TDS stands for Tax deducted at source, and as the name specifies, under TDS, every person who is responsible for making specific payments like interest, rest, salary etc. must deduct a certain amount as tax before making such payment in full to any person.
Basic provisions of TDS:
- Every person responsible for deducting or collecting the tax is required to obtain TAN (Tax Deduction Account Number
- It is mandatory to quote TAN in all TDS returns.
- Tax shall be deducted or collected at source at the applicable rate of TDS.
- Amount of TDS received shall be deposited to the credit of the Government.
- Returns of TDS shall be filed periodically.
- The person deducting TDS shall issue TDS certificate in respect of tax deducted by him.
The Income Tax Act explains some rules that must be followed by the person deducting TDS and non-compliance of these rules will attract specific interest and penalty to be paid by the particular person.
- Deduction of tax:
Tax must be deducted by the person responsible for making any eligible payment at the time of payment getting due or actual payment whichever is earlier. In case of delay in deduction of tax, as per the provisions of Section 271C of the Income Tax Act, interest at the rate of 1% per month of the TDS amount and any such amount as may be specified by the Joint Commissioner, will be required to be paid by the person responsible for deducting tax until the tax is deducted. However, the said amount cannot exceed the maximum amount of TDS.
- TDS to be paid to the credit of Government:
The amount of TDS deducted by the person liable to deduct TDS is to be paid to the credit of government by 7th day of the succeeding month in which the tax was deducted and as per section 201 of the Income Tax Act, in case of non-payment or late payment of TDS, interest @ 1.5% per month of TDS amount subject to maximum amount of TDS is to be paid until the tax is not deposited. Also, if the person required to pay amount of TDS to the Government fails to do so, then as per section 221 of IT act, he will be liable to pay the amount as directed by the assessing officer in the form of penalty for failure to pay TDS amount subject to the maximum of total amount of tax in arrears.
Apart from interest and penalty, the person can be punished with imprisonment for a term of three months to seven years.
In the above cases, the amount of TDS deducted and paid to the credit of Government can be claimed as expenditure while computing taxable income under the head profits and gains from business and profession and deduction under section 80 can be availed. But in case of failure to deduct TDS or after deducting not paid to the Government, then the assessing officer has the power to disallow whole of such expenditure as per section 40 of the IT Act.
- Returns of TDS:
Returns related to TDS must be filed as per the due date in the last month of the related quarter i.e. on the 31st day of July, October, January, and April during a financial year. If the return of TDS is not filed or is filed after the due date, then no interest is levied but a penalty of rupees 200 per day as per section 234E of IT act will be levied until the return is actually filed. However, the total amount of penalty shall not exceed the amount of tax. The same will be applicable in case of incorrect filing of TDS return.
In all the above cases, a reasonable opportunity of being heard will be given to the person before levying of the penalty.