TDS and TCS Compliance
TDS and TCS are the most essential taxes levied by the Indian Government. Such taxes must be deducted/collected and deposited with the respective authorities of the government. We help you comply with TDS and TCS provisions and file returns.
Tax Deducted at Source (TDS)
TDS is basically a part of income tax. It has to be deducted by a person for certain payments made by them. TDS or Tax Deducted at Source is income tax reduced from the money paid at the time of making specified payments such as rent, commission, professional fees, salary, interest etc. by the person making such payments. Usually, the person receiving income is liable to pay income tax. But the government with the help of Tax Deducted at Source provisions makes sure that income tax is deducted in advance from the payments being made by you. The recipient of income receives the net amount (after reducing TDS). The recipient will add the gross amount to his income and the amount of TDS is adjusted against his final tax liability. The recipient takes credit for the amount already deducted and paid on his behalf.
When should TDS be deducted and by whom?
Any person making specified payments mentioned under the Income Tax Act is required to deduct TDS at the time of making such specified payment. But no TDS has to be deducted if the person making the payment is an individual or HUF whose books are not required to be audited.
However, in case of rent payments made by individuals and HUF exceeding Rs 50,000 per month, TDS is required to be deducted @ 5% even if the individual or HUF is not liable for a tax audit. Also, such Individuals and HUF liable to deduct TDS @ 5% need not apply for TAN. Your employer deducts TDS at the income tax slab rates applicable. Banks deduct TDS @10%. Or they may deduct @ 20% if they do not have your PAN information.
For most payments rates of TDS are set in the income tax act and TDS is deducted by the payer basis of these specified rates. If you submit investment proofs (for claiming deductions) to your employer and your total taxable income is below the taxable limit – you do not have to pay any tax. And therefore no TDS should be deducted from your income.
Similarly, you can submit Form 15G and Form 15H to the bank if your total income is below the taxable limit so that they don’t deduct TDS on your interest income. In case you have not been able to submit proofs to your employer or if your employer or bank has already deducted TDS and your total income is below the taxable limit – you can file a return and claim a refund of this TDS.
Alternatively, TCS stands for Tax Collected at Source. According to Section 206C of the Income Tax Act, seller imposes TCS on their goods and collect them from buyers at the time of sale. During a transaction, if a buyer deducts TDS based on the provisions in the Income Tax Act, then, in this case, TCS is not applicable. TCS under GST is the tax that an e-commerce business collects when merchants sell goods or services via its website, and the e-commerce platform takes payments on their behalf.
Key Points of TDS Deduction & Payment
Due date for depositing the TDS to the government
The Tax Deducted at Source must be deposited to the government by the 7th of the subsequent month. For instance: TDS deducted in the month of June must be paid to the government by the 7th of July. However, the TDS deducted in the month of March can be deposited till 30th April. For TDS deducted on rent and purchase of property, the TDS payment due date is 30 days from the end of the month in which TDS is deducted.
How to deposit TDS
Tax Deducted at Source has to be deposited using Challan ITNS-281 on the government portal.
Consequences of Non Compliance of TDS
The non-compliance of TDS provisions is a grave offence and is punishable under section 271 (C) of the Income Tax Act 1961, wherein the minimum penalty is 10,000 which can go up to Rs. 1,00,000/-. Further section 276B applies to all such cases where a willful default is established, in all those cases the punishment is 3 Years rigorous imprisonment which can go up to seven years.
How and when to file TDS returns
Filing Tax Deducted at Source returns is mandatory for all the persons who have deducted TDS. TDS return is to be submitted quarterly and various details need to be furnished like TAN, amount of TDS deducted, type of payment, PAN of deductee, etc. Also, different forms are prescribed for filing returns depending upon the purpose of the deduction of TDS. Various types of return forms are as follows: Form 26QTDS on all payments except salaries Q1 – 31st July; Q2 – 31st October; Q3 – 31st January; Q4 – 31st May.
Interest on Non Payment of TDS
The TDS deducted by a person need to be deposited within 7th day of the next month. Any failure or delay in depositing the TDS is punishable under section 271 C or/and Section 276 B. The defaulter is further liable to pay interest on delayed payment at the rate of 1.5% per month or part thereof. There is no provision in law where the interest can be waived; hence the assessee should be very careful.
TDS certificate
Form 16, Form 16A, Form 16 B and Form 16 C are all TDS certificates. TDS certificates have to be issued by a person deducting TDS to the assessee from whose income TDS was deducted while making payment. For instance, banks issue Form 16A to the depositor when TDS is deducted on interest from fixed deposits. Form 16 is issued by the employer to the employee.
TDS credits in Form 26AS
TDS deductions are linked to PAN numbers for both the deductor and deductee. If TDS has been deducted from any of your income you must go through the Tax Credit Form 26AS. This form is a consolidated tax statement that is available to all PAN holders. Since all TDS is linked to your PAN, this form lists out the details of TDS deducted on your income by each deductor for all kinds of payments made to you – whether those are salaries or interest income – all TDS linked to your PAN is reported here. This form also has income tax directly paid by you – as advance tax or self-assessment tax. Therefore, it becomes important for you to mention your PAN correctly, wherever TDS may be applicable to your income.
difference between TDS and TCS
| Parameters | TDS | TCS |
| Limits | Purchase of goods and services | Sale of goods and services |
| Transactions covered | Rent, commission, interest, rent, salaries, brokerage and more | Selling of toll tickets, forest products, cars, tendu leaves, minerals, liquor, timber, scrap, etc. |
| Time of Deduction | When payment is due or made, whichever comes sooner | At the time of sale |
| Due dates | 7th of every month, though the returns have to be submitted quarterly | Deducted in the month in which supply is received. Deposited to the Government within 10 days from the month’s end in which it is supplied. |
| Person responsible | Individual or company making the payment | Individual or business selling the goods or service |
| Filing quarterly statements | Form 24Q (in case of salaries), Form 26Q (for others except salaries), and Form 27Q (for payments to NRIs) | Form 27EQ |
Budget 2023 updates –
- Section 194BA – Introduction of TDS on income from online gaming
- Section 196A – Starting April 1st, 2023, non-residents earning income from mutual funds in India can provide a Tax Residency Certificate to avail the benefit of TDS as per rate given in tax treaty, instead of 20%.
- Section 192A – TDS rate reduced to 20% from maximum marginal rate on PF withdrawal for employees who do not have PAN
- Section 193 – No exemption from TDS on interest from listed debentures. Therefore, tax has to be deducted on interest on such specified securities.
- Section 194N – TDS threshold has been increased on cash withdrawal by by co-operative societies. Starting April 1st, 2023, tax will be deducted on cash withdrawals by co-operative societies if the amount exceeds Rs 3 crore, instead of the previous limit of Rs 1 crore.