Section 194K : TDS on Dividend from Mutual Funds

What is Section 194K?

Under Budget 2020 applicable from 1st April 2020 i.e. FY 2020-21, Dividend Distribution Tax – DDT was abolished. As a result, the dividend received on equity shares and mutual funds which were earlier exempt under Section 10(35) of the Income Tax Act is now taxable at slab rates. It is taxable in the hands of the shareholder. Since the income would be taxable in the hands of the shareholder, TDS would be applicable. As a result, the Finance Minister introduced a new Section 194K to deduct TDS on Dividend from Mutual Funds.

As per section 206AA if the deductee fails to provide the PAN to deductor then he would suffer deduction at higher of the rates of deduction as: At the rate specified in the relevant provision of the Act, or, At the rate or rates in force, i.e., the rate prescribed in the Finance Act (Finance Act 2019 for FY 2019-20), or At the rate of 20%
Tip
As per section 206AA if the deductee fails to provide the PAN to deductor then he would suffer deduction at higher of the rates of deduction as: At the rate specified in the relevant provision of the Act, or, At the rate or rates in force, i.e., the rate prescribed in the Finance Act (Finance Act 2019 for FY 2019-20), or At the rate of 20%

The person paying dividends on mutual funds should deduct TDS u/s 194K. The deduction is at 10% on the number of dividends, only if a resident shareholder’s total dividend in a financial year exceeds INR 5,000. Section 194K is applicable from 1st April 2020 i.e. FY 2020-21 onwards.

As per section 206AB, if the aggregate of TDS and TCS for deductee is INR 50000 or more in each of these two previous years and deductee has not filed the returns of income for two previous years immediately prior to the previous year in which tax is required to be deducted then he would suffer deduction at higher of the rates of deduction as: At twice the rate specified in the relevant provision of the Act; or At twice the rate or rates in force; or At the rate of 5%
Tip
As per section 206AB, if the aggregate of TDS and TCS for deductee is INR 50000 or more in each of these two previous years and deductee has not filed the returns of income for two previous years immediately prior to the previous year in which tax is required to be deducted then he would suffer deduction at higher of the rates of deduction as: At twice the rate specified in the relevant provision of the Act; or At twice the rate or rates in force; or At the rate of 5%

Section 194K – TDS on Dividend from Mutual Funds

  • Deductor
    • Mutual Fund distributing dividends to the investors of equity mutual funds should deduct TDS on such dividends. The deductor must deposit the TDS and file the TDS Return on TRACES.
  • Deductee
    • Shareholder resident in India earning dividend income on equity mutual funds will receive the amount after TDS under Section 194K. Shareholder resident in India earning dividend income on equity shares will receive the amount after TDS under Section 194. NRI investors/shareholders, earning dividend income will receive the amount after deduction of TDS under Section 195.
  • Nature of Payment 
    • Sec 194K covers Payment of Dividend on Equity Mutual Funds to a resident shareholder exceeding INR 5000 in a financial year.
  • Time of Payment
    • TDS shall be deducted at the time of credit of income to payee account or at the time of payment, whichever is earlier. If the payee of the amount credits the amount to be paid to “suspense account” or any other account, it is considered as ‘deemed payment’ and the payer must deduct TDS on such credit.
  • Rate
    • Deductor should deduct TDS u/s 194K at the rate of 10% if the dividend amount exceeds INR 5000. If the payee does not provide the PAN, TDS shall be deducted at the rate of 20%
  • TDS Certificate
    • Deductor shall issue Form 16A to the deductee as the Tax Credit Certificate of the amount deducted as TDS. The Deductor can download Form 16A from the account on TRACES. Using Form 16A, the deductee can claim credit of the tax deducted while filing Income Tax Return.
  • TDS Return
    • After depositing TDS with the income tax department, the deductor should file Form 26Q on TRACES. The details of the dividend payment are part of this report. The deductor, after filing the report, should provide Form 16A to the deductee.
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What is the meaning of ‘Income’ under Section 194K?

As per the Income Tax Act, ‘Income’ includes dividend paid on units of mutual funds specified under 10(23D) of Income Tax Act, units of mutual funds from a specified company or units of mutual funds from the administrator of the specified undertaking

There was confusion about whether the TDS under Section 194K on “Income from Mutual Funds” would include only dividends; or also include capital gains on the sale of MFs. On 4th Feb 2020, CBDT issued a clarification on this issue.

CBDT Clarification TDS at 10% should be deducted on Dividend Income only and not on Income from Capital Gains on the sale of Mutual Funds. Here is the official clarification from CBDT.

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FAQs

Are Capital Gains from the sale of Mutual Funds subject to TDS under Sec 194K ?

Sec 194K mentions TDS on ‘Income’ from Mutual Funds. There was confusion about whether capital gains income on the sale of MFs should be subject to TDS u/e 194K. However, the CBDT issued an official clarification on 02nd February 2020. Therefore, TDS needs to deducted at 10% on Dividend Income only. Additionally, it is not applicable for Income from Capital Gains on the sale of Mutual Funds.

Is TDS required to be deducted on dividend paid to NRI shareholder ?

Section 195 applies to the dividend paid to NRI investors/shareholders, as per provisions of the Income Tax Act. Hence, TDS needs to be deducted on the dividend at 20% on equity shares and equity mutual funds. Therefore, TDS has to be deducted at 10% as per Sec 194 and Sec 194K for an NRI shareholder.

Section 194J: TDS on Professional Fees

What is Section 194J?

TDS u/s 194J needs to be deducted by deductor other than an individual or an HUF, @ 10% on any amount paid or payable to any which is in excess of Rs. 30,000 as:

  1. Fees for professional services
  2. Fees for technical services
  3. Any remuneration or fees or commission by whatever name called paid to a director ( other than salary)
  4. Royalty
  5. Any sum referred to in clause (VA) of section 28.
As per section 206AA if the deductee fails to provide the PAN to deductor then he would suffer deduction at higher of the rates of deduction as: At the rate specified in the relevant provision of the Act, or, At the rate or rates in force, i.e., the rate prescribed in the Finance Act (Finance Act 2019 for FY 2019-20), or At the rate of 20%
Tip
As per section 206AA if the deductee fails to provide the PAN to deductor then he would suffer deduction at higher of the rates of deduction as: At the rate specified in the relevant provision of the Act, or, At the rate or rates in force, i.e., the rate prescribed in the Finance Act (Finance Act 2019 for FY 2019-20), or At the rate of 20%

What is the meaning of Professional fees under section 194J?

Under section 194J, Professional services are services provided by a person in course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or interior decoration or technical consultancy or advertising or such profession as is notified by the Board for the purpose of section 44AA.

Fees for Technical Services means fees paid for rendering any managerial, technical or consultancy services.

As per section 206AB, if the aggregate of TDS and TCS for deductee is INR 50000 or more in each of these two previous years and deductee has not filed the returns of income for two previous years immediately prior to the previous year in which tax is required to be deducted then he would suffer deduction at higher of the rates of deduction as: At twice the rate specified in the relevant provision of the Act; or At twice the rate or rates in force; or At the rate of 5%
Tip
As per section 206AB, if the aggregate of TDS and TCS for deductee is INR 50000 or more in each of these two previous years and deductee has not filed the returns of income for two previous years immediately prior to the previous year in which tax is required to be deducted then he would suffer deduction at higher of the rates of deduction as: At twice the rate specified in the relevant provision of the Act; or At twice the rate or rates in force; or At the rate of 5%

When to deduct TDS under section 194J?

TDS shall be deducted at the time of:

  1. Crediting the sum to payee account or
  2. Actual payment of cash or
  3. Payment made via cheque, draft or via any other source, whichever is earlier.

It shall be noted that if the payee of the amount credits the amount to be paid to “suspense account” or any other account by whatever name called, it shall be considered as deemed payment also TDS is required to be deducted on such credit.

TDS Rates under section 194J

TDS was applicable 10% on all the services. However, FY 20-21 onwards, the following changes have been made:

Deductor shall issue Form 16A in favour of the deductee as the Tax Certificate of the amount deducted as TDS.

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TDS shall be deducted at the rate of 20% in the case where the payee does not provide with the PAN.

Who is exempt from deduction of TDS u/s 194J?

Section 194J shall not apply in the following cases :

  • If the aggregate amount of services received during a financial year does not exceed Rs 30,000.
  • If the payer is an Individual or HUF. However, the section states that if the total sales, gross receipt or turnover from the business or profession exceeds the monetary limit provided u/s 44AB ( i.e 1 cr in case of business and 25 lakhs in case of the profession) both the entities shall be required to deduct TDS on the amount paid.
  • Similarly section 194J also states that no individual or HUF shall be required to deduct TDS on the amount of services acquired if they are consumed for a personal purpose/home consumption.
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FAQs

When is Section 194J is applicable?

TDS deduction u/s 194J is also applicable to following specific cases:
>Payments made to hospitals for rendering medical services.
>Payments made to HR Consultancy or Recruitment agencies.
>Advertising agencies making payment to film artist towards professional fee.
>Payment made to share registrars by companies.

What is TDS at a lower rate under section 194J?

As per section 197, the payee can apply in form no. 13 to his Assessing Officer (AO) for lower deduction of TDS ( lower than the rate specified under section 194J).
If the AO is satisfied with the justification provided by the payee, he will issue a certificate for lower deduction of income tax. Such a certificate has to be produced to the deductor for a lower rate of deduction. The payee can take a benefit of a lower rate for the period stated in the certificate.

What is the limit of section 194J?

Rs. 30,000 is the limit of section 194J. It is applicable on each item or payment independently for a particular FY.

Section 194H: TDS on Commission or Brokerage

What is Section 194H?

As per section 194H, any person except individual & HUF, who is responsible for paying to a resident any income by way of commission or brokerage, shall deduct TDS at the 10%. However, this rate of TDS has been reduced from 10% to 5% in Budget 2016. This revised rate would be applicable from financial year 2016-17. Also, no additional surcharge or education cess is required to be added to the above rate.

However Individuals and HUF are also liable to deduct TDS on commission or brokerage in case the individual or HUF is liable to get his books of accounts audited under section 44AB i.e; Turnover/ receipts exceed Rs. 25 lakhs/ 1 crore.

As per section 206AA if the deductee fails to provide the PAN to deductor then he would suffer deduction at higher of the rates of deduction as: At the rate specified in the relevant provision of the Act, or, At the rate or rates in force, i.e., the rate prescribed in the Finance Act (Finance Act 2019 for FY 2019-20), or At the rate of 20%
Tip
As per section 206AA if the deductee fails to provide the PAN to deductor then he would suffer deduction at higher of the rates of deduction as: At the rate specified in the relevant provision of the Act, or, At the rate or rates in force, i.e., the rate prescribed in the Finance Act (Finance Act 2019 for FY 2019-20), or At the rate of 20%

What is the meaning of Commission or Brokerage under section 194H?

Commission and Brokerage for the purpose of Section 194H shall be considered as payment made for services received in the course of:

  1. Buying or selling of goods
  2. Or in relation to any transaction connected to valuable article, asset or things except securities.

The Section clarifies that the services received shall not include professional services. The professional services within its ambit includes legal, profession of accountancy, technical, interior design services etc.

Commision or Brokerage includes any payment receivable or received, directly or indirectly or by a person acting on behalf of another person.

As per section 206AB, if the aggregate of TDS and TCS for deductee is INR 50000 or more in each of these two previous years and deductee has not filed the returns of income for two previous years immediately prior to the previous year in which tax is required to be deducted then he would suffer deduction at higher of the rates of deduction as: At twice the rate specified in the relevant provision of the Act; or At twice the rate or rates in force; or At the rate of 5%
Tip
As per section 206AB, if the aggregate of TDS and TCS for deductee is INR 50000 or more in each of these two previous years and deductee has not filed the returns of income for two previous years immediately prior to the previous year in which tax is required to be deducted then he would suffer deduction at higher of the rates of deduction as: At twice the rate specified in the relevant provision of the Act; or At twice the rate or rates in force; or At the rate of 5%

When to deduct TDS under section 194H?

TDS shall be deducted at the time of:

  • Actual payment of cash or
  • Crediting the sum to the payees account or
  • Issue of cheque, draft or by any other mode, whichever is Earlier.

It shall also be noted that when any payment to be made to the contractor is credited to a “ suspense Account” or any other account by whatever name called in the payer’s books of account, it shall be considered as deemed payment and also tax has to be deducted on such amount.

Who is exempt from deduction of TDS u/s 194H?

Section 194H shall not apply in the following cases :

  • If the amount paid or payable during the financial year does not exceed Rs. 15,000 as per budget 2016. Earlier the threshold limit was Rs. 5,000.
  • TDS on insurance commission shall not be deducted under this section. Since insurance commission is covered under section 194D.
  • No deduction of TDS on any commission or brokerage payable by the BSNL or MTNL to their public call office franchisees.
  • Any commision paid by the employer to the employee will be covered under section 192.
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FAQs

Under what circumstances TDS u/s 194H is not deductible?

1. No deduction shall be made under this section in a case where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year to the account of, or to the payee, does not exceed Rs. 5,000 (Rs.  2,500 up to 30.06.2010)
2. No tax shall be deducted on any commission or brokerage payable by Bharat Sanchar Nigam Ltd. or Mahanagar Telephone Nigam Ltd. to their public call office franchisees (The third proviso to section 194H inserted w.e.f. 1-6-2007)

Whether provisions of section 194H applicable to trade incentives to dealers?

Where assessee, a manufacturer of bicycles, was giving trade incentive to dealers, Tribunal was justified in holding that if dealers were selling goods at price for which they were purchasing from company, such trade incentive would amount to commission for purpose of section 194H. 

Whether TDS u/s 194H deductible on turnover commission payable by RBI to agency banks?

Tax deduction at source under section 194H should not be applicable in respect of Turnover Commission payable by the Reserve Bank of India to the Agency Banks (Banks authorized for conducting Government business) for performing the general banking business of the Central and State Governments on behalf of RBI.

Section 194IA: TDS on sale of Property

What is Section 194IA?

As per section 194IA, any transaction on or after 1st June 2013, where any buyer buys an immovable property (other than agricultural land) costing INR 50 lakhs or more, then he needs to deduct tax at a rate 1% on the purchase price.

  • The buyer as well as the seller shall be Resident of India for the purpose of the section 194IA.
  • The tax shall be deducted on the entire purchase consideration and not only on the amount exceeding INR 50 lakhs.
  • For example: Mr A has bought a land for INR 60 lakhs from Mr B. Mr A must deduct TDS on the entire amount ( 60 lakhs ) and not on INR 10 lakhs.
  • The tax shall be deducted on the payment of the consideration to the seller. The date of payment shall be earlier of:
    • Credit of purchase amount to the seller’s account or
    • At the time of actual payment by cash, cheque, draft or by any other mode.
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It shall also be noted that if the payment of consideration is via instalments the TDS shall be deducted on payment of each instalment. The same applies to the payment of advance in case of purchase of immovable property (other than agricultural land). The amount to the seller shall be paid net of TDS

As per section 206AB, if the aggregate of TDS and TCS for deductee is INR 50000 or more in each of these two previous years and deductee has not filed the returns of income for two previous years immediately prior to the previous year in which tax is required to be deducted then he would suffer deduction at higher of the rates of deduction as: At twice the rate specified in the relevant provision of the Act; or At twice the rate or rates in force; or At the rate of 5%
Tip
As per section 206AB, if the aggregate of TDS and TCS for deductee is INR 50000 or more in each of these two previous years and deductee has not filed the returns of income for two previous years immediately prior to the previous year in which tax is required to be deducted then he would suffer deduction at higher of the rates of deduction as: At twice the rate specified in the relevant provision of the Act; or At twice the rate or rates in force; or At the rate of 5%

Example of TDS on sale of Property u/s 194IA

Mr Parth purchases an immovable property from Mr Suraj for INR 70 lakhs and the payment of consideration is made in the following manner:

Date of payment Nature of Payment TDS Rate
1/1/2017 Advance 10 Lacs
1/2/2017 First Installment 30 Lacs
1/3/2017 Second Installment 30 Lacs

In the current scenario the TDS u/s 194IA shall be deducted at 1% in each case of payment whether it is by way of advance or an instalment.

For an instance the amount paid as advance on 1/1/2017, the tax of INR 10,000 shall be deducted and net payment of INR 9,90,000 shall be made to the seller.

As per section 206AA if the deductee fails to provide the PAN to deductor then he would suffer deduction at higher of the rates of deduction as: At the rate specified in the relevant provision of the Act, or, At the rate or rates in force, i.e., the rate prescribed in the Finance Act (Finance Act 2019 for FY 2019-20), or At the rate of 20%
Tip
As per section 206AA if the deductee fails to provide the PAN to deductor then he would suffer deduction at higher of the rates of deduction as: At the rate specified in the relevant provision of the Act, or, At the rate or rates in force, i.e., the rate prescribed in the Finance Act (Finance Act 2019 for FY 2019-20), or At the rate of 20%

How to deduct TDS on sale of Property u/s 194IA?

  • In case of sale of immovable property ( other than agricultural land) the buyer need not obtain a TAN number in order to deduct the TDS.
  • Once the TDS is deducted it shall be deposited with the government within 7 days from the end of the month in which TDS is deducted. Buyer of needs to file Form 26QB.
  • After filing Form 26QB, buyer needs to issue the TDS certificate to the seller.
  • The PAN of both buyer and the seller is mandatorily to be provided. In case of the seller not providing the PAN the TDS shall be deducted at 20%.

How to deduct TDS u/s 194IA, in case of more than one buyer or seller?

In case of More than one buyer:

In a transaction of sale of immovable property if there are more than 1 buyer and the individual amount of consideration is less than INR 50 lakhs for each buyer but the aggregate amount of consideration exceeds INR 50 lakhs the transaction shall fall within the ambit of 194IA also each buyer needs to deduct the tax on the amount paid.

Example

Mr A and Mr B buy a land in partnership each contributing an amount of INR 45 lakhs.

In the current case though the individual amount paid by both the buyers Mr A and also Mr B is less than INR 50 lakhs, but as the aggregate consideration paid for the land exceeds INR 50 lakhs ( i.e. 90 lakhs). The transaction shall be considered as sale of immovable property u/s 194IA, and tax shall be deducted by both the buyers individually.

In case of More than one seller

Similarly in case of sale of immovable property, where a transaction with more than one seller and the aggregate value of transaction of sellers exceeds INR 50 lakhs the transaction shall be included within the ambit of section 194IA and the buyer needs to deduct the tax.

Example

Mr X and Mr Y decide to sell the land co-owned by both of them for a consideration of INR 60 lakhs to Mr C. Also, It was decided that the consideration shall be divided on an equal basis between both the sellers.

In the current scenario, though the individual consideration received by each seller (i.e INR 30 lakhs) is less than the exemption limit of INR 50 lakhs, as the aggregate consideration received (i.e INR 60 lakhs) exceeds the limit; the transaction shall be included within the ambit of 194IA.

In case of more than 1 buyer and seller form 26QB needs to be filed separately in case of each buyer and seller.

FAQs

On which amount TDS is deducted under section 194IA?

TDS needs to be deducted on the total amount paid to the seller of property excluding VAT and Service Tax. Hence TDS is deducted on Transaction Value of Property.

What is the proof of TDS deducted on sale of property?

After buyer deposits TDS, he is required to issue a certificate in Form 16B to the seller of property. Form 16B can be downloaded from CPC-TDS after 15 days from the end of the month in which the payment has been made. The seller of a property can also check his tax credit statement i.e; From 26AS for TDS deducted by buyer.

Is it mandatory to have the PAN of the seller?

PAN of the seller is mandatory. The same may be acquired from the Seller before effecting the transaction.

Section 194I : TDS on Rent payment

As per provisions of section 194I, any person (other than an individual or a HUF) is liable to deduct TDS on rent paid to a resident, if the amount of rent paid/credited during the financial year exceeds Rs. 1,80,000. However, in case where the gross receipts or total sales or turnover of the previous year exceeds the monetary limits by way of business or profession provided u/s 44AB ( ie 1cr in case of business and 25 lakhs in case of profession) then both the Individual or the HUF shall be responsible to deduct TDS on the payment of Rent.

As per section 206AB, if the aggregate of TDS and TCS for deductee is INR 50000 or more in each of these two previous years and deductee has not filed the returns of income for two previous years immediately prior to the previous year in which tax is required to be deducted then he would suffer deduction at higher of the rates of deduction as: At twice the rate specified in the relevant provision of the Act; or At twice the rate or rates in force; or At the rate of 5%
Tip
As per section 206AB, if the aggregate of TDS and TCS for deductee is INR 50000 or more in each of these two previous years and deductee has not filed the returns of income for two previous years immediately prior to the previous year in which tax is required to be deducted then he would suffer deduction at higher of the rates of deduction as: At twice the rate specified in the relevant provision of the Act; or At twice the rate or rates in force; or At the rate of 5%

When to deduct TDS under section 194I?

The TDS shall be deducted at the time of credit of such rent income to the payee account or at the time of payment, whichever is earlier. The payment date shall be either :

  1. The date of actual payment of cash or
  2. The date of issue of cheque, draft or by any other mode, whichever is Earlier.

It shall also be noted that when any payment to be made to the landlord is credited to a “Suspense Account” or any other account by whatever name called in the payer’s books of account, it shall be considered as deemed payment and tax has to be deducted on such amount.

As per section 206AA if the deductee fails to provide the PAN to deductor then he would suffer deduction at higher of the rates of deduction as: At the rate specified in the relevant provision of the Act, or, At the rate or rates in force, i.e., the rate prescribed in the Finance Act (Finance Act 2019 for FY 2019-20), or At the rate of 20%
Tip
As per section 206AA if the deductee fails to provide the PAN to deductor then he would suffer deduction at higher of the rates of deduction as: At the rate specified in the relevant provision of the Act, or, At the rate or rates in force, i.e., the rate prescribed in the Finance Act (Finance Act 2019 for FY 2019-20), or At the rate of 20%

TDS Rates under section 194I

Nature of Payment TDS Rate
Rent on plant or machinery or equipment 2%
Rent on land or building or furniture or fittings 10%

 

In a case where no PAN is provided by the landlord, the TDS shall be deducted at the rate of 20%.

What is the meaning of “Rent” under section 194I?

As per section 194I, rent means any payment made under any lease, sub-lease, tenancy or any other agreement or arrangement for the use any:

  • Land or
  • Building or
  • Land appurtenant to a building or
  • Machinery or
  • Plant or
  • Equipment or
  • Furniture or
  • Fittings

How to deduct TDS on Rent payment?

  • TDS on rent hast to be deducted exclusive of service tax. Service tax liability arises if the total amount received by your landlord during the year exceeds Rs. 10,00,000. CBDT has clarified that TDS on rent has to be deducted on amount of rent and not on the amount of service tax on rent. Let’s take an example to understand: If you are paying rent of Rs. 15,00,000 and you are charging Rs.2,25,000 as service tax on it. Then TDS on rent will be calculated on Rs. 15,00,000 and not on Rs. 17,25,000.
  • In case when a landlord makes an application in Form 13 to the Assessing Officer for no deduction of tax or deduction of tax at lower rate. And if AO issue a certificate to that effect. Then payer can make deduction of tax at lower rate or no deduction of TDS based on certificate.
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FAQs

When to deposit TDS under section 194I?

When the payment of rent is made during the month of April to February, it should be deposited to the government on or before 7th of the next month. And for tax deducted in the month of march should be deposited on or before 30th day of April.

How to apply threshold limit in case of rent paid to co-owners?

Where the share of each co-owner in the property is definite and ascertainable, the limit of Rs. 1,80,000 will be applicable to each co-owner separately.

What is the point of deduction of TDS u/s 194I?

Tax should be deducted either at the time of actual payment of rent or at the time of its credit to the account of the payee whichever is earlier.

Section 194C: TDS on payment to Contractors

As per section 194C, When a person responsible for paying any sum to a resident contractor for carrying out any work (including the supply of labour) in the execution of a contract between the contractor and Specified Person, he shall deduct TDS while making the payment.

Work for the purpose of Section 194C shall include the following:

  1. Advertising
  2. Broadcasting and telecasting including production of programs for such broadcasting or telecasting
  3. Carriage of goods and passengers by any mode of transportation, other than railways
  4. Catering
  5. Manufacturing or supplying of a product according to the requirement or specification of a customer by using the materials purchased from such customer, But does not include manufacturing or supplying of a product according to the requirements or specifications of a customer by using the materials purchased from a person, other than such a customer.
As per section 206AA if the deductee fails to provide the PAN to deductor then he would suffer deduction at higher of the rates of deduction as: At the rate specified in the relevant provision of the Act, or, At the rate or rates in force, i.e., the rate prescribed in the Finance Act (Finance Act 2019 for FY 2019-20), or At the rate of 20%
Tip
As per section 206AA if the deductee fails to provide the PAN to deductor then he would suffer deduction at higher of the rates of deduction as: At the rate specified in the relevant provision of the Act, or, At the rate or rates in force, i.e., the rate prescribed in the Finance Act (Finance Act 2019 for FY 2019-20), or At the rate of 20%

Specified person includes:

  1. The Central Government or any State Government, or
  2. The local authority, or
  3. Any corporation established by or under a Central, State or Provincial Act, or
  4. Company, or
  5. Co-operative society, or
  6. Any authority constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the needs for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages or for both; or
  7. A registered society, or
  8. Any trust
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When to deduct TDS under section 194C?

The TDS shall be deducted while making payment. The payment date shall be either:

  1. Date of actual payment of cash or
  2. The date of crediting the sum to the payees account or
  3. The date of issue of cheque, draft or by any other mode, whichever is Earlier.

It shall also be noted that when any payment to be made to the contractor is credited to a “suspense account” or any other account by whatever name called in the payer’s books of account, it shall be considered as deemed payment and tax has to be deducted on such amount.

As per section 206AB, if the aggregate of TDS and TCS for deductee is INR 50000 or more in each of these two previous years and deductee has not filed the returns of income for two previous years immediately prior to the previous year in which tax is required to be deducted then he would suffer deduction at higher of the rates of deduction as: At twice the rate specified in the relevant provision of the Act; or At twice the rate or rates in force; or At the rate of 5%
Tip
As per section 206AB, if the aggregate of TDS and TCS for deductee is INR 50000 or more in each of these two previous years and deductee has not filed the returns of income for two previous years immediately prior to the previous year in which tax is required to be deducted then he would suffer deduction at higher of the rates of deduction as: At twice the rate specified in the relevant provision of the Act; or At twice the rate or rates in force; or At the rate of 5%

TDS Rates under section 194C

Nature of Payment TDS Rate
Payment to resident Individual or HUF 1%
Payment to any resident person other than Individual or HUF 2%

 

In a case where no PAN is provided by the contractor, the TDS shall be deducted at the rate of 20%.

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Who is a sub-contractor as per section 194C?

Any person who enters into a contract with the contractor for the purpose of supply of labor either fully or partly for the work undertaken, shall mean as a subcontractor.

  • The contractor being a resident while making payment to the subcontractor shall deduct TDS at the rate of 1%.
  • The payment date shall be earlier of the date of actual payment of cash or the date of Crediting the sum to the payees account or the date of a cheque, draft or by any other mode.
  • It shall also be noted that the contractor should not be an Individual or HUF.
  • The subcontractor should also be a resident under the ambit of this section.
  • The amount of consideration of the contract should not be less than Rs 30000.

Who is exempt from deduction of TDS u/s 194C?

Section 194C shall not apply in the following cases :

  • If the single payment made during the year to the contractor does not exceed Rs. 30,000 then no TDS is required to be deducted. But if the cumulative payments made during the year exceed Rs. 1,00,000 then the TDS needs to be deducted on all the payments made. The threshold limit of 75000 has increased to 100000 from AY 2016-17.
  • No TDS is to be deducted by the Individual or HUF for the payment to Contractor if such sum is expended for personal use.
  • No TDS shall be deducted on the amount paid to the contractor provided, he has a business of plying, hiring or leasing of goods and carriages. And he owns 10 or fewer goods or carriages at any point of time during the previous year. And has furnished his PAN.

FAQs

Which TDS return should be filed for TDS deducted u/s 194C?

Deductor who deducts TDS from contract payments need to file quarterly return in Form 26Q before prescribed due date. Form 26Q contains detail of amount paid to contractor and TDS deducted.

What is the proof of TDS deducted u/s 194C?

In the case of TDS deducted u/s 194C, the deductor will issue TDS Certificate in Form 16A on a quarterly basis. Deductor should issue Form 16A within 15 days from the due date of furnishing TDS return/statement.

Whether the provisions of section 194C are also applicable to a non-resident?

No, the payments made to non resident contractor would come within the preview of section 195.

Section 194A : TDS on Interest other than Interest on securities

As per section 194A, TDS on interest other than interest on securities is required to be deducted by any person other than Individual or HUF at the rate of 10%, when paid to a resident. No surcharge, education cess or SHEC shall be added to the above rate.

However, in case of individual or HUF where the gross receipts or total sales or turnover of the previous year exceeds the monetary limits by way of business or profession provided u/s 44AB ( ie 1cr in case of business and 25 lakhs in case of profession) then both shall be responsible to deduct TDS on the payment of Interest.

As per section 206AA if the deductee fails to provide the PAN to deductor then he would suffer deduction at higher of the rates of deduction as: At the rate specified in the relevant provision of the Act, or, At the rate or rates in force, i.e., the rate prescribed in the Finance Act (Finance Act 2019 for FY 2019-20), or At the rate of 20%
Tip
As per section 206AA if the deductee fails to provide the PAN to deductor then he would suffer deduction at higher of the rates of deduction as: At the rate specified in the relevant provision of the Act, or, At the rate or rates in force, i.e., the rate prescribed in the Finance Act (Finance Act 2019 for FY 2019-20), or At the rate of 20%

When to deduct TDS under section 194A?

The TDS shall be deducted at the time of payment. The date of payment shall be considered earlier of the following:

  • ​Date of credit to the account of a payee or
  • ​Actual payment date or
  • Date of issue of the cheque, draft or any other mode.

Under this section if any sum payable by way of interest is credited to Interest payable account or suspense account or any other account by whatever name called the same shall be considered as deemed payment and TDS u/s 194A shall be deducted on the same.

As per section 206AB, if the aggregate of TDS and TCS for deductee is INR 50000 or more in each of these two previous years and deductee has not filed the returns of income for two previous years immediately prior to the previous year in which tax is required to be deducted then he would suffer deduction at higher of the rates of deduction as: At twice the rate specified in the relevant provision of the Act; or At twice the rate or rates in force; or At the rate of 5%
Tip
As per section 206AB, if the aggregate of TDS and TCS for deductee is INR 50000 or more in each of these two previous years and deductee has not filed the returns of income for two previous years immediately prior to the previous year in which tax is required to be deducted then he would suffer deduction at higher of the rates of deduction as: At twice the rate specified in the relevant provision of the Act; or At twice the rate or rates in force; or At the rate of 5%

What is the threshold limit under section 194A?

TDS shall not be deducted on an amount of interest falling below Rs 10,000 where the payee is:

  • Banking Company
  • Cooperative society engaged in Banking Business
  • Post office

In any other cases the threshold limit of Rs 5,000 shall apply.

TDS Rates under section 194A

  • It shall be deducted at the rate of 10% in a case where the payee is resident.
  • However, It shall be deducted at the rate of 20% in a case where the payee does not provide with the PAN.
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Who is exempt from deduction of TDS on Interest u/s 194A?

Section 194A shall not apply in the following cases :

  • Interest is paid or credited to
    • Banking Company
    • Co-operative Bank
    • Public Financial Institutions
    • LIC
    • UTI
    • Company or Co-operative society carrying out a business of Insurance
  • Income paid or Credited by a firm to the partner of the firm.
  • Income paid/ credited by the co-operative society ( other than a co-operative bank) to its members or any other co-operative society.
  • Interest paid by the central government on the time deposits on the scheme notified in the official gazette
  • Credited interest on deposits ( other than time deposits ) by Banking company
  • Interest credited in respect of primary agricultural society or primary credit society or Co-operative land mortgage bank.
  • Any interest credited by Central government under the provision of following Acts
    • Income tax Act 1961
    • Estate duty Act 1953
    • Wealth tax Act 1957
    • Gift tax Act 1958
    • Super Profit Tax Act 1963
    • Companies (profit) surtax Act 1964
    • Interest- tax Act 1974
  • Interest on compensation awarded by way of Compensation awarded up to Rs 50000 by motor accident claims tribunal
  • Income/ Interest paid by companies or infrastructural companies on Zero Coupon Bonds
  • Interest referred in section 10 (23FC)

When is tax deducted at NIL Rate?

Tax is deducted at NIL rate, when a declaration is submitted in form 15G/15H. When form 15G/15H is submitted by the recipient then no need to deduct TDS if following conditions are satisfied:

  • Recipient is a person other than a Firm or Company
  • Tax on total income of the recipient for the Previous Year is NIL.
  • Total Income of the current year does not exceed the exemption limit. This condition is not applicable if the recipient is a resident senior citizen.

FAQs

Is interest paid to NRI covered u/s 194A?

No, interest paid to NRI is not covered u/s 194A. Payments made to NRI are also covered under TDS. In case of NRI, tax is to be deducted as per section 195.

When to deposit TDS deducted u/s 194A?

Tax deducted during the month of April to February under section 194A should be deposited to the credit of the government on or before 7th of the next month. And tax deducted during the month of March should be deposited on or before 30th day of April.

Is TDS applicable on EMI of loan?

NO, TDS is not applicable on EMI loan in case interest is paid to banks.. TDS is only required to be deducted if interest on loan is paid to other parties.

Section 192 – TDS on Salary

Every Employer at the time of payment of ‘Salary’ has to deduct TDS at an average rate of Income Tax applicable and the balance amount is payable to the employee. Following are the conditions for TDS deduction u/s 192:

  1. The employer-employee relationship must exist between deductor and deductee.
  2. Employer makes payment to the employee.
  3. It is in nature of salary.
  4. Payment is made to resident/ non-resident employee.
  5. The income under the head salary is above the maximum amount not chargeable to tax. (i.e; total salary for a financial year is more than Rs. 2,50,000)
As per section 206AA if the deductee fails to provide the PAN to deductor then he would suffer deduction at higher of the rates of deduction as: At the rate specified in the relevant provision of the Act, or, At the rate or rates in force, i.e., the rate prescribed in the Finance Act (Finance Act 2019 for FY 2019-20), or At the rate of 20%
Tip
As per section 206AA if the deductee fails to provide the PAN to deductor then he would suffer deduction at higher of the rates of deduction as: At the rate specified in the relevant provision of the Act, or, At the rate or rates in force, i.e., the rate prescribed in the Finance Act (Finance Act 2019 for FY 2019-20), or At the rate of 20%

What is the average rate of income tax under section 192?

Basically, the average rate of income tax is to be calculated on the basis of Income Tax Slab Rates in force for a particular financial year.

Let’s take an example to understand:

Suppose, Jay is earning Rs. 60,000 per month as salary income for FY 2016-17 and his total deduction under chapter VII-A for a year amounts to Rs. 1,00,000.

Particulars Amount (In Rs.)
Jay’s Total Income would be estimated as (60,000 * 12 months) 7,20,000
Deductions under Chapter VII-A (1,00,000)
Income Chargeable to tax 6,20,000
TAX as per current slab rate 49,000
Education Cess and SHEC @ 3% of TAX 1470
Net Tax Payable 50,470

Average rate of tax in case of each individual is different for each financial year and keeps varying based on the estimated income of the taxpayer and the Income Tax Slab Rates in force for that assessment year.

When to deduct and deposit TDS under section 192?

The deduction should be made at the time of making payment and not when it becomes due or obligation arises.

TDS deducted by the employer on salary payments is required to be deposited with the government before the prescribed due date. At the time of depositing TDS with the government, the employer is also required to mention his TAN.

Further, Due date for deposit of TDS deducted on salary for every month is 7th of the next month however, for the month of March, it is 30th April. The deposition of TDS can be made via challan No. ITNS 281.

What is the TDS on salary if employee changed jobs?

In case of employee who has changed his employer during the year, employee is required to submit his previous salary details and TDS to subsequent employer then these details are to be submitted in Form 12BB according to new rule 26C. Based on such form, Employer will consider the aggregate salary and TDS paid so far and deduct TDS for the remaining income earned by the employee.

FAQs

How can an employee know his TDS deducted on salary?

The TDS deducted on salary is reflected in Form 16, which is issued to the employee at the end of the financial year by his employer. Also, Form 16 contains details of quarterly TDS deducted by employer along with total income earned and tax deductions. Further, an Employee can also check the details of the TDS deducted and deposited by his employer through the Form 26AS from his e-filing login.

Which TDS Return is required to be filed by employer?

An employer needs to file Form 24Q for TDS deducted on salary by him. Form 24Q is filed quarterly on or before the due date. Further, it contains details of salary paid and TDS deducted and deposited by an employer.

What is the penalty for late filing of TDS?

Deductor will be liable to pay the fine of INR 200 per day u/ Section 234E till the failure to pay TDS continues. However, the penalty should not exceed the amount of TDS for which statement was required to be filed.

Section 195 : TDS rates for NRI (Non-Resident Indian) as per Income Tax Act

There is no threshold limit under section 195 of Income Tax Act, hence TDS will be deducted from the entire income/amount. TDS shall be deducted at the time of making payment.  Different TDS rates applicable to NRI individuals and companies are in the following table:

As per section 206AA if the deductee fails to provide the PAN to deductor then he would suffer deduction at higher of the rates of deduction as: At the rate specified in the relevant provision of the Act, or, At the rate or rates in force, i.e., the rate prescribed in the Finance Act (Finance Act 2019 for FY 2019-20), or At the rate of 20%
Tip
As per section 206AA if the deductee fails to provide the PAN to deductor then he would suffer deduction at higher of the rates of deduction as: At the rate specified in the relevant provision of the Act, or, At the rate or rates in force, i.e., the rate prescribed in the Finance Act (Finance Act 2019 for FY 2019-20), or At the rate of 20%

TDS rates for NRI under section 195 of Income Tax Act:

Nature of Payment Other than Company Company
Income from the investment made by NRI Citizen 20% NA
Income by way of Long Term Capital Gains referred to in  u/s 115E in case of an NRI Citizen 10% NA
Income by way of Long Term Capital Gains referred to in sub-clause (iii) of clause (c) of sub-section (1) of section 112 10% 10%
Income by way of Long Term Capital Gains as referred to in section 112A   10% 10%
Short Term Capital Gain income from shares and securities referred to in Section 111A 15% 15%
Anu other income by way of Long Term Capital Gains (Other than referred in 10(33), 10(36) and 112A 20% 20%
Income by way of interest payable by a government or an Indian concern on money borrowed or debt incurred by government or Indian concern in foreign currency (Other than interest income referred in Section 194LB or Section 194LC)   20% 20%
Income by way of Royalty payable by Government or an Indian concern in pursuance of an agreement made by it with the government or the Indian concern where such royalty is in consideration for the transfer of all or any rights (including the granting of a licence) in respect of copyright in any book on a subject referred to in the first proviso to sub-section (1A) of Section 115A of the Income-tax Act, to the Indian concern, or in respect of any computer software referred to in the second proviso to sub-section (1A) of Section 115A of the Income-tax Act, to a person resident in India 10% 10%
Income by way of royalty [not being royalty of the interest nature referred in above] payable by Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern and where such agreement is with an Indian concern, the agreement is approved by the Central Government or where it relates to a matter included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy. 10% 10%
Income by way of fees for technical services payable by Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern and where such agreement is with an Indian concern, the agreement is approved by the Central Government or where it relates to a matter included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy 10% 10%
Any Other Income 30% 40%
As per section 206AB, if the aggregate of TDS and TCS for deductee is INR 50000 or more in each of these two previous years and deductee has not filed the returns of income for two previous years immediately prior to the previous year in which tax is required to be deducted then he would suffer deduction at higher of the rates of deduction as: At twice the rate specified in the relevant provision of the Act; or At twice the rate or rates in force; or At the rate of 5%
Tip
As per section 206AB, if the aggregate of TDS and TCS for deductee is INR 50000 or more in each of these two previous years and deductee has not filed the returns of income for two previous years immediately prior to the previous year in which tax is required to be deducted then he would suffer deduction at higher of the rates of deduction as: At twice the rate specified in the relevant provision of the Act; or At twice the rate or rates in force; or At the rate of 5%

TDS at the higher rate of 20% or TDS rate,  whichever is higher, needs to be deducted if PAN of NRI is not available. Once TDS is deducted by a deductor, TDS return needs to be filed in Form 27Q for that particular quarter.

FAQs

What is the meaning of Non resident?

To decide the residential status of person under income tax, we need to check the basic and additional conditions and other criteria prescribed under section6 of the Income tax act, 1961. Only Non resident covered under this section, Resident but not Ordinary Resident ( RNOR) not covered this section. 

When to deduct the TDS?

TDS has to be deducted at the time of credit or payment whichever is earlier. Crediting which means even crediting in suspense account or any other name called considered as deemed to be credited, accordingly the TDS will apply.

What will be the exchange rate for TDS on non resident?

Exchange rate of Reserve Bank of India (RBI) on the day which TDS required to be deducted has to be considered. 

I am an NRI and invest in the stock market. Whenever I earn short term capital gains on the sale of stock, TDS of 15% is deducted from my account as per RBI norms. Is this TDS deduction mandatory even if my total taxable income in India is less than INR 2.5 lacs?

Yes, as per RBI norms every time a payment is to be made to you, the payer of that amount is duty bound to deduct tax at source under section 195 of the Income Tax Act even if your total taxable income in India is less than INR 2.5 lacs. You can claim the refund of TDS deducted by filing the Income Tax Return in India.

Section 194IB: TDS on Rent of Property

What is TDS on Rent u/s 194IB?

As per section 194IB of the Income Tax Act, tenant of the property being an individual/ HUF (not liable to tax audit under the income tax act) has to deduct as well as deposit TDS on monthly rent if rent paid exceeds INR 50,000 and also the landlord is a resident of India.

As per section 206AB, if the aggregate of TDS and TCS for deductee is INR 50000 or more in each of these two previous years and deductee has not filed the returns of income for two previous years immediately prior to the previous year in which tax is required to be deducted then he would suffer deduction at higher of the rates of deduction as: At twice the rate specified in the relevant provision of the Act; or At twice the rate or rates in force; or At the rate of 5%
Tip
As per section 206AB, if the aggregate of TDS and TCS for deductee is INR 50000 or more in each of these two previous years and deductee has not filed the returns of income for two previous years immediately prior to the previous year in which tax is required to be deducted then he would suffer deduction at higher of the rates of deduction as: At twice the rate specified in the relevant provision of the Act; or At twice the rate or rates in force; or At the rate of 5%

What is the rate of TDS u/s 194IB?

TDS is required to be deducted at the rate of 5% from the rent payable to the resident’s landlord. If the PAN of the landlord is not available then TDS should be deducted at the rate of 20%. However, the tenant is not required to obtain TAN for TDS deduction on rental payments.  

This could be understood better using a table as shown below:

Particulars Rate of TDS u/s 194IB
If PAN of the landlord is available 5%
IF PAN of the landlord is not available 20%
As per section 206AA if the deductee fails to provide the PAN to deductor then he would suffer deduction at higher of the rates of deduction as: At the rate specified in the relevant provision of the Act, or, At the rate or rates in force, i.e., the rate prescribed in the Finance Act (Finance Act 2019 for FY 2019-20), or At the rate of 20%
Tip
As per section 206AA if the deductee fails to provide the PAN to deductor then he would suffer deduction at higher of the rates of deduction as: At the rate specified in the relevant provision of the Act, or, At the rate or rates in force, i.e., the rate prescribed in the Finance Act (Finance Act 2019 for FY 2019-20), or At the rate of 20%

Who needs to deduct TDS on rent?

Tenant needs to deduct TDS on rent of the property before making payment of rent every month. Let’s take an example to understand better: Suppose, Mr. Ashok is a tenant who pays rent of Rs. 65,000 per month to Mr. Sanjay who is a landlord of the property, then, in that case, Mr. Ashok is responsible to deduct TDS on rent payment made by him.

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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 (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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When to deduct and deposit TDS on rent of property?

  • Tax is required to be deducted from the total annual rent which is paid to the landlord. It is to be deducted once in the financial year at the end of the year or in the month in which the property is vacated/ rental agreement is terminated.
  • Tax needs to be deposited within 30 days from the last date of the financial year or from the date of termination of the agreement in Form 26QC.

Let’s take an example:     

Mr. Sudhir entered into a tenancy agreement with Mr. John for FY 2017-18 for the period of 10 months from October 2017 till 31st March 2018 at the monthly rent of Rs. 65,000. The following is the tax deduction amount and date of deposit of TDS:

Particulars At the end of the FY 2017-18
Period of Tenancy 6 months
Total Value of Rent Payable 3,90,000
Value of Rent Paid in Last Month 65,000
Amount Paid/ Credited 3,90,000
TDS 19,500 (3,90,000*5%)
Date of Payment/ Credit 31st March 2018
Date of deduction of TDS 31st March 2018
Due date of deposit of TDS and filing of Form 26QC On or before 30th April 2018

What are the penalties for non-deduction of tax and delay in deposit of tax?

  • In case of non-deduction of tax, an interest penalty of 1% per month is applicable from the date on which tax was deductible to the date on which such tax is deducted.
  • Likewise, In case of nonpayment of TDS after deduction of TDS, an interest penalty of 1.5% per month is applicable from the date on which tax was deducted to the date on which tax is actually deposited i.e, date of filing Form 26QC.
TDS Return for Rent Payments (Form 26QC)
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FAQs

Who is responsible to deduct the TDS on Rent of Property u/s 194IB?

The tenant of the property being an individual or a HUF (not liable to audit u/s 44AB) would have to deduct the TDS as well as deposit the same in Government treasury. 

What is Form 16C?

Form 16C is the TDS certificate to be issued by the deductor (Tenant of property) to the deductee (Landlord of property) in respect of the tax deducted as well as deposited as TDS on rent under section 194IB of the Income-tax Act, 1961  

Do the tax deductor is required to apply for TAN in order to deduct TDS U/S 194IB?

The tax deductor is not required to apply for TAN in order to deduct TDS U/S 194IB. CBDT has notified form 26QC filling return under this section & this form is PAN based.