Withholding Tax in India

Any payer deducting an amount directly from its payee’s earning is referred to as Withholding tax. By law, the payer is obliged to deduct the amount at the time of making the payment on account of a Non-Resident Individual. Let’s learn about withholding taxes in further detail.

What is Withholding tax

Withholding tax is similar to Tax Deducted at Source (TDS). Withholding tax also known as retention tax is another terminology used for TDS. It is deducted by the payer directly from its payee’s earning. This tax is then deposited as part of the Non- resident individual’s tax liability to the Central government of India. The central government of India is an official body to levy and collect taxes.

For better understanding, TDS has to be paid by Residents, and withholding tax is to be paid by Non-resident individuals only on income earned in India.

Example: Mr. Rohan is an NRI and is working as a freelancer with Mr. Shah & Co. in India. Mr. Rohan has earned INR 95000 by providing his services. Now, while making the payment Mr. Shah & Co. will credit INR 90000 to Mr. Rohan’s account and deduct INR 5000 as withholding tax.

Rates of Withholding tax in India

Following are the rates applicable for Non- Resident Indian individuals:

  • 20% Interest rate is applicable for dividends paid by domestic companies
  • 10% rate is applicable for technical services are charged
  • 10% rate is applicable for other services
  • Individuals are charged 30% rate of the Income
  • Companies are charged 40% rate of the Income
  • No tax charged for royalties

Note: The above stated rates are applicable on those countries with whom India does not have a double taxation avoidance agreement.

Process of doing an assessment for Non-resident Indians

Assessment of Non- Resident Indians can be done by an agent or even directly. A person who is considered as ‘agent‘ of a non-resident assessee is as under:

  • Employee or trustee of a Non-resident Indian
  • Any individual who has any business connection with a Non-resident
  • Any person through whom a Non-resident is receiving any income
  • Any person who has acquired or purchased any capital asset in India from a Non-resident.

Due date of Filing returns

The returns for withholding of tax are filed quarterly, and it includes details about every payee and amount deducted for that particular quarter.

Following are the dates of filing the returns for every quarter:

Quarter Months Due Dates
Q1 April – June July 15th, 2021
Q2 July – September October 15th, 2021
Q3 October – December January 15th, 2021
Q4 January – March  May 15th, 2021

Due date of depositing payment

Following are the due dates of making payments of withholding tax:

Month End of Quarter Withholding Tax Payments Due Date – Government  Withholding Tax Payments Due Date – Non- Government 
January 31st March 7th February 7th February
February 31st March 7th March 7th March
March 31st March 7th April 30th April
April 30th June 7th May 7th May
May 30th June 7th June 7th June
June 30th June 7th July 7th July
July 30th September 7th August 7th August
August 30th September 7th September  7th September 
September 30th September 7th October 7th October
October 31st December 7th November 7th November
November 31st December 7th December 7th December
December 31st December 7th January 7th January

FAQs

What is the difference between TDS and withholding tax?

TDS is applicable while making payments to Indian Citizens while Withholding tax is applicable while making payments to foreign individuals.

What is the rate of withholding tax in India?

Following are the rates applicable for Non- Resident Indian individuals:
1. 20% Interest rate is applicable for dividends paid by domestic companies
2. 10% rate is applicable for technical services are charged
3. 10% rate is applicable for other services
4. Individuals are charged a 30% rate of the Income
5. Companies are charged 40% rat of the Income
6 . No tax charged for royalties

When should I make payment for withholding tax?

Withholding tax payment has to be done on the 7th of every month. While returns are to be filed within 30 days from the ending of every quarter.

Due Dates to deposit TDS & Late Filing Penalty

The deductors/payers need to deduct TDS from a specific type of payment. Hence they need to keep in mind following TDS Return Due Dates:

  1. TDS Deposit Due Dates
  2. TDS Return Filing Due Dates

Due Dates to deposit TDS

Month End of Quarter TDS Payments Due Date – Government  The TDS Payments Due Date – Non- Government  TDS Return Filing Due Date 
January 31st March 7th February 7th February 31st May

31st July – Q4 ending March 2020

February 31st March 7th March 7th March 31st May

31st July – Q4 ending March 2020

March 31st March 7th April 30th April 31st May

31st July – Q4 ending March 2020

April 30th June 7th May 7th May 31st March 2021
May 30th June 7th June 7th June 31st March 2021
June 30th June 7th July 7th July 31st March 2021
July 30th September 7th August 7th August 31st March 2021
August 30th September 7th September  7th September  31st March 2021
September 30th September 7th October 7th October 31st March 2021
October 31st December 7th November 7th November 31st Jan
November 31st December 7th December 7th December 31st Jan
December 31st December 7th January 7th January 31st Jan

Due Dates for Filing TDS Return

Quarter Months Due Dates
Q1 April – June 31 March 2021
Q2 July – September 31 March 2021
Q3 October – December 31 January 2021
Q4 January – March 31 May 2021

In case of the sums deducted by an office of the government without challan should deposit the same on the day of deduction.

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Due Dates for TDS Return for Q1 of FY 2020-21

Amid the Corona Virus pandemic, the Income Tax Department has issued a statement to clarify that the TDS Return due date for Q1 and Q2 for FY 2020-21 is 31st of March, 2021. Hence, the revised due dates as per the CPC Income Tax for Q1 and Q2 for FY 2020-21 are as per the below table:

Nature of Compliance Original Due Date New Due Dates
Form 24Q, 26Q, 27Q and 27EQ of Q4 of FY 2019-20 31st May, 2020 31st July, 2020
Form 24Q, 26Q, 27Q and 27EQ of Q1 and Q2 of FY 2020-21 As per rule 31A/31AA 31st March, 2021
Form 26QB, 26QC, and 26QD of February 2020 30th March, 2020 31st July, 2020
Form 26QB, 26QC, and 26QD of March 2020 30th April, 2020 31st July, 2020
Form 26QB, 26QC, and 26QD of April to November 2020 30 days from end of month in which tax is deducted 31st March, 2021
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Penalties for Late Deposit and Late Filing of TDS Return?

Following are the penalties applicable in case one have not deposited TDS on or before the due date or have not filed the TDS Return in time:

  • Late Filing Fee
  • Interest (When deduction or deposit of TDS does take place on time)
  • Penalty (When TDS return is not filed within one year from the due date)

TDS Return Late Filing Fee

Taxpayers who do not file the TDS return on or before the due date will have to pay a fine of INR 200 per day under section 234E per day until they file the return. Provided that the fine amount shall not exceed the amount of TDS taxpayer needs to pay.

Example

Mr. A who is an employer forgot to pay TDS of INR 8,500 on 15th July. And he paid the same on 21st December. Hence, Late filing fees will be equal to INR 31,800 (159 Days* INR 200) or INR 8,500 whichever is less.

Scenario Interest subject to TDS/TCS amount Period for which interest is to be paid
When TDS is not deducted
1% per month or part thereof From the date on which TDS is deductible to the date on which TDS is actually deducted
When TDS is deducted but payment is made lately 1.5% per month or part thereof From the date on which TDS is actually deducted to the date on which such TDS is actually paid

In case your TDS payable is INR 10,000 and the date of deduction of TDS is 20th April and you pay the TDS on 7th July.

Interest u/s 201(1A)= INR 10,000 * 1.5%p.m. * 4 months INR 600

Points to be keep in mind while calculating Interest:

  • For calculating Interest amount, Interest rate is calculated on monthly basis i.e; part of the month is considered as a full month.
  • For calculating the number of months, the date on which TDS was deducted should be considered and not the TDS due date.
  • Interest should be paid before filing of TDS Return

Penalty for Late Filing of TDS Return

  • Penalty Under Section 234E
    • The penalty of INR 200 per day is levied on the taxpayer till the day on which return is filed. Provided that the amount of Penalty should not exceed the number of TDS payable.
  • Penalty Under Section 271H
    • Assessing officer may direct a person who fails to file the return within the due date to pay a penalty minimum of INR 10,000 which may extend to INR 1,00,000. The penalty under this section is also applicable to the cases of incorrect filing of TDS return. Penalty u/s 271H will not be levied in case of delay in filing the TDS/TCS return if the following conditions are matched:
  1. The TDS/TCS is paid to the credit of the Government.
  2. Late filing fees and interest is paid to the credit of the government.
  3. The TDS/TCS return is filed before the expiry of a period of one year from the due date specified.
  • Prosecution Under Section 276B
    • If a person fails to pay to the credit of the Central Government, The Tax deducted at source by him as required by or under the provisions of Chapter XVII-B, he shall be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years and with fine.

FAQs

What if deductors fail to deposit to fail the TDS to Income-tax Department?

In case your employer has not deposited TDS to the Income Tax Department, it will not be reflected in your Form 26AS. Hence the option of taking a tax credit of the TDS while filing your income tax return isn’t available.

How is TDS on FD calculated?

If your interest amount is in excess of INR 10,000, a 10% TDS is calculated on that amount for AY 2019-2020. If PAN Card is not provided to the bank, a TDS of 20% on Fixed Deposits is levied.

What is the TDS limit for Senior Citizens?

For Senior Citizens aged above 60, TDS will only be deducted if the interest income exceeds INR 50,000 in a given financial year.

What is Tax Collected At Source (TCS)?

Tax Collected at Source (TCS) is an income tax, collected by the seller of specified goods, from the buyer. TCS is a concept where a person selling specific items is liable to collect tax from a buyer at a prescribed rate and deposit the same with the Government.

Let’s take an example to understand the concept of TCS:

Ram purchases jewellery from Yash of Rs. 7,00,000. Here, as per the provisions of TCS Ram would be liable to pay Rs. 7,07,000 to Yash ( Rs. 7,00,000 for jewellery and Rs. 7,000 as TCS at the rate of 1%).

Who needs to collect TCS (Tax Collected at Source)?

Every seller of specified goods shall collect TCS from the buyer of the goods. TCS will be collected:

  1. At the time of debiting the amount payable by the buyer or
  2. At the time of receipt of such amount from buyer, whichever is earlier.
As per section 206CCA, if the aggregate of TDS and TCS for collectee is INR 50000 or more in each of these two previous years and collectee has not filed the returns of income for two previous years immediately prior to the previous year in which tax is required to be collected then he would suffer deduction at higher of the rates of deduction as below: At twice the rate or rates in force; or At the rate of 5%
Tip
As per section 206CCA, if the aggregate of TDS and TCS for collectee is INR 50000 or more in each of these two previous years and collectee has not filed the returns of income for two previous years immediately prior to the previous year in which tax is required to be collected then he would suffer deduction at higher of the rates of deduction as below: At twice the rate or rates in force; or At the rate of 5%

Below is the list of specific goods on which TCS is applicable:

Section 206C(1)

SR No Item Description Rate if PAN Available Rate if PAN not Available with Resident / Resident who has not filed a return in last 2 AYs
1 Alcoholic Liquor for human consumption 1.00% 5.00%
2 Timber wood obtained under a forest lease 2.50% 5.00%
3 Tendu leaves 5.00% 10.00%
4 Timber wood obtained by any mode other than forest leased 2.50% 5.00%
5 A forest produce other than Tendu leaves and timber 2.50% 5.00%
6 Scrap 1.00% 5.00%
7 Minerals, being coal or lignite or iron ore 1.00% 5.00%

Notes

  • TCS has to be collected if the seller being individual or HUF is having turnover > INR 1 Cr for business or turnover > INR 50L for the profession. However, if the seller is a Public sector company, Central Government, State Government, and an embassy, High Commission, Legation, commission, Consulate and the trade representation, of a foreign State and a club or a person who purchased goods for personal consumption there is no such condition which means they always need to collect TCS on sale of specified items
  • Seller also includes:
    • Central Government
    • State Government
    • Local Authority
    • Corporation
    • Company or
    • Firm or
    • Co-Operative society 
  • The buyer does not include:
    • Public sector company, Central Government, State Government, and an embassy, High Commission, Legation, commission, Consulate, and the trade representation, of a foreign State and a club or a person who purchased goods for personal consumption

Section 206(1C)

SR No Item Description Rate if PAN Available Rate if PAN not Available with Resident / Resident who has not filed return in last 2 AYs
1 Parking lot and Toll Plaza 2.00% 5.00%
2 Mining and Quarrying (Except mineral oil like petroleum and natural gas) 2.00% 5.00%

Section 206C(1F)

SR No Item Description Rate if PAN Available Rate if PAN not Available with Resident / Resident who has not filed a return in last 2 AYs
1 Purchase of Motor vehicle exceeding Rs. 10 Lakhs 1.00% 5.00%

Notes

  • TCS has to be collected if the seller being individual or HUF is having a turnover of individual/HUF business > INR 1 Cr or profession > INR 50L
  • The seller also includes
    • Central Government
    • State Government
    • Local Authority
    • Corporation
    • Company
    • Firm
    • Co-Operative society 
  • Buyer does not include Public sector company, Central Government, State Government, and an embassy, High Commission, Legation, commission, Consulate and the trade representation, of a foreign State and a club

Section 206C(1H)

SR No Item Description Rate if PAN Available Rate if PAN not Available with Resident / Resident who has not filed a return in last 2 AYs
1 Sale of goods (except exports and those mentioned In sub-section (1) and (1F) 0.10% 1.00%

Notes

  • TCS has to be collected if the seller being individual or HUF is having a turnover of more than INR 10 crores in PY
  • The buyer must deposit the TCS if the purchasing value of the goods is greater than INR 50L in a year
  • The buyer does not Include Central Government, State Government, and an embassy, High Commission, Legation, commission, Consulate and the trade representation, of a foreign State or local authority or a person who is importing goods in India

Tax credit in Form 26AS would be available to the buyer. The buyer can claim this TCS at the time of filing ITR. The tax credit is only available once the seller deposits the tax to the IT Department and files the TCS Return.

Who is the seller under Tax Collected at Source (TCS)?

Below is the list of sellers under TCS:

  1. The Central and State Government
  2. Local authority
  3. Statutory corporation or Authority
  4. Company
  5. Partnership Firm
  6. Co-operative society
  7. Individual or Hindu undivided family(HUF) if covered under section 44AB (mandatory Audit)

The seller/collector of TCS is responsible to file TCS Return/ Statement. The seller needs to file Form 27EQ within prescribed due dates.

Who is the buyer under Tax Collected at Source (TCS)?

According to the act, the Buyer means a person who obtains in any sale, by way of auction, tender or any other mode, the specified goods or right to receive any such goods. But it does not include:

  1. Public sector company,
  2. Central/State Government
  3. Embassy, a High Commission, legation, consulate and the trade representation of a foreign state
  4. A Club
  5. A buyer in the retail sale of such goods purchased for personal consumption.

What is Lower Rate TCS?

The buyer of a specified product can apply to his Assessing Officer (AO) for collecting tax at a lower rate, by making an application in Form 13. AO will issue a lower rate certificate. The certificate is valid until the time it is not canceled by the AO.

Who is exempt from TCS?

  • TCS is not applicable if the buyer uses it for the purpose of manufacturing, processing or production of goods/ article or thing.
  • In this case buyer gives a declaration for above use in duplicate in Form 27C to the seller.
  • And the seller should deliver one copy of from 27C collected from buyer to Chief Commissioner/ Commissioner of Income Tax.

FAQs

1. What is TCS certificate?

It is a certificate issued by the seller collecting tax at source from the buyer. The certificate of collection of tax at source has to be submitted in Form No. 27D by the seller within a week from the last day of the month in which the tax was collected.

2. How to retrieve lost TCS Certificate??

If an issued TCS certificate is lost, the person collecting tax at source may issue a duplicate certificate on plain paper, with necessary details as contained in Form No. 27D. The Assessing Officer (AO), before giving credit for the tax collected at source on the basis of the duplicate certificate, has to get the payment certified and obtain an Indemnity Bond from the assessee.

3. How to file TCS Return?

The seller/Collector is required to file a quarterly return in form 27EQ on or before the due date. The seller can file TCS return in following two ways:
1. Using Return Preparation Utility (RPU) provided by TIN NSDL,
2. Using online platforms like Quicko.

4. IS TCS applicable in case of purchase of Jewellery?

In case of purchase of jewellery, tax is collected by seller if the purchase amount exceeds Rs. 5 lakhs Or when any amount is paid in cash to the jeweller.

5. Is TCS applicable on purchase of second hand car?

TCS is applicable on the purchase of a second-hand car if its values is above Rs. 10,00,000. TCS is applicable @ 1% on total value.

What is Tax Deducted At Source (TDS)?

What is Tax Deducted at Source – TDS?

The concept of TDS or Tax Deducted at Source 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 the basis of Form 26AS or TDS certificate issued by the deductor.

How is TDS deducted?

The Payer making a payment of specific nature withholds a percentage of the total amount payable. The payer is also known as “Deductor”. The payee whose TDS is deducted is known as “Deductee”. TDS needs to be deducted on the following type of payment:

TDS Calculator
TDS (Tax Deducted at Source) is a part of Income Tax. TDS should be dedcuted by a person for specific payments made.
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TDS Calculator
TDS (Tax Deducted at Source) is a part of Income Tax. TDS should be dedcuted by a person for specific payments made.
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Example

ABC Pvt Ltd needs to make payment of INR 50,000 to Jay for his professional services. Then in this case, ABC Pvt Ltd (Payer/ Deductor) needs to deduct TDS at 10% on INR 50,000 i.e, INR 5,000. And make payment of INR 45,000 (INR 50,000 – INR 5,000) to Jay (Payee/ Deductee).

Who needs to deduct TDS?

The Payer/ Deductor has to deduct TDS before making payment to a payee. The payer needs to obtain TAN for depositing and filing TDS Return. Following persons are required to deduct TDS:

  • Corporate/ Company
  • Firm
  • Government Offices
  • Individuals if covered under section 44AB (mandatory audit)

Tax Deducted at Source (TDS) on Salary

Every employer needs to deduct TDS on salary payments made to employees. The TDS on Salary comes under Section 192. And employer needs to file TDS Return in Form 24Q quarterly.

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Here is the brief overview on how the total amount of TDS on Salary is decided.

Section TDS Rate TDS Applicability
Section 192 Applicable Income Tax Slab Rate
  • When the estimated income of the employee is taxable, TDS is deducted.
  • Employer is not allowed to deduct tax on non-taxable allowances (for eg. conveyance allowance, rental allowance, medical allowance etc..)
  • If the estimated total income of the employee is less than the minimum taxable income, no TDS is deducted. (Which is INR 2,50,000/- in case of Individual, HUF, AOP, BOD and AJP. Nil for others.)

As mentioned in the table, if you have any investments (which fall under Section 80) or life events that call for official allowances (Such as your child’s school fees or your wife’s medical treatment), then you can claim deductions. To claim the same you need to provide the relevant documents to your employer. It will also be mentioned in your Form 16. Form 16 issued by the employer is Proof of TDS Deduction and Salary Payments. It is used to file ITR by employees.

Let’s understand how the employer would calculate the TDS liability of the employee:

Particulars Amount (in INR)
1. Income from Salary 8,00,000
2. Tax Deductible Investments and Payments  
a. ELSS 25,000
b. PPF 15,000
c. Insurance premium 17,500
d. Home Loan principal repayment 90,000
e. Home Loan interest 1,30,000
3. Total taxable income (1-2) 5,22,500
4. Tax liability as per slab rates 30,385
5. Monthly TDS deducted by the employer (4 / 12 months) 2532

Tax Deducted at Source on Income other than Salary

There are various payments other than salary for which TDS is deducted such as professional fees, contract payments, commission or brokerage, property transaction etc.. TDS rates vary by nature of payment.

In the case of TDS payment other than salary, details of TDS can be found in Form 16A. It should be furnished by the deductor within fifteen days from the due date for furnishing the ‘statement of TDS’ under rule 31A. You will read about it in the next section.

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Due Date to Deposit TDS

The following table displays the due date to deposit TDS:

Month End of Quarter TDS Payments Due Date – Government  The TDS Payments Due Date – Non- Government 
January 31st March 7th February 7th February
February 31st March 7th March 7th March
March 31st March 7th April 30th April
April 30th June 7th May 7th May
May 30th June 7th June 7th June
June 30th June 7th July 7th July
July 30th September 7th August 7th August
August 30th September 7th September  7th September 
September 30th September 7th October 7th October
October 31st December 7th November 7th November
November 31st December 7th December 7th December
December 31st December 7th January 7th January

Due Date to File TDS Return

Nature of Compliance Original Due Date New Due Dates
Form 24Q, 26Q, 27Q and 27EQ of Q4 of FY 2019-20 31st May, 2020 31st July, 2020
Form 24Q, 26Q, 27Q and 27EQ of Q1 and Q2 of FY 2020-21 As per rule 31A/31AA 31st March, 2021
Form 26QB, 26QC, and 26QD of February 2020 30th March, 2020 31st July, 2020
Form 26QB, 26QC, and 26QD of March 2020 30th April, 2020 31st July, 2020
Form 26QB, 26QC, and 26QD of April to November 2020 30 days from end of month in which tax is deducted 31st March, 2021

What is TDS Certificate?

TDS certificates are 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.

What are the different types of TDS Returns?

The Income Tax Department has notified different TDS Returns/ Statements to be filed by the payer/ deductor within prescribed due dates. The quarterly returns/statements of the TDS should be submitted in the following forms:

Type of Payment Return Type
Salary Payments Form 24Q
Payments other than Salary to a Resident Form 26Q
Payments other than salary to NRI Form 27Q
Tax Collected at Source Form 27EQ
Payment on Sale of Property (by Individuals) Form 26QB
Payment of Rent on Property (by Individuals) Form 26QC
Payment to Contractor or Professional (by Individuals) Form 26QD

FAQs

1. Do I need to file my income tax return if my TDS is deducted by my employer?

Yes. It is very common for salaried individuals to have all their taxes deducted by their employer in form of TDS. Still you should file income tax return to claim any refund and/or carry forward any losses.

2. How to deposit TDS online?

– Go to TIN-NSDL, select Challan No./ ITNS 281 and enter TAN, Assessment Year and Personal Information.
– Select Type Of Payment and Nature Of Payment
– Select Bank Name and you will be redirected to the net banking site, make payment and Save Challan 281 for your records.

3. What is TDS Certificate?

TDS Certificate is a certificate issued by the person/deductor responsible for deducting tax at source. When TDS is deducted it is important to issue TDS Certificate. From TDS Certificate deductee knows how much TDS has been deducted by the deductor. Some of the examples of TDS Certificate are Form 16, Form 16A, Form 16B.

4. How to check my TDS Credit?

The deductor/employer is liable to give you a TDS Certificate i.e; Form 16, Form 16A confirming the amount of tax deducted. You can also check your TDS credit from your Form 26AS by login to your income tax e-filing account.

Why am I receiving SMS alerts from VK-ITDEFL?

ITD has been sending SMS to the taxpayers from VK-ITDEFL that mentions the amount of TDS against the PAN of the taxpayer. It lets you know the TDS credited in respect of your income from salary, interest etc., every quarter. The amount of TDS would stand accumulated in your Form 26AS for the respective financial year. This initiative was implemented by the Finance Ministry to increase transparency and reduce the cases of TDS mismatches at the time of income tax filing.