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Question 1. What is tax deducted at source?
Answer: For the quick and efficient collection of taxes, the Income-tax Law has incorporated a system of deduction of tax at the point of generation of income. This system is called “Tax Deducted at Source”, commonly known as TDS. Under this system, tax is deducted at the origin of the income. Tax is deducted by the payer and is remitted to the Government by the payer on behalf of the payee.
The provisions of deduction of tax at source are applicable to several payments such as salary, interest, commission, brokerage, professional fees, royalty, contract payments, etc.
In respect of payments to which the TDS provisions apply, the payer has to deduct tax at source on the payments made by him and he has to deposit the tax deducted by him to the credit of the Government.
Question 2. Can the payee request the payer not to deduct tax at source and to pay the amount without deduction of tax at source?
Answer: A payee can approach the payer for non-deduction of tax at source but for that, they have to furnish a declaration in Form No. 15G/15H, as the case may be, to the payer to the effect that the tax on his estimated total income of the previous year after including the income on which tax is to be deducted will be nil.
Form No. 15G is for the individual or a person (other than company or firm) and Form No. 15H is for the senior citizens.
Note: The CBDT vide Order u/s 119, dated 03-04-2020 has clarified that if a person had submitted Form No. 15G and 15H for FY 2019-20 to banks and other institutions then these forms will be valid up to 30.06.2020 for FY 2020-21 also.
Question 3. What are the consequences a deductor would face if he fails to deduct TDS or after deducting the same fails to deposit it to the Government’s account?
Answer: A deductor would face the following consequences if he fails to deduct TDS or after deducting the same fails to deposit it to the credit of Central Government’s account:-
a) Disallowance of expenditure
As per section 40(a)(i) of the Income-tax Act, any sum (other than salary) payable outside India or to a non-resident, which is chargeable to tax in India in the hands of the recipient, shall not be allowed to be deducted if it is paid without deduction of tax at source or if tax is deducted but is not deposited with the Central Government till the due date of filing of return.
However, if tax is deducted or deposited in the subsequent year, as the case may be, the expenditure shall be allowed as a deduction in that year.
Similarly, as per section 40(a)(ia), any sum payable to a resident, which is subject to deduction of tax at source, would attract 30% disallowance if it is paid without deduction of tax at source or if tax is deducted but is not deposited with the Central Government till the due date of filing of return.
However, where in respect of any such sum, tax is deducted or deposited in the subsequent year, as the case may be, the expenditure so disallowed shall be allowed as a deduction in that year.
As per Section 58(1A) (as amended with effect from the assessment year 2018-19), the provisions of section 40(a)(ia) and 40(a)(iia) shall also apply in computing the income chargeable under the head “Income from other sources”.
b) Levy of interest
As per section 201 of the Income-tax Act, if a deductor fails to deduct tax at source or after the deducting the same fails to deposit it to the Government’s account then he shall be deemed to be an assessee-in-default and liable to pay simple interest as follows:-
(i) at one per cent for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted; and
(ii) at one and one-half per cent for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid.
c) Levy of Penalty
The penalty of an amount equal to tax not deducted or paid could be imposed under section 271C.
Note: The CBDT vide the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 dated 31-03-2020 has extended all respective due dates, falling during the period from 20-03-2020 to 29-06-2020, till June 30, 2020.
The benefit of the extended due date shall not be available in respect of payment of tax. However, any delay in payment of tax which is due for payment from 20-03-2020 to 29-06-2020 shall attract interest at the lower rate of 0.75% for every month or part thereof if same is paid after the due date but on or before 30-06-2020.
Question 4. Under what circumstances a deductor would not be deemed as an assessee-in-default even after he fails to deduct TDS or after deducting the same fails to deposit it to the Government’s account?
Answer: A deductor who fails to deduct the whole or any part of the tax on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee-in-default in respect of such tax if such resident—
(i) has furnished his return of income under section 139;
(ii) has taken into account such sum for computing income in such return of income; and
(iii) has paid the tax due on the income declared by him in such return of income,
and the deductor furnishes a certificate to this effect in Form No.26A from a chartered accountant.
However, w.e.f. 01-09-2019, a sum paid to a non-resident will be covered by above provisions.
In such a case, the payee can claim the refund of entire/excess amount of TDS (as the case may be) by filing the return of income.
Question 5. If the payer does not deduct tax at source, will the payee face any adverse consequences by means of action taken by the Income-tax Department?
Answer: It is the duty and responsibility of the payer to deduct tax at source. If the payer fails to deduct tax at source, then the payee will not have to face any adverse consequences. However, in such a case, the payee will have to discharge his tax liability. Thus, failure of the payer to deduct tax at source will not relieve the payee from payment of tax on his income.
Question 6. What are the duties of the person deducting tax at source?
Answer: Following are the basic duties of the person who is liable to deduct tax at source:
a) He shall obtain a Tax Deduction Account Number and quote the same in all the documents pertaining to TDS.
b) He shall deduct the tax at source at the applicable rate.
c) He shall pay the tax deducted by him at source to the credit of the Government (by the due date specified in this regard).
d) He shall file the periodic TDS statements, i.e., TDS return (by the due date specified in this regard).
e) He shall issue the TDS certificate to the payee in respect of tax deducted by him (by the due date specified in this regard).
Question 7. How can I know the quantum of tax deducted from my income by the payer?
Answer: To know the quantum of the tax deducted by the payer, you can ask the payer to furnish you a TDS certificate in respect of tax deducted by him. You can also check Form 26AS from your e-filing account.
Question 8. What to do if the TDS credit is not reflected in Form 26AS?
Answer: Non-reflection of TDS credit in Form 26AS can be due to several reasons like non-filing of TDS statement by the payer, quoting incorrect PAN of the deductee in the TDS statement filed by the payer. Thus, in case of non-reflection of TDS credit in Form 26AS, the payee has to contact the payer for ascertaining the correct reasons for non-reflection of the TDS credit in Form 26AS.
Question 9. At what rate the payer will deduct tax if I do not furnish my Permanent Account Number to him?
Answer: As per section 206AA, if you do not furnish your Permanent Account Number to the payer (i.e., deductor), then the deductor shall deduct tax at the higher of the following rates:
• At the rate specified in the relevant provision of the Act.
• At the rate or rates in force, i.e., the rate prescribed in the Finance Act.
• At the rate of 20%.
However, the provisions of section 206AA shall not apply in the following cases:-
1. In respect of payment of interest on long-term bonds to a non-resident under section 194LC.
2. Where deductee being a non-resident or a foreign company, shall in respect of payments in the nature of interest, royalty, fees for technical services and payments on the transfer of any capital asset, furnish the following details and documents to the deductor, namely:—
i. name, e-mail id, contact number;
ii. address in the country or specified territory outside India of which the deductee is a resident;
iii. a certificate of his being resident in any country or specified territory outside India from the Government of that country or specified territory if the law of that country or specified territory provides for the issuance of such certificate;
iv. Tax Identification Number of the deductee in the country or specified territory of his residence and in case no such number is available, then a unique number on the basis of which the deductee is identified by the Government of that country or the specified territory of which he claims to be a resident.
Question 10. I do not have PAN. Can I furnish Form 15G/15H for non-deduction of TDS from interest?
Answer: As per section 206AA, a declaration in Form No. 15G or Form No. 15H is not a valid declaration, if it does not contain PAN of the person making the declaration. If the declaration is without the PAN, then tax is to be deducted at higher of following rates:
• At the rate specified in the relevant provision of the Act.
• At the rate or rates in force, i.e., the rate prescribed in the Finance Act.
• At the rate of 20%.
Question 11. Would I face any adverse consequences if instead of depositing TDS in the government's account I use it for my personal needs?
Answer: Yes, failure to remit tax deducted by me in the government’s account within stipulated time-limit would attract interest, penalty and rigorous imprisonment of up to seven years.
Question12. I have not received TDS certificate from the deductor. Can I claim TDS in my return of income?
Answer: Yes, the tax credit in your case will be reflected in your Form 26AS and, hence, you can check Form 26AS and claim the credit of the tax accordingly. However, the claim of TDS to be made in your return of income should be strict as per the TDS credit being reflected in Form 26AS. If there is any discrepancy in the tax actually deducted and the tax credit being reflected in Form 26AS then you should intimate the same to the deductor and should reconcile the difference. The credit granted by the Income-tax Department will be as per Form 26AS.
Question 13. If I buy any land/building then is there any requirement to deduct tax from the sale proceeds to be paid by me to the seller?
Answer: Yes, Finance Act, 2013 has introduced section 194-IA which provides for deduction of tax at source in case of payment of sale consideration of immovable property (other than rural agricultural land) to a resident. Section 194-IA is not applicable if the seller is a non-resident. Tax is to be deducted @ 1%. No tax is to be deducted if the consideration is below Rs. 50,00,000. If the sale consideration exceeds Rs. 50,00,000, then tax is to be deducted on the entire amount and not only on the amount exceeding Rs. 50,00,000.
If the seller is a non-resident then tax is be deducted under section 195 and not under section 194-IA.
Thus, in case of purchase of property from non-resident TDS provisions of section 195 will apply and not of section 194-IA
Question 14. What is the difference between PAN and TAN?
Answer: PAN stands for Permanent Account Number and TAN stands for Tax Deduction Account Number. TAN is to be obtained by the person responsible to deduct tax, i.e., the deductor. In all the documents relating to TDS and all the correspondence with the Income-tax Department relating to TDS, one has to quote his TAN.
PAN cannot be used for TAN, hence, the deductor has to obtain TAN, even if he holds PAN.
However, in case of TDS on purchase of land and building (as per section 194-IA) as discussed in the previous FAQ, the deductor is not required to obtain TAN and can use PAN for remitting the TDS.
Further, in case of TDS on rent (as per section 194-IB) and TDS on payment of certain sums by Individuals of HUFs (as per section 194M), the deductor can use PAN instead of TAN for remitting TDS.
Question 15. What is the amount of TDS if the property belongs to NRI?
Answer: Yes, as per the rates prescribed u/s 195. TDS is to be deducted on capital gain income. In case you have any doubt regarding the amount on which TDS is to be made, you may file an application with the officer handling non-resident taxation who will pass an order determining the TDS to be made. Alternatively, if the recipient feels that the TDS is more he may file an application with his Assessing Officer for non-deduction.
Question 16. Whether limit of Rs. 50,000 per month under section 194-IB is applicable to each of the co-owners separately in case rent is paid individually to co-owners?
Answer: As per the section 194IB, an individual or HUF whose books of account are not liable for audit u/s 44AB, paying rent to a resident exceeding Rs. 50,000 per month or part of the month for land or building, liable to deduct tax @ 5% at the time of credit of rent, for the last month of the previous year or last month of the tenancy in case property is vacated during the year, as the case may be, to the account of the payee or at the time of payment thereof in cash or by cheque or draft or any other mode, whichever is earlier.
Therefore, the limit of Rs. 50,000 is applicable for each co-owner separately if rent is paid to co-owners of the property.
For Example, Mr A is making payment of rent of Rs. 1,00,000 per month to Mr B &Mr. C who are co-owners of the property, wherein rent paid to Mr B is Rs. 70,000 and to Mr C is Rs. 30,000; A is liable to deduct tax @ 5% under section 194IB on rent paid to Mr B as the amount of rent paid exceeds Rs. 50,000 and is not required to deduct tax on rent paid to Mr C as the amount of rent paid does not exceed Rs. 50,000.
Question 17. Who is required to file Form 15CA?
Answer: As per Rule 37BB, any person responsible for paying to a non-resident, not being a company, or to a foreign company, any sum chargeable to tax under the provisions of Income-tax Act, 1961, shall furnish such information in Form 15CA and Form 15CB:
• In case the payment or the aggregate of such payments made during the financial year does not exceed Rs. 5 lakh rupees, such information is to be furnished in Part A of Form No.15CA.
• In case the payment exceeds Rs. 5 lakh such information is required to be furnished in Part B of Form No. 15CA after obtaining a certificate from the Assessing Officer under section 197; or an order from the Assessing Officer under sub-section (2) or sub-section (3) of section 195.
• In case the payment exceeds Rs. 5 lakh such information is required to be furnished in Part C of Form 15CA after obtaining a certificate in Form No.15CB from an accountant as defined in the Explanation to sub-section (2) of section 288.
• In case the payment other than the payment referred in sub-rule (3) of Rule 37BB which is not chargeable to tax under the provisions of Income-tax Act,1961, such information is required to be furnished in Part D of Form No. 15CA.
Question 18. Whether TCS can be collected on the amount inclusive of GST?
Answer: As per section 206C (1) every person, being a seller shall, at the time of debiting of the amount payable by the buyer to the account of the buyer or at the time of receipt of such amount from the said buyer in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the buyer. Hence, the amount debited to the account of buyer or payment shall be received by seller inclusive of VAT/ excise/GST. TCS to be collected on inclusive of GST.
Question 19. How much TDS will be deducted in case of payment of Remuneration to company's director?
Answer: Sec 194J levies TDS on technical and professional services. As per the provisions of the Companies Act, the director of the company is also a manager and thus, technical personnel. As per Section 194J(1)(ba), any payment made to director in the nature of sitting fees, remuneration or any other sum other than those on which tax-deductible under section 192 is to be considered for deduction of tax at source @ 10% under Section 194J. Further, there is no threshold limit for deduction of tax at source.
Question 20. Whether TDS required to be deducted on payment made to Government?
Answer: No tax required to be deducted by any person from any sum payable to-
1. the Government, or
2. the Reserve Bank of India, or
3. a corporation established by or under a Central Act which is, under any law for the time being in force, exempt from income tax on its income, or
4. a Mutual Fund specified under clause (23D) of section 10,
where such sum is payable to it by way of interest or dividend in respect of any securities or shares owned by it or in which it has a full beneficial interest, or any other income accruing or arising to it.
Article By: Ms Bhavya Sharma, a Practising Company Secretary from Delhi. In order to know more about the TDS or any related queries thereto, you can contact us at legal@bhavyasharmaandassociates.com or for more details you can visit: www.bhavyasharmaandassociates.com
Disclaimer: Although due care and diligence have been taken in the preparation and uploading this Article, Bhavya Sharma & Associate shall not be responsible for any loss or damage, resulting from any action taken on the basis of the contents of this Article. Anyone wishing to act on the basis of the material contained herein should do so after cross-checking with the circulars, notifications, applicable acts, press release issued by the concerned department or seek appropriate counsel for their situation.
Footnotes:
[1] FAQs published by the Income Tax Department
[2] Income Tax Act, 1961
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