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TDS: Tax Deducted At Source

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Introduction:

  • The concept of TDS was introduced with an aim to collect tax from the very source of income. As per this concept, a person (deductor) who is liable to make payment of specified nature to any other person (deductee) shall deduct tax at source and remit the same into the account of the Central Government.
  • The deductee from whose income, tax has been deducted at source would be entitled to get credit of the amount so deducted, on basis of Form 26AS or TDS certificate issued by the deductor.
What: Tax will be deducted at the source.

Who: Buyer/ Service Receiver (Deductor) will deduct the TDS at the time of making the specific payment to Seller/Service Provider (Deductee)

Where: At the time of following payments: (If payment exceed the limit mentioned under the section of TDS provided there is no exception to the rule.)
  • Salaries
  • Interest payments by banks
  • Commission payments
  • Rent payments
  • Consultation fees
  • Professional fees etc.

    • When: Date of Bill Received or date of Payment whichever is earlier.

    Why: “Pay as you earn” TDS helps reduce the burden of filing tax for a deductee and make sure that the Government receives stable revenues. TDS minimize tax evasion by taxing the income (partially or wholly) at the time it is generated rather than on a later date.

    TDS Sections Under IT Act

    TDS Rules

    • TAN stands for Tax Deduction Account Number. It is a 10 digits alphanumeric number required to be obtained by all persons who are responsible for deducting or collecting tax.
    • Tax Deducted at Source should be deposited using Challan ITNS-281 on the government portal on or before the due date.
    • Due date of Challan: 7th day of the subsequent month (April-Feb) 30th April for TDS of March month
    • 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 24Q – Salary
    • Form 26Q – Other than salary
    • Form 27Q – TDS on all payments made to non-residents except salaries
    • Form 26QB – TDS on sale of property
    • Form 26QC – TDS on rent
    • The due dates for all the TDS Returns except Form 26QB and Form 26QC are the same and as follows:

    Due date for Form 26QB and Form 26QC are 30 days from the end of the month in which TDS is deducted.

    • TDS Certificate: Every person Deducting Tax at Source (TDS) is required as per Section 203 to issue a certificate to the payee (a person to whom money is paid or is to be paid) to the effect that tax has been deducted along with certain other particulars. This certificate is usually called the TDS certificate. There are four types of TDS certificates that individuals receive in a Financial Year:
    • Form 16
    • Form 16A
    • Form 16B
    • Form 16C

    Accounting Impact

    Entries in the books of buyer (Deductor) (Professional Fees)

    Entry at the Time of Booking of theExpenses:
    Professional Fees A/c  Dr.   100,000
    CGST/IGST/SGST A/c  Dr.              18,000
    To TDS Payable A/c    10,000
    To Vendor’s A/c    108,000
    (Being expenses booked and TDS @10% deducted on Prof. Fees)
    • Payment to vendor:
    Vendor’s A/c  Dr.  108,000
    To Bank  108,000
    (Paid to Vendor via bank)
    • TDS Payment Entry:
    TDS Payable A/c  Dr. 10,000
    To Bank  10,000
    (TDS paid to Govt.)

    Effect on Financials:
  • TDS Payable needs to be shown in liability side of Balance sheet until actual paid to the Govt.

  • TDS Payable cannot be adjusted by TDS Receivable.
    • Entries in the books of Seller (Deductee) (Professional Fees)

    Entry of Providing/Selling the services/goods: Vendor’s A/c  Dr.  118,000
    To Professional Fees A/c  100,000
    To CGST/IGST/SGST A/c    18,000
    (Being invoice raised for Professional services rendered)
    • Payment Received:
    Bank A/c  Dr.     108,000
    TDS Receivable A/c Dr.     10,000
    To Vendor    118,000
    (Payment received by vendor)

    Effect on Financials:
  • TDS receivables have to be shown in the balance sheet in the asset side until the Income Tax assessmen

  • TDS Receivable will be adjusted with Tax Liability.

    • Provision of non- compliances

    • Consequences of non-deduction of TDS: If a person who was responsible for deducting tax at source fails to do so, then the ASSESSING OFFICER has powers to disallow whole of such expenditure for ascertaining taxable profits.
    • Late deduction of TDS:  In cases of late deduction of tax, interest @ 1% per month (and part of the month) of the TDS amount subject to the maximum amount of TDS is levied.
    • Late payment of TDS: Tax is to be deducted and paid to the credit of government on and before the due date then interest @ 1.5% per month (and part of the month) of TDS amount subject to the maximum amount of TDS is levied.
    • Late filing of return of TDS: Fees under section 234E are levied @ Rs 200/- per day subject to a maximum amount of TDS until the return is filed.
    • Penalty for late filing of TDS return: Assessing officer may direct a person who fails to file the statement of TDS within due date to pay a penalty minimum of Rs. 10,000 which may extend to Rs.1,00,000. The penalty under this section is in addition to the penalty u/s 234E and also covers the cases of incorrect filing of TDS return.