Tax Deduction at Source

Tax Deduction At Source

MEANING:-

 Person responsible for making payment of

certain income of the income earners deduct
income tax at the prescribed rates on such
incomes before payment is made to them.

 The amount so deducted at source shall be

deposited by the deductor in the Government
Treasury within the prescribed time limit.
 Payment covered by TDS
scheme
Covers payment like:-

 Salary (to R/NR).

 Payment other than salary to
residents (interest, dividend, rent,
commission, etc).
 Payment to non residents or foreign
companies.
 Salaries (Sec.192)
 Compute the income from salary as
discussed under the head “Income
from salaries”.
 From such salary allow the
deductions u/s. 80C, 80CCC, 80CCD,
80D, 80DD, 80E, 80GG and 80U.
 Rates Of Tax
Income (Individual) Rate of Tax
Upto Rs. 1,50,000 Nil
Above Rs. 1,50,000 – Upto Rs. 10%
3,00,000
Above Rs. 3,00,000 – Upto Rs. 20%
5,00,000
Above Rs. 5,00,000 30%
 Surcharge : 10% on excess of 1000000
 Education Cess : 2% on (income tax + surcharge)
 Secondary & Higher Education Cess: 1% on (income tax +
surcharge)
 Practical
Ques: An employee ‘C’ receives the following
for financial year 2008-2009:
 Salary :Rs 25000pm and Bonus Rs. 40000

 C’s contribution to RPF is Rs. 30000

 Life Insurance premium paid Rs. 10000

 Compute TDS on his income

 Solution
Computation of salary income and TDS for the assessment year 2009-
2010
Rs.
Salary(25000*12) and bonus = 340000
Savings u/s 80C:
L.I premium 10000
Contri to RPF 30000
(40000)
Salary Income Liable to TDS 300000

Tax on Rs. 300000

Upto Rs. 1,50,000 Nil
Above Rs.1,50,000 – Upto Rs.3,00,000 10% 15000
Add Surcharge Nil
Add EC@2% 300
Add SHEC@1% 150
Tax deductible at source 15450
 Rules for TDS from
Salary
 Who will deduct the tax- Employer.
 When tax will be deducted- At the
time of payment.
 Salary for more than 1 employer-

Assessee must furnish detail of his salary

receive from previous employer for
deduction of tax at source.
 Rules Cont…
 Income from any other head-

• An employee can furnish detail of this

other income to his employer
• Employer can deduct tax at source from
such incomes also.
• Assessee cannot claim set-off any loss
from salary income except loss under the
head “Income from House Property”.
 Rules Cont…
 Payment of salary in Foreign
currency-

 For the purpose of TDS on salary

payable in foreign currency the value
in rupees of such salary shall be
calculated at the prescribed rate of
exchange.
 Rules Cont…
 Tax on Perks paid by employers-

• The employer has being given the

option to pay tax on income by way
of perquisites (not provided by the
way of monetary payments).
• Such amount paid by employer shall
be deemed to have being paid by the
assessee.
 Rules Cont…
 Relief U/S 89(1)-

• If employee furnishes information in form no. 10E to

the employer relief u/s 89 should be given to the
concerned employee while deducting TDS u/s 192.

• This facility is available for employees of:-

• government organization or company,
• corporative society,
• local authority,
• university,
• institution,
• association or body.
 Rules Cont…
 Deposit of tax-

• Person responsible for paying the

salary is required to pay TDS as
under-
• Where deduction is made by or on behalf of
Government- on same day.
• In other case- within one week of the last day of
the month in which deduction is made.
 Rules Cont…
 Furnishing statement-

• Person responsible for paying salary

shall furnish to the person who
receives a salary a statement giving
particulars of perquisites or profit in
lieu of salary( in form 12BA).
Is it possible to get salary
without tax deduction or
with lower tax deduction?

YES, Employee can make an

application in form no. 13 to the
assessing officer to get a certificate
of lower tax deduction or no tax
deduction.
 Interest on securities
Sec. 193
(a)  Any person responsible for paying an
interest on securities to a resident is required
to deduct tax at source at the rates in force
on amount of interest payable.

(b) The Tax is required to be deducted at the

time of credit of such income to the payees
account or at the time of payment of interest
on securities whichever is earlier.
 Interest on securities
Sec. 193
RATE OF TAX:-
a) If the recipient of interest is other than a
company:
i) Securities issued by local authority or
statutory corporation-@10%+surcharge, if
any + education cess@2%+secondary and
higher education cess@1%;
ii) Debentures issued by a company, where
such debenture are listed in a recognised
stock exchange in India-@10%+surcharge, if
any + education cess@2%+SHEC@1%;
iii)other securities-@20%+surcharge, if any
+ education cess@2%+SHEC@1%.
 Interest on securities
Sec. 193
b)If the recipient is a company:
then it would be charged @20%+surcharge, if
any + education cess@2%+SHEC@1%.
TAX SHALL NOT BE DEDUCTED AT SOURCE FROM
ANY INTEREST PAYABLE ON:-
a) National Savings Certificates; or

b) 8% Savings(Taxable)Bonds; or

c) National Development Bonds; or

d) Any security of the central or state government.

 Dividends Sec.194
(a) The Principal Officer of the Indian Company
or a company, which has made prescribed
arrangements for declaration and payment of
dividend in India is responsible for deducting
tax at source from dividend payable to a
shareholder, who is resident in India.

(b) No tax is to be deducted at source u/s 194

from Dividend payable to any individual
shareholder if the dividend is paid by the
company by an account payee cheque and the
aggregate amount of dividend
distributed/paid or likely to be
distributed/paid during the financial year does
not exceed Rs.2,500/-.
 Dividends Sec.194
(c) Dividend paid by domestic
companies u/s 115O are exempt
from tax in the hands of the
recipients’ w.e.f. April 1, 2003.

d)The rate of TDS on dividends are

@ 20%+ surcharge, if any+
education cess@2%+SHEC@1%
 INTEREST OTHER THAN ‘INTEREST
ON SECURITIES’ Sec. 194A

 Who will deduct the tax at source

- An Individual or HUF, who is required to

get his accounts audited u/s 44AB

- A Company, firm, co-operative society,

local authority, AOP or BOI etc.
 Payment made to whom: a resident of India.
 RATE OF TAX:
 1.) Domestic Company:
@ 20% + Surcharge @ 10% + E.C. @ 2%
 2.)Other residents in India:
@ 10% + Surcharge, if any +E.C. @ 2 %
 Illustration
(Q) Calculate the amount of tax
deducted at source from the following
incomes during the F.Y. 2008-09.
a.) Interest on unlisted debentures of Y
Ltd. Payable to T, a resident in India
Rs. 10,000.
b.) Interest on Delhi Govt. Securities
payable to Mr. Z, a resident in India Rs.
20,000.
 Income from Interest on Securities
(listed)
Rs. 6,000.
 WINNINGS FROM LOTTERY OR
CROSSWORD PUZZLES ETC. Sec.
194B
 Who is the recipent : any person
 Payment covered: Winnings from
lotteries/ crosswords puzzles/ card
games/ other games.
 Max. amount which can be paid without
tax deduction: if the amount of
payment is Rs. 5,000 or less than Rs.
5,000.
 Rate of tax deduction at source: 30%
 Illustration
 During the F.Y. 2008-09 find out the
tax to be deducted at source in the
following cases:
a.) payment regarding lottery winnings
Rs. 500
b.) Lottery winnings of Rs. 1,00,000
payable to Mr.X , resident in India.
 Winning From
Horse Race
Tax will be deducted at source by bookmakers and
race clubs from winning from horse races, when

 The payment exceeds Rs 2500

The prescribed rate for deducting tax during the
previous year 2008-09 is 30% plus surcharge if any
Plus education cess @3% in case of all assessee.
 Winning from lottery or crossword
puzzles

Tax will be deducted if the amount exceeds

by
 Rs 5000

 The prescribed rate for deducting tax during the

previous year 2008-09 is 30% plus surcharge if any
 Plus education cess @3% in case of all assessee.
 Winning from lottery
Important points to be remember

 When the price is given partly in cash and partly in kind, then
income tax will be deducted with reference to the aggregate
amount of the cash prize and the value of the prize in kind. If
the part in cash is not sufficient to meet the liability of deduction
of tax in respect of the whole of the winning, the person
responsible for paying shall before releasing the winning ensure
that tax has been paid
 When the prize is given in installments, the tax will be deducted
only at the time of actual payment of each installments ie not in
the lump sum in the end but at each interval of installments.
 Income tax is not deductible from the income by way of bonus
or commission paid to lottery agent or sellers of lottery tickets
on the sale made by them.
Payment to contractors and
sub contractors
 Tax will be deducted at source if the sum exceeds Rs 20,000.
and further where the aggregate of amount exceeds Rs. 50,000.
 Everyone except an individual or HUF shall not deduct tax at source
where such sum is made or credited to the contractor exclusively
for personal purposes of such individual or any member of HUF.
 The authorities which will have to pay tax are:
a) The central government or any state government
b) Any local authority
c) Any statutory corporation
d) Any company
e) Any cooperative society
f) Any registered society
g) Any trust
h) Any firm
i) An individual or HUF who is required to get his accounts audited
under 44AB Act
Payment to contractors and
sub contractors
Rate of TDS
 When payee is a contractor, under sec 194C
a) in case of advertising @1% plus surcharge, if any +
education cess@3%
b) In any other case @ 2%plus surcharge, if any +
education cess @3%
 When payee is a sub contractor, under sec194 C2
a) when payee is an individual or HUF contractor, who is
required to get his accounts audited under sec40AB
b) If sub contractor is resident, then the deduction is @ of
1% + surcharge, if any + education cess @ 3%
Payment to contractors and
sub contractors
Exceptions
 Tax will not be deducted during the
course of business of plying, hiring or
leasing good carriages, if such
contractor is an individual who has
not owned more than two carriages.
 Insurance commission
Tax will be deducted
 If amount exceeds Rs 5000
 In case of person, resident of India
a) 10% plus surcharge, if any
+ education cess @3%
 In case of domestic company
a) 20% plus surcharge, if any
+education cess @ 3%.
 Section 194E – Payment to Non
Resident Sportsman/Sports
Association
(a) Any person responsible for paying any
income to a non resident sportsman including
an athlete who is not a Citizen of India or a
non-resident Sports Association or Institution is
required to deduct tax at source.
(b) The tax is required to be deducted at the
time of credit of such income to the account of
payee or at the time of payment in cash or by
issue of cheque or draft or by any other mode
whichever is earlier.
 Section 194EE – Payment in respect of
deposits under National
Savings Scheme

 (a) Any person responsible for paying to any

person any amount referred to in Section
80CCA(2) is required to deduct Income Tax.
 (b) No deduction is required to be made
where the amount of such payment or the
aggregate amount of such payments during
the financial year is less than Rs.2,500/-.
 Section 194F – Payment on account of
Repurchase of Units by Mutual
Funds or UTI

Any person responsible for paying to

any person any amount referred to in
Section 80CCB(2) is required to
deduct tax at source at the time of
payment without any exemption.
 Section 194G – Commission
etc. on the sale of Lottery
Tickets

 Any person who is responsible for

paying commission, remuneration or
prize to any person who is or has
been stocking, distributing,
purchasing or selling lottery tickets is
required to deduct tax at source on
such tickets on an amount exceeding
Rs.1,000/-.
 Section 194H – Commission or
Brokerage
a) Any person other than an individual or
Hindu Undivided Family who is responsible for
paying on or after 1st June, 2001, to a
resident, any income by way of commission
(other than insurance commission referred to
in section 194D), or brokerage, is required to
deduct tax.
(b) No deduction is required to be made
where the amount of such income or the
aggregate of the amounts of such income
credited/paid during the
 Section 194 I – Rent
(a) Any person other than an individual or
Hindu Undivided Family responsible for
paying rent to resident any income by way
of rent is required to deduct tax
a) 15% if the payee is individual or HUF
b) 20% in other cases.
This provision does not applicable if total
rent not exceed Rs.1,20,000.
 Sec.194J-Fee for
professional or technical
services
 It provide for deduction of tax at
rate of 5% at time of payment or
credit.
No tax shall be deducted at source :
a) Any amount credited or paid before
1/7/1995
b) If amount does not exceed
Rs.20,000.
 Sec.194K-TDS on units of
UTI and Mutual funds
 Tax shall be deducted at prescribed rates(10.5%) on
any income distributed by UTI or Mutual Funds
under u/s 10(23D).
No TDS in following cases:
 If amount of income does not exceed 2500 Rs. Or
 If amount paid to a person whose total income
including this income does not exceed Rs.50,000
and who is an individual or HUF and submits a
declaration in form 15H
 If assessing officer issues a certificate allowing no
TDS.
 Section 195
 Any person responsible for paying to a non-resident, not
being a company, or to a foreign company, any interest (not
being interest on securities) or any other sum chargeable
under the provisions of this Act (not being income chargeable
under the head "Salaries" )shall, at the time of credit of such
income to the account of the payee or at the time of payment
thereof in cash or by the issue of a cheque or draft or by any
other mode, whichever is earlier, deduct income-tax thereon
at the rates in force :
 Provided that in the case of interest payable by the
Government or a public sector bank within the meaning of
clause (23D) of section 10 or a public financial institution
within the meaning of that clause, deduction of tax shall be
made only at the time of payment thereof in cash or by the
issue of a cheque or draft or by any other mode . 
 Sec.196B-
Income from unit
of offshore funds.
In case of any income is payable in
respect of offshore, tax at the rate of
10% shall be deducted at source at
the time of making payment or credit
the amount to the account of payee.
This provision has come into effect
from 01.10.1991
 Section 196C
INCOME FROM FOREIGN CURRENCY BONDS OR
SHARES OF INDIAN COMPANY .
 In case of income by way of interest or dividend is paid or
payable in respect of bonds or shares of indian companies
as refferred in sec.115ac, income tax at the rate of 10%
shall be deducted at source. This amendment has been
inserted by the finance act 1992 and is effective from
01.06.1992
 Section 196D
Income of Foreign Institutional Investors

from securities .
(1) Where any income in respect of securities referred to in
clause (a) of sub-section (1) of section 115AD is payable to
a Foreign Institutional Investor, the person responsible for
making the payment shall, at the time of credit of such
income to the account of the payee or at the time of
payment thereof in cash or by issue of a cheque or draft or
by any other mode, whichever is earlier, deduct income-tax
thereon at the rate of twenty per cent.
(2) No deduction of tax shall be made from any income, by
way of capital gains arising from the transfer of securities
referred to in section 115AD, payable to a Foreign
Institutional Investor.
 OTHER IMPORTANT POINTS
REGARDINGS DEDUCTION OF TAX AT
SOURCE
1. Payment to the Government or Reserve
Bank (Sec 196) :
No tax will be deducted at source if the
payment is made to :
i)The Government or
ii)The Reserve Bank of India
iii)Any Statutory Corporation whose income is
exempt from income tax or
iv)A Mutual Fund specified in Sec10(23d)
2. Tax deductionat lower rate (Sec 197) :
In case of any income of any person under
Sections 192 to 195 on an application being
made by an assessee,the Assessing Officer,
may if satisfied,issue a certificate that either
his income is not taxable or taxable at lower
rate . In such a case the person making the
payment shall either not deduct tax at all or deduct
it at lower rate stated in the certificate
3. No Deduction of tax at source in
certain cases(Sec 197A)
a.) No deduction of tax at source shall be
made from(U/S 194 and 194EE)(i)Dividends
,(ii)payments in respect of deposits under
NSS,if following conditions are satisfied:
- Recipient of such income is an individual
and resident in India
- Such a person furnishes a declaration in
writing in duplicate,in the prescribed form
that the tax on his estimated total income
of the previous will be nil.
b) No deduction of tax at source shall be
made from(U/S 193 and 194A) (i)interest
on securities ii)interest other than
securities , if following conditions are
satisfied:
- Recipient of such income is a person not
being a company or a firm
- Such a person furnishes a declaration in
writing in duplicate, in prescribed form that
the tax on his estimated total income of the
previous year will be nil
c.)If the income of a person is unconditionally exempt u/s 10
and who is not required to file return of income u/s
139,there would be no requirement for TDS since the
income is exempt
d.)No deduction of tax shall be made if the following
conditions are satisfied:
- The assessee is an individual and resident of india
- He is of the age of 65 years or more at any time during
previous year
- He furnishes a declaration in prescribed form in duplicate to
the person responsible for paying any income of the
following nature stating that the tax on his estimated total
income for the relevant previous year is nil:
- Interest on securities
- dividends
- interest other than interest on securities
- payment in respect of deposit under NSS
e.) No deduction of tax shall be made by the
Offshore Banking Unit from the interest paid:
- On deposit made after 31.3.2005 by a non
resident or a person not ordinarily resident in
india
- On borrowing after 31.3.2005 from a non resident
or a person not ordinarily resident in india
The payer of the income aforesaid will deliver to the
Chief Commissioner or Commissioner of Income
Tax one copy of the declaration on or before the
7th day of the month next following month in
which the declaration is furnished . If he fails to
do so he will be liable to a penalty of Rs 100 per
day during which the default continues
4) Tax deducted is income (Sec 198)
The tax deducted at source is deemed to be the
income of the person from whose income the tax
has been deducted at source
5) Credit for tax deducted :
The tax deducted at source and paid to the
central government is deemed to have been paid
on behalf of the person from whose income the
deduction was made or the owner of the
security , or of the depositor or of the owner of
property ,or of the unit holder .or the
shareholder, as the case may be
6.)Duty of tax payer :
It is the duty of the person responsible for
deducting tax at source that he must pay it to
the government within the prescribed limit
7.) Issue of certificate (Sec 203):
The person deducting the tax at source or the
employer paying the tax on the value of
perquisites,has to issue a certificate of
deduction/payment to the assessee stating the
amount of tax deducted at source or paid in the
prescribed Form No.16/16AA in case of salaries
and Form No. 16A in all other sources
8.)Tax deduction and collection account number
(Sec 203A) :
Every person, deducting tax or collecting tax
at source, who has not been alloted a tax
deduction account number or a tax collection
account number,shall apply in duplicate in
Form No. 49B within one month from the end
of the month in which the tax was deducted or
collected to the A.O for the allotment of a tax
collection account number
9.)Furnishing of statement of tax deduction(Sec 203AA) :
The Director General of Income Tax or the person
authorised by him shall,within prescribed time after the
end of each financial year beginning on or after 1.4.2008
prepare and deliver to every person from whose income
the tax has been deducted or in respect of whose income
tax has been a statement in the prescribed form specifying
the amount of tax deducted or paid or collected at source
10.)Bar against direct demand from assessee(Sec 205):
Where tax has been deducted at source, the assessee
shall not be liable to pay tax himself to the extent it has
been deducted even the deductor has failed to pay it to
the government .
Persons responsible for deducting
tax at source ( Section 204)
 In case of salaries
 In case of interest on securities
payable by a person other than State
or Central Government
 In case of any other sum paid or
credited under the provisions of the
Act
 Tax deduction
account number
section (203A)
Every person who is
responsible for deducting tax
at source is allotted a TAN
number
 Such account number shall be quoted
on following documents
 - all the challans for payment of tax

 - all tax deductions at source

certificates
 - any other documents so prescribed
 NUMERICAL
Ascertain amount of Tax deducted at source from the
following incomes/receipts during the financial year 2008-
09
 Lottery winnings of Rs 100000 payable to Mr. X, resident in
India
 Winnings from horse race Rs 50000 payable to Mr. Y , non
resident in India
 Dividends from a domestic company Rs 40000
 Insurance commission payable by resident of India Rs.
14000
 Commission to lottery agent Rs. 15000
 Income from interest on securities Rs. 6000
SOLUTION
 CONCLUSION
TDS is one of the modes of collecting
Income-tax from the assesses in India.

Tax deducted at source needs to be

deposited in the Government treasury
and assigned to the Central
Government, within a stipulated time
period
SECTION OF THE ACT NATURE OF PAYMENTS RATES IN % FOR RATES IN % FOR OTHERS
COMPANIES

192 Salaries

193 Interest ON 20 10
Securities
194 A Interest other than
interest on 20
10
securities
194BB Winning from horse 30 10
race
194D Insurance 10 10
commission
194 H Commission on 5 5
brokerage
194i Income from 20 15 & 20
rent>120000
194 B Winnings from 30 30
lottery> 5000