💳 TDS Compliance: A Complete How-To Guide

What is TDS and When to Deduct

Tax Deducted at Source (TDS) is a mechanism where the payer deducts tax before making payment to the payee. The deducted tax is deposited with the government on behalf of the payee. This ensures tax collection at the source of income generation.

Who must deduct TDS? Companies, LLPs, and businesses whose turnover/gross receipts exceed ₹1 Cr (₹50 lakh for professionals) in the previous financial year. Some TDS sections apply to all businesses regardless of turnover.

Common TDS Sections & Rates

• Section 194C: Payment to contractors - 1% (individual/HUF) or 2% (company). Threshold: ₹30,000 per transaction or ₹1L annually
• Section 194J: Professional/technical services - 2% or 10% (royalty/technical services). Threshold: ₹30,000 per transaction
• Section 194H: Commission/brokerage - 5%. Threshold: ₹15,000 annually
• Section 194I: Rent - 2% (plant/machinery), 10% (land/building). Threshold: ₹2.4L annually
• Section 192: Salary - As per slab rates with standard deduction
• Section 194A: Interest (other than salary) - 10%. Threshold: ₹5,000 (₹40,000 for banks)
• Section 194Q: Purchase of goods - 0.1%. Threshold: ₹50L annually (applicable from FY 2021-22)

TDS Deduction & Payment Process

Step 1: Identify if payment requires TDS deduction. Check applicable section and threshold.

Step 2: Obtain PAN from payee. TDS rate is 20% if PAN not provided (instead of normal rates).

Step 3: Deduct TDS at the time of payment or credit, whichever is earlier.

Step 4: Deposit TDS online via Challan 281 using net banking. Use correct TAN, section code, and assessment year.

Step 5: Payment due dates - 7th of next month (for companies), 30th of next month (for non-companies). Exception: March TDS can be paid by April 30.

TDS Return Filing

Quarterly TDS returns must be filed using Form 24Q (salary), 26Q (non-salary payments to residents), 27Q (payments to non-residents), or 26QB (property purchase).

Filing deadlines:

• Q1 (Apr-Jun): July 31
• Q2 (Jul-Sep): October 31
• Q3 (Oct-Dec): January 31
• Q4 (Jan-Mar): May 31

Filing process: Prepare return using RPU (Return Preparation Utility) or approved software. Validate the file, generate FVU (File Validation Utility), and upload on TRACES portal. E-file using digital signature (companies) or EVC (non-companies).

TDS Certificates

Form 16: Annual TDS certificate for salary. Issue by June 15 to all employees. Contains employment details, salary breakup, and TDS deducted.

Form 16A: TDS certificate for non-salary payments. Issue quarterly within 15 days of return filing. Download from TRACES after successful return filing.

Deductee's responsibility: Recipients must verify TDS credit in Form 26AS and annual tax return. Mismatch can delay refunds.

Penalties for Non-Compliance

• Non-deduction of TDS: 100% of TDS amount (Section 271C)
• Late payment of TDS: Interest at 1.5% per month from due date till payment (Section 201(1A))
• Late filing of TDS return: ₹200 per day (max ₹1L for companies, ₹50,000 for others) under Section 234E
• Non-filing of TDS return: Penalty of ₹10,000 to ₹1,00,000 under Section 271H
• Incorrect information in TDS return: ₹10,000 to ₹1,00,000 (Section 271H)
• Not issuing TDS certificate: ₹100 per day till issuance (Section 272A)
• Disallowance of expense: If TDS not deducted/paid, expense disallowed under Section 40(a)(ia)