TDS

TDS stands for tax deducted at source. As per the Income Tax Act, any company or person
making a payment is required to deduct tax at source if the payment exceeds certain threshold
limits. TDS has to be deducted at the rates prescribed by the tax department.
Commonly used TDS Provision for payments made to persons resident in India (Individuals,
Firms, Companies, etc.):-

Section Nature of Payment Threshold Individual Others 15G-15H

for Domestic Limit / HUF
Transactions
Rs. TDS Rate (%) Allowed

192 Salaries (Annex-I) – Basis on – No

Slab
192A Premature 50,000 10 – YES
withdrawal from EPF
193 Interest on Securities/ 10,000 10 10 No
Debentures
Interest (Banks, co- 40,000/ 10 10 YES
194A operative society and 50000
post office)/ For
Senior Citizen Rs.
50000
Interest (Others) 5,000 10 10 YES
Contractor – Single 30,000 1 2 No
Transaction
194C

Contractor – During 1,00,000 1 2 No

the F.Y.
Transporter (44AE) – – – –
declaration with PAN
194H Commission / 15,000 5 5 No
Brokerage
Rent of Land and 2,40,000 10 10 YES
Building – F&F
194I
 Rent of Plant / 2,40,000 2 2 YES
Machinery /
Equipment
194IB Rent by Individual / 50000/PM 5 – No
HUF ( w.e.f
01.06.2017)
194IA Transfer of certain 50,00,000 1 1 No
immovable property
other than agriculture
land
Professional Fees / 30,000 10 10 No
Technical Fees
/Director fees/ royalty
194J
Payment to Call 30,000 2 2 No
Centre Operator
(w.e.f. 01.06.2017)

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Notes:
a) TDS is not applicable on Goods and Service Tax (GST) where GST is shown separately.
b) No Surcharge, Health & Education Cess is not deductible on payments made to
residents, other than salary
c) Non-deduction of TDS:
Form No. 15G can be accepted by the Assessee only when the total interest amount payable
is less than the minimum exemption limit, which is Rs. 2,50,000 for financial year 2018-19.
In case the same exceeds the above limit, then TDS is to be deducted as per the applicable
provisions.
In case of Form No. 15H, the same is not acceptable if the total taxable income of the
customer/ vendor including the interest income after claiming deductions under chapter
VI(A) exceeds the minimum exemption limit, which is Rs. 3,00,000 for senior citizen/ Rs.
5,00,000 for super senior citizen for financial year 2018-19.

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e) TDS at higher rate: If a person fails to furnish PAN to the Assessee whose receipts are
subject to TDS, then, the TDS is to be deducted at higher of the following rates”
i) The rates in force or
ii) 20%

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f) TDS on Good Transport: TDS shall be applicable on payment to transporters, i.e.,
contractors in the business of plying, hiring or leasing goods carriages. However, TDS
exemption will be available to transporter owning 10 (ten) or less goods carriage at any time
during the previous year. For claiming such exemption, transporter would also need to furnish
a declaration to the Assesses along with a copy of PAN. For transporter not covered above,
TDS is to be deducted at normal rates as given in above table.
2) Due dates for deposit/remittance of TDS to Central Government are as under:
 Other than Section 194IA/194IB
• For the months of April to February (Monthly) – on or before 7th day from the end of the
month in which tax is deducted.
• For the month of March – 30th April

Section 194IA/194IB
• For any month – on or before 30th day from the end of the month in which tax is deducted.

3) Interest on non-deduction/ non-payment of TDS:

The Assessee is liable to pay simple interest on the amount of such TDS, for every month or
part of a month, at the rate of:
• 1% from the date on which such TDS was deductible up to the date on which such TDS is
deducted; and
• 1.5% from the date on which such TDS was deducted up to the date on which such TDS is paid

4) Late filing Levy:

He shall be liable to pay, by way of fee, a sum of two hundred rupees for every day during
which the failure continues, maximum to the amount of tax deducted.
5) Due dates for filing of e-TDS returns & issue of TDS certificates:
a) In respect of any other TDS (other than TDS u/s. 194-IA):

Quarter Period Due Date for Due Date for issuing TDS
filing of e-TDS certificate [in Form no. 16A]
Return
Q-1 1st April to 30th June 31st July 15th August
Q-2 1st July to 30th 31st October 15th November
September
Q-3 1st October to 31st 31st January 15th February
December
Q-4 1st January to 31st 31st May 15th June
March

b) In respect of TDS u/s 194IA

i) A challan-cum-statement in Form No.26QB is to be filed within 30 days from the end of
the month in which the deduction is made
ii) TDS certificate in Form no.16B is to be issued to the payee within 15 days from due date
of furnishing statement in Form no. 26QB
c) In respect of TDS u/s 194IB
 i) A challan-cum-statement in Form No.26QC is to be filed within 30 days from the end of
the month in which the deduction is made
ii) TDS certificate in Form no.16C is to be issued to the payee within 15 days from due date
of furnishing statement in Form no. 26QC

Section 194A
• Section 194A deals with deduction of TDS on interest other than interest on securities
like Interest on Fixed Deposits, Interest on Loans and Advances other than banks.
• This Section is only applicable to a resident. Thus, the provisions of section 194A are
not applicable in case of payment of interest to a non-resident.
• Payments made to non-residents are also covered under TDS mechanism. However, tax
in such a case is to be deducted as per Section 195.
The Payer/Deductor shall deduct TDS if the amount of such interest paid or credited OR is
-
likely to be paid or credited in a financial year, exceed

1. 40,000 where the payer is

a. Banking company or any bank or a banking institution
b. Co-operative society engaged in the business of banking
c. Post office (on deposit under scheme framed and notified by Central
Government).

d. 5,000 in any other case

e. From FY 2018-19 onwards no TDS will be deducted on interest earned upto
INR 50,000 by senior citizens. The interest amount should be earned from the
following:
▪ Deposits with banks;
▪ Deposits with post offices
▪ Fixed deposit schemes
▪ Recurring deposit schemes

Tax is deducted at NIL rate or lower rate under the following scenarios:

1. When a declaration is submitted in form 15G/15H u/s 197A If a declaration is

submitted under Section 197A by the recipient to the payer along with his/her PAN,
then no tax is deductible if the following conditions are satisfied:

a. Recipient is a person other than a company OR firm

b. Tax on total income of the previous year (PY) is NIL
 c. Total income does not exceed the exemption limit (i.e. for AY 2020-21,
Rs.2,50,000 or Rs.3,00,000 or Rs.5,00,000, as applicable). This condition is
NOT applicable if the recipient is a resident senior citizen.

d. Such a declaration shall be given in duplicate form 15G (15H for senior
citizens). In case of Senior Citizens Saving Scheme, 2004 (SCSS), investors
can submit the declaration.

e. Nominees of investors of SCSS can also produce the declaration at the time of
payment after the death of the depositor.

f. On submission of declaration to the bank, bank shall not deduct tax (subject to
the conditions) on payment of interest.

2. When an application is submitted in Form 13 under Section 197

a. As per provisions of Section 197, the recipient can apply in Form no.13 to the
Assessing Officer to get a certificate authorizing the payer to deduct tax at
lower rate (or deduct no tax, if certain conditions are satisfied).

b. There is no time limit for application and it can be filed at any time before
actual deduction of tax. If the recipient does not have PAN, he cannot apply
for the certificate.

c. The certificate shall be issued, directly to the person responsible for paying
income, on a plain paper, under an advice to the applicant.

d. The certificate cannot be issued with retrospective effect.

e. The recipient may furnish copy of such certificate to the person responsible for
paying the income for lower/no deduction of tax at source.
Following are the applicable rates of taxes:

f. 10% when the PAN is furnished (the rate is 7.5% for interest credited from 14
May 2020 until 31 March 2021 as a COVID-19 relief measure);

g. 20% if the PAN is not provided.

h. No surcharge, education cess or SHEC shall be added to the above rates.
Hence, tax will be deducted at source at the basic rate.

Time limit for depositing TDS

i. Tax Deducted during the month of April to February is to be deposited on or

before the 7th of next month. Tax Deducted in the month of March is to be
deposited on or before 30th April.

j. For example, tax deducted on 25 April is to be deposited on or before 7th May

and tax deducted on 15 march is to be deposited on or before 30 April.
 Section 194C

Section 194C states that any person responsible for paying any sum to the resident contractor
for carrying out any work (including the supply of labour), in pursuance of a contract
between the contractor and the following:
a. The Central Government or any State Government
b. Any local authority
c. Any corporation established by or under a Central, State or Provisional Act
d. Any company
e. Any co-operative society
f. Any authority constituted in India by or under any law, engaged either for the purpose of
dealing with and satisfying the needs for housing accommodation or for the purpose of
planning, development or improvement of cities, towns and villages or for both
g. Any society registered under the Society Registration Act, 1980 or under any such
corresponding law to the Act in any Part of India
h. Any trust
i. Any university or deemed university
j. Any firm

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The expression, “work” in this section would include-
a. Advertising
b. Broadcasting and telecasting including production of programs for such broadcasting or
telecasting
c. Carriage of goods and passengers by any mode of transportation, other than railways
d. Catering
e. Manufacturing or supplying of a product according to the requirement or specification of a
customer by using the materials purchased from such customer or its associate as defined in
section 40A(2), But does not include manufacturing or supplying of a product according to
the requirements or specifications of a customer by using the materials purchased from a
person, other than such a customer.

A “sub-contractor” would mean any person:

a. Who enters into a contract with the contractor for carrying out, or
b. For the supply of labour for carrying out the whole or part of the work undertaken by the
contractor under a contract with any of the authorities or
c. For the supply of, whether wholly or partly, any labour which the contractor has
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undertaken to supply in terms of his contract with any of the authorities mentioned under this
section.

As per the provisions of Income Tax Act, any person (being a contractor and not being an
individual or a Hindu Undivided Family):
a. responsible for paying any sum to any resident
b. in pursuance of a contract with the sub-contractor for carrying out, or for the supply of
labour for carrying out, the whole or any part of the work undertaken by the contractor or for
supplying whether wholly or partly any labour which the contractor has undertaken to supply
shall,
i. at the time of credit of such sum to the account of the sub-contractor or
ii. at the time of payment thereof in cash or
iii. by the issue of a cheque or draft or by any other mode, whichever is earlier
c. deduct the amount equal to 1 % of the sum as income-tax on income comprised therein.
The rate is 0.75% for transactions from 14 May 2020 until 31 March 2021.

Where is the Payment made to Sub-contractors, what Conditions must be Satisfied?

a. Payment is made to a sub-contractor who is resident within the meaning of Section 6 of the
Income Tax Act, 1961
b. Payment is made by a resident contractor, not being an individual or a HUF
c. Payment is made to carry out any work, including the supply of labour
d. The amount of consideration of the contract in respect to which payment is made should
not be less than Rs. 30,000
e. The sum should be credited or paid by the contractor in respect of a contract undertaken by
him with the specified bodies
The person responsible for making payment to resident contractor/sub-contractor should
deduct TDS,
a. either at the time of crediting such sum to the account to the payee or
b. at the time of payment thereof in cash or
c. by an issue of a cheque or by any other mode, whichever is earlier.

What is the rate of TDS?

Sl. Nature of Payment TDS Rate if TDS Rates from TDS Rate if
No PAN 14.05.2020 to PAN not
available 31.03.2021 available

1 Payment / Credit to resident 1% 0.75% 20%

individual or HUF

2 Payment/Credit to any 2% 1.5% 20%

resident person other than
individual / HUF
 3 Payment/ credit to NIL NIL 20%
Transporters

Note:- No Surcharge, Education Cess, and SHEC shall be added. Hence, TDS shall be
deductible at basic rates.

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Time Limit within which Tax is to be Deposited

a. Where the payment is made by or on behalf of the Government – On the same day.
b. Where the payment is made in any other case than the government
i. If the amount is credited in the month of March – On or before April 30th
ii. In Other months – Within 7 days from the end of the month in which the deduction is
made.

Section 194D

Section 194D covers payments made by way of any remuneration/reward in the form of
commission or otherwise for procuring insurance business (including business relating to the
continuance, renewal or revival of policies of insurance). The deduction must be made at the
time of crediting the money to the payee’s account or at the time of payment in the form of
cash, cheque, draft, or any other mode. Tax is deductible only if the amount paid or payable
or the aggregate of the amounts of such income paid or payable during the financial year
exceeds Rs 15,000.
Any person who makes a payment to a resident Indian in the form of remuneration or reward
as part of insurance business should deduct tax.
Tax is deducted at the earlier of the following cases:
• At the time of credit of commission in the payee’s account.
• When the actual payment is made in cash, cheque, draft, or other modes.
According to Section 194D, the tax is deducted at different rates based on the type of payee:
• Individuals: 5%
• Domestic companies: 10%
If the payee has not quoted PAN, the tax will be deducted at the rate of 20%. You must also
know that surcharge and SHEC will not be applicable to these rates.

Exceptions
Tax need not be deducted from the amount the payer credits to payee’s account in the
following cases:
• The commission paid is within Rs 15,000.
• A self-declaration is available under Section 15G/15H.

Section 194DA

Any payment to be made to a resident Indian upon the maturity of a life insurance policy
including the bonus, other than the amount included in the total income under clause (10D) of
Section 10, will suffer a tax deduction at source. The tax must be deducted at the rate of 1%.
Any person who makes a payment to a resident Indian upon maturity of a life insurance
policy will deduct the applicable taxes at source under Section 194DA.
Tax is deducted at 1% at the time of making the payment to the payee.
The union budget 2019 has proposed to amend the TDS on insurance policy proceeds to 5%
on the amount of income comprised in the proceeds paid or payable upon maturity.
There is no need to deduct taxes if the aggregate payable amount is within Rs 1 lakh.
For example, consider Mr V received a maturity amount of Rs 8 lakh from his life insurance

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policy. Mr V has paid an amount of Rs 3 lakh as premium for the policy over a period of 10
years. In this case, the maturity amount is above Rs 1 lakh. Hence, the maturity proceeds will
be paid after deducting 1% TDS. In this case, the TDS would be Rs 8,000. After deduction,
Mr V will receive Rs 7,92,000.
The deductee/recipient will receive TDS certificates summarising the insurance commission
payments and the TDS thereon.

Section 194H

• Section 194H is for income tax deducted on any income by way of commission or
brokerage, by any person responsible for paying to a resident.
• Individuals and Hindu Undivided Family who were covered under section 44AB are
also required to deduct TDS. From FY 2020-21, individual and HUF whose turnover
from business is above Rs 1 crore or gross recipts from profession are above Rs 50
lakh are also required to deduct TDS.
• Section 194H does not include insurance commission referred to in section 194D.
• TDS under Section 194H will be deducted at the time of credit of such income to the
account of the payee or to any other account.
• Whether called suspense account or by any other name at the time of payment, of such
income in cash or by the issue of a cheque or draft or by any other mode, whichever is
earlier.
Commission or brokerage includes any payment
 • received or receivable,
• directly or indirectly, OR
• by a person acting on behalf of another person
TDS on commission or brokerage includes,

1. for services rendered (not being professional services), or

2. for any services in the course of buying or selling of goods, or
3. in relation to any transaction relating to any asset, valuable article or thing, except
securities
The rate of TDS is 5%. The rate is 3.75% for transactions from 14 May 2020 until 31
March 2021.
• No surcharge, education cess or SHEC shall be added to the above rates. Hence, the tax
will be deducted at source at the basic rate.
• The rate of TDS will be 20% in all cases if PAN is NOT quoted by the deductee.

What is the time limit on depositing TDS ?

• Tax Deducted during the month of April to February is to be deposited on or before the
7th of next month. Tax Deducted in the month of March is to be deposited on or
before 30th April.
• For example, tax deducted on 25 April is to be deposited on or before 7th May and tax
deducted on 15 march is to be deposited on or before 30 April.

Section 194I

• The person (not being an Individual or HUF) who is responsible for paying of rent is
liable to deduct tax at source.
• TDS threshold for deduction of tax on rent is Rs 2,40,000 for the FY 2020-21. The
threshold limit was Rs. 1,80,000 until FY 2018-19.
• Also, individuals and/or HUFs who are subject to tax audit are also under an obligation
to deduct the tax at source.
• ‘Rent’ means any payment, by whatever name called, under any lease, sub-lease,
tenancy or any other agreement or arrangement for the use of (either separately or
together) any:

a. land or
b. Building (including factory building) or
c. Land appurtenant to a building (including factory building) or
d. Machinery or
 e. Plant or
f. Equipment or
g. Furniture or
h. Fittings
whether or not any or all of the above are owned by the payee (Explanation (i) to Sec.

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•
194-I). Sub-lettingis also covered.
• If the landlord collects security or advance payment at the time of letting out a building
to a tenant on the condition that the deposit will be refunded at the time of vacating
the building, then such a receipt is not in the nature of income and, therefore, no tax is
to be deducted at source u/s 194I.
• However, advance rent (not in the nature of refundable security deposit) paid is, subject
to a tax deduction. Moreover, where any such rent is credited to ‘suspense account’ or
to any other account shall also be liable to deduct tax at source.
• The person (not being an Individual or HUF) who is responsible for paying any income
to a resident by way of rent is liable to deduct tax at source.
As per Budget 2017, individual /HUF (not covered under tax audit) paying rent to a

-__
•
resident exceeding Rs.50,000 per month are also liable to deduct TDS @ 5%. This
amendment will be effective from 1 June 2017.
• In case the aggregate of the amount of such income credited/paid or likely to be
credited/paid during the financial year by the aforesaid person to the account of or to
the payee exceeds Rs.2,40,000. The limit was Rs 1,80,000 until FY 2018-19.
• Tax is required to be deducted at source at the time of credit of ‘income by way of rent’
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.

What is the Rate of TDS?

S. Nature of Rates of tax deduction TDS rate from 14 May 2020

No Payment until 31 March 2021

1 Rent of plant 2% 1.5%

and machinery

Rent of land or 10% 7.5%

2 building or (5% if rent exceeding Rs (3.75% if rent exceeding Rs
furniture or 50,000 / month is paid by 50,000 / month is paid by
fitting individual/HUF who are not individual/HUF who are not
liable for tax audit) liable for tax audit)
Under what circumstances TDS u/s 194I is not deductible?
• Amount payable/paid not exceeding Rs.2,40,000 during the financial year: No tax is
required to be deducted in case the amount of rent due or paid does not exceed
Rs.2,40,000 from FY 2019-20 onwards (earlier it was Rs.1,80,000).
• Where tenant is individual or Hindu Undivided Family: Deduction is not required under
Sec. 194I when the rent is due or paid by an Individual or HUF not carrying on a
business which is audited under income tax law.
• Where the payee is the Government at agency:
A person making payment to Government is not required to deduct tax at source
under Section 194-I. The payments made to statutory authorities and local authorities
are exempt from tax and hence not tax deductible.

What is the time limit on depositing TDS?

• Where the payment is made by or on behalf of the Government- On the same day
(without using any challan form)

• Where the payment is made in any other case than the Government- On or before 7 days
from end of month in which deduction is made, where tax is paid accompanied by an
Income tax challan

a. If the amount is credited or paid in the month of March- On or before April 30

b. In any other case- On or before 7 days from the end of the month in which the
deduction is made.

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Consequences of non-deduction/non-payment of TDS
A taxpayer who is liable to deduct TDS will be liable to pay interest @ 1% per month from
the date when tax is deductible till the date when tax is deducted.
A taxpayer who has deducted tax but not deposited the same to the government is liable to
pay interest @ 1.5% per month from the date when tax is deducted to the date of deposit of
the TDS.

Section 194IA
• The buyer has to deduct TDS at 1% of the total sale consideration. Note that the buyer is
required to deduct TDS, not the seller. The rate is 0.75% for transaction carried out from 14
May 2020 to 31 March 2021.
• No TDS is required to be deducted if sale consideration is less than Rs 50 lakhs. If the
payment is made by instalments, then TDS has to be deducted on each instalment paid.
• The union budget 2019 has proposed a definition for “consideration for immovable
property” to include all charges of the nature of club membership fee, car parking fee,
electricity or water facility fee, maintenance fee, advance fee or any other charges of similar
nature, which are incidental to the transfer of the immovable property. This is applicable for
immovable property purchased on or after 1 September 2019.
• TDS is to be paid on the entire sale amount. For example, if you have bought a house at Rs
55lakh, you have to pay TDS on Rs 55 lakh and not on Rs 5 lakh (i.e. Rs 55 lakh – Rs 50
lakh). This is applicable even when there is more than 1 buyer or seller.
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• Post the budget 2019 amendment to section 194-IA, in the above example, if on 1
September 2019, you have paid Rs 2 lakh towards parking fee, Rs 1 lakh for water facility fee
and Rs 1 lakh for electricity fee, your sale consideration would be Rs 59 lakh (55+2+1+1).
You will have to pay TDS on Rs 59 lakh @ 1%. Your TDS payable would be Rs 59,000. In
case the transaction is carried out from 14 May 2020 to 31 March 2021, the rate is 0.75%.
• The buyer of any immovable property need not obtain a TAN (Tax Deduction Account
Number) for making payment of the TDS on immovable property. You can make the payment
using your PAN.
• For the purpose of making payment of TDS on immovable property, the buyer has to obtain
the PAN of the seller, else TDS is deducted at 20%. PAN of the buyer is also mandatory. TDS
is deducted at the time of payment (including instalment payments) or at the time of giving
credit to the seller, whichever is earlier.
• The TDS on immovable property has to be paid using Form 26QB within 30 days from the
end of the month in which TDS was deducted.
• After depositing TDS to the government, the buyer is required to furnish the TDS
certificate in form 16B to the seller. This is available around 10-15 days after depositing the
TDS.
• The buyer is required to obtain Form 16B and issues the form to the seller. You can check
the procedure to generate and download Form16B from TRACES

Notice for non-filing Form 26QB

The income tax department receives an Annual Information Return (AIR) from the
registrar/sub-registrar office regularly. From this report, the department can figure out if you
have made a property transaction exceeding Rs.50 lakh. If the buyer has not deducted tax at
source at 1% (or 0.75%) of the transaction amount or not filed TDS within the specified time,
the IT department will send a notice to the buyer.

Penalties Applicable on non-filing of Form 26QB

Interest on: Calculation

Non-deduction 1% per month for the period from the date on which TDS is
of TDS deductible/collectable to the date on which TDS/TCS is actually
deducted.

Non-remittance 1.5% per month for the period from the date on which TDS is
of TDS deducted to the actual date of payment.

Late filing fee: Calculation

Late filing fee In case of default of non-filing or late filing of Form 26QB, a penal fee
under section is applicable under section 234E of the income tax act. Rs. 200 has to
234E @ Rs 200 be paid for every day during which such failure continues. The buyer
per day would also be liable for defaults of late Deduction, late payment and
interest thereon.

Penalty Calculation
Penalty Assessing Officer may levy penalty under section 271H at his discretion.
under This section is applicable when a statement as required by the tax laws is not
section submitted timely. Penalty under this section must be more than Rs 10,000
mm
271H and can extend to Rs 1lakh. However, if TDS is deposited with fee & interest
and statement is submitted within 1 year of the time prescribed, no penalty
shall be levied.

Section 194IB
According to Section 194IB, it is mandatory for any person, i.e. individuals/HUF not liable to
audit u/s 44AB, to deduct taxes for a rent paid to a resident, exceeding Rs 50,000 per month.

What does rent mean according to Section 194IB?

According to the section, rent means a payment made by a payee under a tenancy, lease, sub-
lease, or any other arrangement made for assets such as:
• Land
• Land including a factory building
• Building including a factory building
• Machinery
• Furniture
• Equipment
• Plant
• Fittings
The payee may or may not own the assets mentioned above.
TDS must be deducted, by the individuals or HUFs, earlier of:
• At the time of credit of rent (for the last month in the previous year or the last month of the
tenancy if the property is vacated before during the year), or
• At the time of payment (via cash or cheque or draft or any other mode).
Tax rate applicable is 5%, in case the rent payment exceeds Rs 50,000 and the landlord’s
PAN is provided. Otherwise, if the PAN is not available, then TDS of 20% will be applicable.

What penalty is applicable in the case of non-deduction or delay?

In case of non-deduction of taxes, the tenant may have to pay a penalty that is equivalent to
the amount of taxes deducted. On the other hand, if the tax deposited to the government is
delayed, penal interest at 1% for delay in deducting and depositing and 1.5% for delay in
depositing tax will be levied.
In case a failure on the filing Form within 30 days from the end of the month in which tax
payment is made, will result in a late fee of Rs 200 per day.
Section 194J
The deduction of tax at source or TDS has been very helpful in the collection of taxes in the
country by targeting the source of income itself. It is useful to both the government and
taxpayers. When it comes to the government, it helps control evasion to a certain extent by
placing the liability on most business entities to deduct tax in respect of certain expenses if
they cross the specified threshold/limit. Further, it also keeps the inflow of tax running
throughout the year. For taxpayers, it eases their burden of paying tax when it is time to file
their income tax returns. That is because, they get credit for the taxes deducted at source.
One of the most important and common type of payments that a business entity makes is
towards professional fees or fees for technical services. Some illustrative examples of
professional fees are fees paid to a lawyer, doctor, engineer, architect, chartered accountant,
interior decorators, advertisers, etc. Technical services would include the rendering of
managerial, technical or consultancy services.

Types of payments covered

The type of payments to residents covered under this section are as follows:
1. Professional fees
2. Fees for technical services
3. Remuneration paid to directors excluding salary (For e.g., sitting fees to attend board
meetings)
4. Royalty
5. Payments in the nature of non-compete fees (i.e., fees paid to not carry on any business or
profession for a specified time and within certain geographical boundaries) or fees paid to not
share any technical knowledge or know-how.
Tax has to be deducted in case the payment is greater than Rs. 30,000 during the year.
However, there is no such limit for payments made to a director. The tax will have to be
deducted no matter how small the amount.

moms
Every person, who is making a payment in the nature of fees for professional or technical
services is liable to deduct tax at source with the following exceptions:
1. In case of an individual or HUF carrying on business: Where his turnover does not
exceed Rs. 1 crore during the previous financial year.
2. In case of an individual or HUF carrying on profession: Where his turnover does not
exceed Rs. 50 lakh during the previous financial year.
To put it simply, all entities (other than individuals/HUF who are not required to do tax audit
in the preceding year) need to deduct tax.

turns
Any payment covered under this section shall be subject to TDS at the rate of 10%.
From 1 April 2020, the payment of fees for technical service shall be subject to TDS at the
rate of 2%.
However, w.e.f. 01.04.2017, the tax on payments made to operators of call centres shall be
deducted at a reduced rate of 2%.
In case the payee does not furnish his PAN then the rate of deduction would be 20%.
The tax should be deducted at the time of passing such entry in the accounts or making the
actual payment of the expense, whichever earlier.
Not deducting the tax or late deduction of the tax has a two-fold consequence:
1. Disallowance of a part of the expenditure: 30% of the expenditure shall be disallowed in
the year in which the expenditure is claimed (taken to the profit and loss account) – however,
the 30% disallowed shall be re-allowed in the year in which the TDS is paid to the
government.
2. Levy of interest until date of payment: In case there is a delay in the payment of tax,
interest has to be paid along with the TDS to the Government. The rate of interest is
determined in the following manner:
a. Where no deduction of tax has been made: Interest shall be payable at 1% per month/part
of month from the date on which such tax was required to be deducted up to the date of actual
deduction.
b. Where tax has been deducted but not paid to the government: Interest shall be payable
at 1.5% per month/part of month from the date on which such tax was deducted up to the date
of payment to the government.

Time limit for payment of tax

Non – Government deductor
Government
deductor

Payment made 7th day from the 7th day from the end of the month
before end of the month
1st March

Payment made April 30th Payment of tax is made on the date of payment to
in the month of the payee but the corresponding challan is
March deposited by the 7th day from the end of the month