4 44
3.winning from horse races 40 4 44
4.commission on sale of lottery tickets 10 1 11
5.payments to a contractor ( in the case of
1 0.1 1.1
advertising contracts : 1 per cent)
5A. Payment to a contractor other than an
20 0.2 20.2
advertising contract
6.payments to sub-contractor 1
7.rent 20 2 22
8.fees for professional or technical services 5 5 0.5
9 Payment exceeding Rs. One lakh of 10 1 11
compensation/consideration or enhanced
compensation/consideration on account of
compulsory acquisition of any capital asset
(applicable upto May 31st 2000)
10.any other income 20 2 22
Top
D. In the case of payment to a non-resident other
than a company
1.income from foreign exchange assets payable to
20 2 22
an Indian citizen
2.income by way of long-term capital gains referred
10 1 11
to in section 115E
3.income by way of interest payable by
Government/Indian concern on money borrowed or
20 2 22
debt incurred by Government or Indian concern in
foreign currency
4.rent to an individual or a Hindu Undivided Family 15 - 15
5.rent to a person other than an individual or a
20 - 20
Hindu Undivided Family
6.winnings from lotteries and crossword puzzles 40 4 44
7.winnings from horse races 40 4 44
8.payments referred to in section 115BBA 10 - 10
9.payments in respect of National Savings Scheme,
20 - 20
1987
10.payments on account of repurchase of units by
20 - 20
Mutual Fund/UTI [section 80CCB(2)]
11.income by way of interest/dividends [not being
dividends referred in section 115-O] payable in
respect of bonds/shares referred to in section 115AC 10 - 10
or by way of long-term capital gain arising from
transfer of such bonds
12.commission on sale of lottery tickets 10 - 10
13.income in respect of units referred to in section
115AD(1)(a) payable to foreign Institutional 20 - 20
Investor (other than capital gain)
14.income by way of long-term capital gain 20 2 22
16.any other income [see Note 2] 30*
Top
E. In the case of payments to a non-domestic
company
1.winning from lotteries and crossword puzzles 40 - 40
2.winnings from horse races 40 - 40
3.interest payable by Government or an Indian 20 - 20
concern on money borrowed or debt incurred in
foreign currency
4.royalty payable by Government or an Indian
concern in pursuance of an agreement made by it
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 sub-section (1A) of section 115A of
the Act, 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 :-
--where the agreement is made before June 1, 1997 30 - 30
--where the agreement is made after May 31, 1997 20 - 20
5.royalty [not being royalty of the nature referred to
in (d) supra] payable by Government or an Indian
concern in pursuance of an agreement made by it
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:-
--where the agreement is made after March 31, 1961
50 - 50
but before April 1, 1976
--where the agreement is made after March 31, 1976
30 - 30
but before June 1, 1997
--where the agreement is made after May 31, 1997 20 - 20
6.fees for technical services payable by Government
or an Indian concern in pursuance of an agreement
made by it 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
--where the agreement is made after February 29,
50 - 50
1964 but before April 1976
--where the agreement is made after March 31, 1976
30 - 30
but before June 1, 1997
--where the agreement is made after May 31, 1997 20 - 20
7.rent 20 - 20
8.long-term capital gains 20 - 20
9.payments referred to in section 115BBA 10 - 10
10.commission on sale of lottery tickets 10 - 10
11.payments to overseas financial corporation
covered by section 115AB or by long-term capital 10 - 10
gains arising from transfer of such units
12.income by way of interest/dividend [not being
dividend referred in section 115-O] in respect of
bonds/shares referred to in section 115AC or by 10 - 10
way of long-term capital gain arising from transfer
of such bonds
13.income (other than capital gain) in respect of
units referred to in section 115AD(1)(a) payable to 20 - 20
Foreign Institutional Investor
14.on any other income 48 - 48

Annual Returns to be filed - Section 206

read with Rule 37
S Form Due date of filing in the
Nature of payment Section
No No. next financial year
Section
1. Payment of salary 24 31st May
192
Section
Interest on securities 25 30th June
193
Section
Payment of dividend or income in 194
2. 26 30th April
respect of Units u/s194K Section
194K
Interest other than Interest on Section
3. 26A 30th June
securities 194A
Section
Winning from lotteries 26B 31st May
194B
Section
Winning from horse races 26BB -do-
194BB
Payment to Contractors & Sub- Section
4. 26C 30th June
Contractors 194C
Section
5. Insurance Commission 26D -do-
194D
Insurance Commission
Section
6. paid/credited without deduction of 26E Ommited w.e.f. 19.3.1997
206
tax
7. Payments from deposits under 26F Section 30th June
 NSS 194EE
Payments on account of Section
8. 26G -do-
repurchase of Units 194F
Payments regarding Commission Section
9. 26H -do-
on sale of lottery tickets 194 G
Section
11. Payment of rent 26J -do-
194I
Payment of Professional fees or Section
12. 26K -do-
technical fees 194J

TAN (Tax Deduction Account Number)

[Section 203A]
Every person deducting tax in accordance with the provisions of sections 192 to 194,
section 194A, section 194B, section 194BB, section 194C, section 194D, section
194E, section 194EE, section 194F, section 194G, section 194H, section 194I, section
194J, section 194K, section195, section 196A, section 196B, section 196C and 196D,
if he has not been allotted any tax deduction account number, shall, within such time
as prescribed under Rule 114A of the Income Tax Rules, 1962, apply in Form No.
49B to the Assessing Officer for the allottement of Tax Deduction Account Number.
This number is known as TAN and has to be quoted in all TDS challans, TDS Returns
and in all certificates issued pertaining to TDS.

How To Deposit In TDS

Challan in which payment is to be made to Govt. Account

Sr.
Challan No Nature of payment
No
Challan No 9-ITNS Where tax is deducted
1.
191 from salaries
Where tax is deducted
Challan No 8-ITNS 39/ at source (other than
2. ITNS salaries) on payment
271(Computerised) made to persons other
than Companies.
3. Challan No 2-ITNS Where tax is deducted
39A/ ITNS at source from
269(Computerised) payments made to
 Companies.

Important points to be kept in mind while filling the Challan:

In case of TDS pertaining to item other than salaries, the deductor must indicate the
nature of payment by ticking the relevant item. Two counterfoils will be returned by
the bank- 4th counterfoil is required to be attached with the return of income and 3rd
counterfoil is required to be retained by the deductor for his record as indicated on the
top of the challan.

Exemption From TDS India

Circumstances in which tax is not to be deducted at source or is to be deducted at a
lower rate :

Form No in Certificate to
which be issued by Period of
S.No Type of Income
application the Assessing validity
to be made Officer
Valid for the
Form No
period specified
15AA (see
in the certificate
rule 28AA).
(see Rule
Form No 13 The certificate
1. Salary (sec192) 28AA) Fresh
(see rule 28) is issued to the
application
deductor under
required after
advice to the
expiry of
applicant
validity period.
Interest on
2. securities -do- -do- -do-
(Section 193)
Interest other
than interest on
3. -do- -do- -do-
Securities
(Section 194A)
Insurance
4. Commission -do- -do- -do-
(Section 194D)
Rental Income
5. -do- -do- -do-
(Section 194I)
Income in
6. respect of Units -do- -do- -do-
(Section 194K)
Payment to non-
7. residents -do- -do- -do-
(Section 195)
 No prescribed
form. The
Payment to
certificate can
Contractors or Form No.13C For the relevant
8. be issued by
Sub-Contractors (See Rule 28) FY.
the Assessing
(Section (194)
Officer on a
plain paper
Form No 13D
Commission on
(applies to
sale of lottery
9. lottery agents -do- -do-
tickets (sec
and not prize
194G)
winners)
Payment of fees
for professional
10. or technical Form No 13E -do- -do-
services (sec
194J)
Payment to non-
For the FY
resident banking Form No 15C
11. Form No 15E specified in the
company (sec (see rule 29B)
certificate
195(3))
Payment to non-
resident company
carrying on
business or
profession in Form No 15D For the relevant
12. -do-
India through a (see rule 29B) FY
branch (not being
interest or
dividend)-sec
195(3)

Types of income/payment where the above benefit is not available under the Act:

1. Winning from Lottery or Crossword puzzles Section 194B

2. Winning from horse race Section 194BB
3. Payments to non-resident Sportsmen or Association Section 194E
4. Payments in respect of NSS deposits Section 194EE
5. Payments on account of repurchase of units issued by Mutual funds Section
194F
6. Income in respect of units of non-residents, Off-shore Funds;foreign currency
bonds; (FIIs) Section 196A,196B, 196C & 196D
TDS Exemption For Individuals
The Act , vide Sec 197A, for the convenience of an individual payee, allows the
benefit of non-deduction of tax at source on filing of declaration in the prescribed
form with the payer. The details are given below (Sec 197A read with Rule 29C. Also
see Circular No.351 dated 26.11.82)

Payee who
Types of Prescribed form Period of
S.No can file
Income (in duplicate) validity
declaration
Form No 15F in
duplicate. One copy
to be sent by the
Interest on By an Declaration
Payer to Chief
securities individual valid for one
1. Commissioner/
Section resident in previous
Commissioner
193 India. year.
within seven days of
the succeeding
month.
Interest
other than Any payee
interest on other than
2. Form No.15H -do- -do-
securities - Company or
Section firm.
194A.
Payment of
Any
NSS
individual
3. deposit – Form No.15I -do- -do-
resident in
section
India
194EE
Income in Any payee
respect of other than a
4. Form No 15H -do- -do-
Units Sec company or
194K a firm
Certificate Of Deduction In India
1. Salary (sec 192) :

Form No.16 (Rule 31 (1)(a). The certificate should be issued by the deductor
within one month of the close of the financial year in which deduction is
made.

2. In all other cases :

Form No 16A (Rule 31(1)(b)).

1. General time limit for issuing certificates in all other cases is within
one month from the end of the month during which the credit is given
or sum paid.
2. Rule 31(3), first proviso, gives further option to the payer to issue
certificate within one week after the expiry of two months from the
month in which income is credited. This option is available where the
amount is credited to the account of the payee on the last day of the
accounting period of the payer. This option is available in respect of
payments except sec 192-salary, 194B-winning from lotteries, 194BB-
winning from horse races, 194EE-payments from NSS deposits, 194F-
payments in respect of repurchase of units, 194K-income in respect of
units.
3. Where payment in respect of TDS is permitted quarterly under rule
30(1) i.e. income from interest, insurance commission, the certificate is
to be issued within 14 days of the payment of Income Tax.

Note : Where more than one certificate is required to be furnished to the payee
during the financial year, then on the request of the payee, one consolidated
certificate may be issued within one month from the end of such financial year
vide new proviso to Rule 30 inserted vide notification dated 2.7.1996
Deduction of Tax at Source in the case
of Non-Residents and No Objection
Certificate for Foreign Remittance
(Sec. 195)
1. Any person responsible for paying to a non-resident, not being a company, or
to a foreign company, any interest (not being interest on securities) or any
other sum chargeable under the provisions of this Act (not being income
chargeable under the head ''Salaries'' ) shall, at the time of credit of such
income to the account of the payee or at the time of payment thereof in cash or
by the issue of a cheque or draft or by any other mode, whichever is earlier,
deduct income-tax thereon at the rates in force:
Provided that in the case of interest payable by the Government or a public
sector bank within the meaning of clause (23D) of section 10 or a public
financial institution within the meaning of that clause, deduction of tax shall
be made only at the time of payment thereof in cash or by the issue of a
cheque or draft or by any other mode.
2. Where the person responsible for paying any such sum chargeable under this
Act (other than interest on securities and salary) to a non-resident considers
that the whole of such sum would not be income chargeable in the case of the
recipient, he may make an application to the Assessing Officer to determine,
by general or special order, the appropriate proportion of such sum so
chargeable, and upon such determination, tax shall be deducted under sub-
section (1) only on that proportion of the sum which is so chargeable.
3. Subject to rules made under sub-section (5) of Sec.195 , any person entitled to
receive any interest or other sum on which income-tax has to be deducted
under sub-section (1) may made an application in the prescribed form to the
Assessing Officer for the grand of a certificate authorising him to receive such
interest or other sum without deduction of tax under that sub-section, and
where any such certificate is granted, every person responsible for paying such
interest or other sum to the person to whom such certificate is granted shall, so
long as the certificate is in force, make payment of such interest or other sum
without deducting tax thereon under sub-section (1).
4. A certificate granted under sub-section (3) of Sec.195 shall remain in force till
the expiry of the period specified therein or, if it is cancelled by the Assessing
Officer before the expiry of such period, till such cancellation.
Special Cases In TDS
1. Return regarding deduction of tax from non-residents – Rule 37A:

Returns in respect of T.D.S. under Section 193, 194, 194E,

195,196A,196B,196C & 196D from any payment made to a non resident or to
a resident but not ordinarily resident assessee (not being a company) or from
any company which is neither a Indian Company nor a company which has
made the prescribed arrangement for the declaration of and payment of
dividend within India have to be filed within14 days from the end of the
quarter in Form No 27 to the designated officer as per Rule 36 A.

However, where T.D.S. is pertaining to interest on securities under Sec.193, or

payment to non-resident sportsmen or sports associations under Sec.194E, or
of interest or any other sum referred to in Sec.195, or income from units of
UTI to a non resident Indian or a non resident HUF where the assets were
acquired out of funds from a NR(E) account or by remittance of foreign
currency as referred to in Section 196A(2) , or income from units referred to in
section 196B, or income from foreign currency bonds or shares of an Indian
Company referred to in Section 196C at the income of FIIs from securities
referred in Section 196D then the return is to be filed in Form No. 27 within
14 days after the expiry of two months from the month in which the income
was so credited.

2. Return of deduction of tax from contribution paid by Trustees of approved

Superannuation Fund-Rule 33:

Return to be filed in Form No 22 within 2 months from the end of the

financial year.