TDS Provisions under Income Tax Act, 1961 for FY 2019-20

TDS Provisions under Income Tax Act, 1961 for FY 2019-20

TDS stands for tax deducted at source. As per income tax act, any specified person making a specified payment is required to deduct tax at specified rates, if the payment exceeds a certain threshold.

The person making the payment after deduction of TDS is called a deductor whereas the person receiving the payment is called as deductee. It is the responsibility of the deductor to deposit the deducted amount to the government on a timely basis, non compliance of which may lead to levy of interest, penalty. TDS is deducted irrespective of payment mode – cash, cheque or credit and is linked to the PAN of deductor and deductee. 

TDS is deducted on following types of payments, mojorily:

• Salaries
• Interest payable by assessee
• Rent payments
• Consultation fees
• Professional fees

Related Topic:
Notification for Deduction of TDS at Lower Rate

Section 192: Salaries

• Conditions: 

1. There must be employer and employee relationship
2. Payment made by employer to employee is in nature of salary
3. Income chargeable to is over the maximum amount not chargeable to tax. 

Related Topic:
Format of Declaration to be taken from Salaried Employee by Employer to deduct TDS in Old or New IT Slab Rates

• Liability to deduct TDS arises at the time of payment and not at the time of accrual. 
• Interest paid against home loan is allowed to be set off against income of assessee. 
• For example:

In the above case, no TDS is required to be deducted by the employer, as the income is below the basic exemption limit.

Section 192A: Premature withdrawal from Employee Provident Fund (EPF)

• Conditions:

1. Amount withdrawn is before completion of 5 years of continuous service
2. Amount withdrawn exceeds Rs 50,000. 

• TDS rate is 10% if PAN is furnished.
• No TDS is required to be deducted if amount is withdrawn before completion of 5 years due to ill health or cause beyond the control of the member
• No TDS on transfer of amount from old EPF to another EPF account.Related Topic:
  Section 194J – TDS on Professional or Technical Fees

Related Topic:
Section 194I – TDS on Rent under income Tax

Section 193: Interest on securities and debentures

• A person who is paying interest on securities to a resident is required to deduct TDS
• TDS is to be deducted at the time of credit or payment in cash/cheque whichever is earlier. 
• No TDS is required to be deducted in case debentures issued by listed companies where the limit is Rs 5,000
• No TDS in case of 8% saving(taxable) bonds with a limit of Rs 10,000. 
• TDS rate @ 10%
• Examples are interest paid on bonds, debentures, government securities etc. 

Related Topic:
Section 194C – TDS on payment to contractor or subcontractor

Section 194: Payment of Dividend on Equity shares

• Deductor is the company paying dividend and deductee is the resident in india to whom dividend is paid
• No TDS is required to be deducted if: 

1. The dividend is paid by way of account payee cheque & such amount (alone or aggregate during financial year) does not exceed Rs.2500.
2. Dividend is covered under section 115-O.
3. The dividend is paid to LIC, GIC or its subsidiaries or to any other insurer in respect of the shares that are owned by them or in which they have a full beneficial interest.

• Rate of TDS is 10%.

Related Topic:
[Stayed by Calcutta HC] TDS on Cash Withdrawal u/s 194N wef 1st July 2020

Section 194A: TDS on Interest other than interest on securities

• In cases where deductors are banks or post offices – no tax is required to be deducted if the aggregate amount of interest does not exceed Rs 40,000 in a financial year. This limit gets substituted with Rs 50,000 for senior citizens. 
• Tax rate is 10% 
• This section specifically excludes “interest on securities”.
• Tax is deducted on interest other than interest on securities like interest on FD, loans & advances.
• Interest received is shown under head “income from other sources” and is added in total income of assessee but such interest is liable to deduction u/s 80TTA and 80TTB. 
• In cases where interest is paid by others (i.e interest other than interest on securities and by banks/PO)- no TDS is required to be deducted if aggregate amount in a financial year do not exceed Rs 5,000.
• No TDS to be deducted in following cases:

1. Interest income paid to the bank company, co-operative society, financial corporation, LIC, UTI, company or cooperative society involved in the insurance business.
2. Interest income (as per 194A) paid by a partnership firm to its partner.

Section 194B: Winnings from lotteries/ Puzzle/ Game

• Person paying a winning amount from lotteries/ puzzle/ game is required to deduct tax at the time of making payment. 
•  No TDS is required to be deducted if the winning amount does not exceed Rs 10,000.
• Winnings can be in the form of cash or in kind. Where the payment is wholly in kind, the payer shall, before releasing the winnings ensure tax has been paid for such winnings. 
• Bonus, commission paid to lottery agents is not liable to TDS
• Any transaction requiring skill for winning prizes is not lottery. For e.g. winning from motor rally is not a lottery income.  
• TDS rate is 30%.

Section 194BB: Winnings from Horse Race

• Any person to whom the Government has granted a licence for horse racing in any race course or for arranging for gambling or betting in any race course is liable to deduct TDS while making payment of the winning amount.
• TDS is to be deducted if the aggregate amount exceeds INR 10,000.
• Rate at which TDS to be deducted is 30%

Section 194C: TDS on Payment to Contractor

• • Any person, other than an Individual or HUF, responsible for making payment to a resident contractor or sub-contractor for carrying out any work (including supply of labour) is liable to deduct tax at source under Section 194C.
  • However, an Individual or HUF who is liable to tax audit during the financial year immediately preceding the financial year in which such sum is credited or paid, shall deduct tax under section 194C. 

• No TDS is required to be deducted if:

1. If the amount paid or credited does not exceed Rs.30,000 in a single payment and Rs.1,00,000 in aggregate during the financial year.
2. If amount is payable to a person who is engaged in the business of plying, hiring or leasing goods carriages and he does not own more than 10 goods carriage vehicles, during the financial year. Such exemption is provided only if the recipient furnishes his PAN and payer intimate the details to IT Dept.

• Rate of TDS is 1%(for individual or HUF) and 2%(Other than Individual or HUF)
• For example: contract of advertising, carriage of goods/passenger, catering, supply of labour for works contract. 

Section 194D: TDS on payment of Insurance Commission

• This section covers people who work as insurance agents for companies like LIC etc. 
• The person making payment to another resident in the form of commission / bonus for generating insurance business is required to deduct TDS. 
• No TDS is required to be deducted if the amount of payment is upto Rs 15,000 (individually or in aggregate for financial year). 
• TDS rate is 5% (other than company) and 10% (for companies).

Section 194DA: TDS on payment in respect of Life Insurance Policy

• Any person who is paying an amount to a resident by way of insurance policy (including bonus amount, if any) will have to deduct tax before releasing the amount.
• No Tds is required to be deducted in following cases:

1. Where the amount of such payment (or aggregate amount during the financial year) is less than Rs.1,00,000.
2. Where amount of insurance received is as per following cases:

• TDS rate is 1% at the time of making payment. 

Section 194E: TDS on Payment to Non resident Sportsmen or Sports Association

• Any person who pays money to NR sportsman or an entertainer or pays money to sports institution or an association is required to deduct TDS under this section. 
• TDS @ 20%(plus EC and SHEC) and surcharge, if any is required to be deducted on specified income. 
• Specified income includes income from participating in any games/ sports/ performance or income from advertising or income from contributing articles in the newspaper. All such income should arise only in India.  
• For example: payment made to cricket players other than indian players. 

Section 194EE: TDS on payment for deposits under National Savings Scheme (NSS)

• Any person who pays an amount under section 80CCA(2)(a) i.e. National Savings Scheme to another person is required to deduct tax under this section.
• No TDS is required to be deducted if the amount paid (at once or total during the financial year) to the payee (i.e. the receiver) is less than 2500 or when the amount is given to the heirs of the assessee.
• TDS rate is 10% and is to be deducted at the time of making payment. 

Section 194G: TDS on payment of Commission on sale of Lottery tickets

• Any person who is responsible for paying to any person, who is or has been stocking, distributing, purchasing or selling lottery tickets, any income by way of commission, remuneration or prize (by whatever name called) on such tickets is liable to deduct tax. 
• However, no TDS is required to be deducted if amount paid does not exceed Rs 15,000
• TDS rate is 5%. 

Section 194H: TDS on Commission and Brokerage

• It mandates tax deduction by person (other than individual/HUF) responsible for paying commission or brokerage to the resident person.
• TDS is required to be deducted by all the individuals and HUFs who are required to get their accounts audited under section 44AB.
• No TDS is required to be deducted if: 

1. Brokerage or commission does not exceed Rs.15000 in a financial year.
2. Deductee obtained NIL or lower Tax Deduction at Source(TDS) certificate by the assessing officer
3. Any company pays commission to their workers, TDS will be applicable under section 192 and not under section 194H.

•  TDS rate is 5%. 
• Brokers and agents are covered under this section. 

Section 194I: TDS on Rent paid (land, building, plant & machinery)

• It is an obligation for TDS deduction on persons (other than individual/HUF) making rental payments to resident indians above a specified limit i.e. Rs.2,40,000 in a year.
• But if the Individual/HUF becomes liable to audit u/s 44AB (a) and (b) then he/she is required to deduct TDS under this section.
• TDS rate:

2% for use of plant & machinery

10% for use of land & building (including factory building), furniture or fittings. 

• For example: amount paid as warehousing charge or when an accommodation in the hotel is taken on a regular basis (i.e. under an agreement) then such payment attracts TDS under this section. 

Section 194 IB: TDS on Rent paid by Individuals/HUF who are not liable to audit

• This section was introduced to widen the scope and include those individuals who are not liable to audit u/s 44AB but still pay a huge amount of rent. 
• Time of deduction of tax, earlier of:

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

The time of payment (via cash or cheque or draft or any other mode).

• No TDS is required to be deducted if rent paid does not exceed Rs 50,000 in a month. 
• Period of deduction is once in a year.
• TDS rate is 5%. 
• Example: 

Mr. A (Tenant) entered into a tenancy agreement with Mr. B (Landlord) for a period of 11 months, starting from 1st October 2017 to 31st August 2018. The rent fixed is INR 70,000 per month.

Section 194IA: TDS on transfer of Immovable Property

• The person making payment for purchase of immovable property situated in india is required to deduct TDS from the payment done under this section. 
• Immovable property does not include agricultural land. Thus no TDS is required to be deducted on agricultural property
• No TDS is required to be deducted if consideration involved does not exceed Rs 50 Lacs.
• TDS rate is 1%. 
•  For example: sale of agricultural land in nepal is taxable under this section irrespective of the fact that it is an agricultural property because it is located outside india. 

Section 194IC: TDS on consideration paid under Joint Development Agreement

• This is an agreement between the owner of an asset (being land or building or both) who agrees to allow another person to build a real estate project on such asset, in return for share and/or payment in cash.
• Any person who pays a resident some consideration (not in kind) under a Joint Development Agreement, has to deduct TDS u/s 194IC.
• TDS rate is 10%
• For example: DLF enters into an agreement to construct a building. 

Section 194J: TDS on fees paid for Professional or Technical services

• Following types of payments are covered under this section:

1. Professional fees
2. Fees for technical services
3. Remuneration paid to directors (excluding salary)
4. Royalty
5. Payments in nature of non competence fees

• TDS is to be deducted if payment made in a financial year exceeds Rs 30,000. However, there is no such limit for payment to the director.
• Every individual/HUF who is liable to tax audit is required to deduct tax under this section. 
• TDS rate is 10% but for call centre TDS @ 2% is required to be deducted. 
• For example : fees paid to chartered accountants, directors etc. 

Section 194LA: TDS on compensation paid for acquisition of immovable property

• Payer is liable to deduct TDS if following conditions are met:

1. Any person is paying any sum to a resident person;
2. The sum is paid in the nature of compensation / enhanced compensation / consideration / enhanced consideration on account of compulsory acquisition of the immovable property (other than agricultural land);
3. The compulsory acquisition is made under any law for the time being in force; and
4. The aggregate amount of payment during the financial year exceeds INR 2,50,000.

• TDS is required to be deducted at the time of making payment in cash or cheque or draft whichever is earlier. 
• TDS rate is 10%

Section 194LB: TDS on Interest paid on Infrastructure fund

• Conditions:

1. The interest income is paid by an infrastructure debt fund referred to in section 10 (47); and
2. The interest income is paid to a non-resident (not being a company) or to a foreign company.

• Prescribed TDS rate is 5% (plus education cess, SHEC) and surcharge, if any. 

Section 194LD: TDS on interest paid on certain bonds and government securities

• Payment made by person to foreing institutional investor (FII) or qualified foreign investor (QFI) is required to deduct TDS.
• Such payment shall include interest amount. 
• TSD is to be deducted @ 5%
• For example interest on Rupee Denominated Bonds. 

Section 195: TDS on payment made to Non Resident

• Any interest (except interest referred in section 194LB or section 194LC or section 194LD)
• Any other sum chargeable under any head of incomes (except income chargeable under the head ‘salary’).
• Rate of tax deduction: