Any persons responsible for making specified payment (check here specified payment) as prescribed in income tax are liable to deduct tax at source. The obligation to deduct tax at source is upon the person responsible for paying the income/amount which is subject to TDS.
In simple language
- Two parties i.e. Payer and Payee.
- Payer makes payment to payee.
- Payer deduct TDS (tax deduction at source) means tax at the time of payment to payee.
- Payer responsible to pay this TDS/tax to government.
What is the rate of TDS?
Its depends on the nature of payment you are paying. For example if you are paying salary then the tds rate will be applicable as per income tax slab. (See income tax slab here). If you are paying commission to someone then the TDS rate will be applicable as prescribed on commission i.e. 5% under section 194H. (See TDS on commission here). Check TDS Rates here
Who are Liable to Deduct TDS?
The following persons are liable to deduct TDS and deposit to government on behalf of deductee. Income Tax Act require specified persons to deduct tax on particular types of payments being made by them. The list of such persons requiring to make TDS is contained in TDS provision listed here. The following are the specified person who are liable to deduct TDS.
- Any person other than individual & HUF
- Individual and HUF required to deduct TDS, if last year turnover exceed Rs.1 Crore in case of business or Rs.50 lakh in case of profession.
Responsibilities of Payer / TDS Deductor
- Persons who are liable to deduct TDS as per above stated conditions must apply for allotment of ‘TAX DEDUCTION AND COLLECTION ACCOUNT NUMBER’ (TAN) in form No. 49B within one month from the end of the month in which tax was deducted. TAN is mandatory to mention on all transaction related to TDS like TDS certificate, TDS Returns and other related documents. There is penalty of Rs. 10,000 on failure to apply TAN. Apply TAN online here (NSDL official website)
- He is to deduct tax from the income/payment mentioned in the various sections.
- The amount so deducted should be deposited in challan no.281
- The payer should prepare such statement/returns and file the same with the specified period. (Check TDS return due dates)
When Payee’s PAN not Available?
If payee does not furnish his PAN to the payer, the TDS rate shall be as follows:
- (i) Rate as per respective section of TDS or (ii) Rate @20% whichever is higher
- For section 194-O/194Q rate is 5% instead of 20%
If the payment is made by the payer without TDS, then payee shall be responsible to make payment of tax directly. However, if the tax has been deducted by payer, but not deposited with Government, then payee cannot be called up on to pay that much tax.
There are also some conditions where is no liability of deductor to deduct TDS as follows.
- On declaration furnished by payee on Form 15G or 15H as the case may be
- On certificate issued by ITO
- Payment to Government/RBI/Statutory Corporation etc.
- Exempt Incomes
- Interest Payment by Offshore Banking Unites
- Payment to New Pension System Trust
- Notified payment to Notified Institutions/Associations