Understanding What is Tax Deducted at Source


Introduction of TDS

  • TDS stands for Tax Deducted at Source.
  • The concept of TDS was introduced in the Income Tax Act, 1961.
  • The methods of collecting Income Tax, which ensures regular flow of revenue to the Government.

Basic Concepts of TDS

  • Salary
  • Interest on securities, debentures
  • Deemed Dividend
  • Interest other than interest on securities
  • Winnings from lottery or crossword puzzles
  • Winnings from horse races
  • Payment to contractors (Advertisement contractors)
  • Payment to contractors (Other than advertisement)
  • Payment to sub-contractors
  • Payment to non-residents
  • Payment to non-resident sportsmen or sports association
  • Payment in respect of deposit under NSS
  • Payment on account of re-purchase of units by Mutual Fund or UTI
  • Payment in respect of units to an offshore fund
  • Payment of compensation on acquisition of immovable property
  • Insurance commission
  • Commission etc., on sale of lottery tickets
  • Rent of land, building or furniture
  • Rent of plant, machinery or equipment
  • Short-term capital gains U/s 111A
  • Fees for professional or technical services
  • Fees for tech. services agreement made on or after June 1, 2005
  • Income from foreign currency bonds or shares of Indian company
  • Any other interest on securities

TDS in Nature of Payment

Nature of Payment Section Rate Threshold
Salary 192 30% 10,00,000
Interest on securities, debentures 193 7.5% 10,000
Deemed Dividend 2(22) 30% 5,000
Interest other than interest on securities 194A 20% 40,000
Winnings from lottery or crossword puzzles 1194B 30% 10,000
Winnings from horse races 194BB 30% 10,000
Payment to contractors (Advertisement contractors) 194C 2% 1,00,000
Payment to contractors (Other than advertisement) 194C 2% 1,00,000
Payment to sub-contractors 194C 2% 50,000
Payment to non-residents 195 20% 50,000
Payment to non-resident sportsmen or sports association 194E 20% No exemption Limit
Payment in respect of deposit under NSS 194EE 10% 2,500
Payment on account of re-purchase of units by Mutual Fund or UTI 194F 30% 10,000
Payment in respect of units to an offshore fund 194K 7.5% 5,000
Payment of compensation on acquisition of immovable property 194LA 7.5% 250,000
Insurance commission 194D 3.75% 15,000
Commission etc., on sale of lottery tickets 194G 3.75% 15,000
Rent of land, building or furniture 194I 3.75% 24,000
Rent of plant, machinery, or equipment 194I 2% 50,000
Short-term capital gains U/s 111A 111A 15% 3,00,000
Fees for professional or technical services 194J 7.5% 30,000
Fees for tech. services agreement made on or after June 1,2005 194J 20% 30,000
Income from foreign currency bonds or shares of Indian company 196C 10% No exemption Limit
Any other interest on securities 194LD - 5

What is TAN?

  • TAN is the Tax Deduction & Collection Account Number; it is a 10-digit alphanumeric character issued by the Income Tax Department to all persons deducting tax at source.
  • Example: TAN BCFD12345A
  • TAN must be quoted in all relevant challans, tax deduction certificates, TDS returns and other notified documents.
  • To obtain TAN, the person or organisation is required to apply in Form 49B to the TAN Facilitation Centres of NSDL.

Persons of TDS

  • Deductor
  • Deductee

Deductor

  • Any person making the payment to third parties as specified in the scope and applicability section mentioned above are required to deduct tax at source.

Who is Deductee?

  • A Deductee is a third party that provides services and bills to the buyer (Deductor) and the buyer will then deduct the tax at source at a prescribed rate, before paying the bill amount.
  • Main Deductee Type:
    • Company
    • Individual / HUF

Deductee Type

  • Company: Refers to payments made to corporate entities or companies.
  • Individual / HUF:
    • Individual: Refers specifically to payments made to individual persons.
    • HUF (Hindu Undivided Family): Refers to payments made to Hindu Undivided Families.

Deductee Categories:

  • Individual
  • Government
  • Hindu Undivided Family (HUF)
  • Association of Persons (AOP)
  • Co-operative society
  • Local Authority
  • Partnership firm
  • Domestic company (Indian company)
  • Foreign company
  • Artificial Judicial Person

Deductee Categories

  • Individual: Refers specifically to payments made to individual persons.
  • Government: Refers to payments made to government agencies.
  • Hindu Undivided Family (HUF): Refers to payments made to Hindu Undivided Families.
  • Association of Persons (AOP): AOP is a type of entity that is not an individual, Hindu Undivided Family (HUF), company, or any other specified entity. The Indian Income Tax Act, 1961, defines AOP (Association of Persons) as an integration of persons for a mutual benefit or a common purpose.
  • Co-operative society: Co-operative societies are formed by individuals for mutual benefit.
  • Local Authority: Refers to payments made to local government bodies or authorities.
  • Partnership firm: Refers to payments made to entities operating as partnership firms.
  • Domestic company (Indian company): This Deductee Type is applicable when making payments to companies that are incorporated in India.
  • Foreign company: Refers to payments made to companies that are incorporated outside India.
  • Artificial Judicial Person: This category typically includes entities that are recognized as artificial judicial persons, such as trusts, societies, or other legal entities.

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