But in the following cases,

TDS is deductible only at the time of actual payment:

• Section 192 – Salary
• Section 192A – Employee Provident fund (EPF) Payment
• Section 194B – Winning from Lottery, Crossword, Puzzle, etc.
• Section 194BB – Winning from Horse race
• Section 194DA – Maturity Proceeds of LIC
• Section 194LA – Compensation of compulsory acquisition of immovable property
• Section 194N – Cash Withdrawal from Bank

All TDS rates are fixed rates, flat rates that are 1%, 2%, 5%, 20%, 30%, etc. But if payment is made to NRI/ Foreign company or Payment of Salary Surcharge & Higher education cess shall be considered.

As per Section 206AA, If the payee does not furnish PAN/ Aadhar to the payer, then the TDS rate is whichever is higher from the following-

• Rate as per respective section
• Flat Tax rate of 20%

Exception: For section 194O TDS on payment of E-Commerce operator rate is 5% instead of 20%.

Why TDS (Tax Deduction at Source) is Deducted?

TDS stands for Tax Deducted at Source. It is a system introduced by the Indian government where a certain percentage of tax is deducted by the person who is making the payment to the individual or entity. The deducted amount is then deposited with the government.

The purpose of TDS is to ensure that taxes are paid on income earned by individuals and entities in a timely manner rather than waiting until the end of the financial year when the income tax return is filed. TDS also helps to increase the compliance rate for taxes, as it ensures that taxes are paid on a regular basis rather than only once a year.

TDS is typically deducted on income from sources such as salary, rent, interest, commission, professional fees, and more. The rate of TDS and the threshold limit at which TDS is applicable vary depending on the type of income and the category of the payer and payee.

It’s important to note that TDS is not a final tax, it is a kind of advance tax, and the person from whom TDS has been deducted can claim credit of the same while filing the income tax return.

Section-wise TDS discussion

Section 192 – TDS on Salary

• Payer – Any Person (Employer)
• Payee – Employee
• Rate – Slab Rate
• Additional Points –
  • The employer shall consider details of other income & deductions but not consider any losses except loss under the head House Property of an employee if furnished by the employee.
  • In a case where the employee works with more than one employer simultaneously or the employee changes his job & joins another employer, then at his own option, he may furnish details of his other employment to any one of the employers / current employer (in Form No. 12B)
  • If the tax on non-perquisite of employee is paid by an employer, then such tax is not allowed as a deduction to the employer under the head profit and gains of the Business profession (PGBP), and such tax is not taxable in the hands of an employee due to Section 10(10CC).

Section 192A – The accumulated balance of employee provident fund (EPF)

• Payer – Any Person
• Payee – Employee
• TDS Rate – 10% (If an employee does not furnish PAN / Aadhar, then TDS deductible at the rate MMR (Maximum Marginal Rate) @42.744%, i.e. (30%+37%+4%))
• Additional Point –
  • TDS is deductible only if the amount is taxable in the hands of the employee
  • No TDS if the amount is less than Rs. 50000.

Section 193 – TDS on Interest on Securities (Bonds, Debentures, etc.)

• Payer – Any Person
• Payee – Any Resident Person
• Rate – 10% (Rate is 7.5% from 14-05-2020 till 31-03-2021 i.e. Covid Period)
• Additional Point –
  • No TDS
    1. if interest is paid to LIC, GIC, or any other insurer
    2. Interest on government securities (Exception- TDS is applicable on 8% saving taxable bonds 2003 or 7.75% Saving taxable bonds 2018 only if the interest payable is greater than Rs. 10000 during P.Y.)
    3. D- Mat securities.
  • TDS is not applicable on interest payable on bonds of Power Finance Corporation Ltd. (PFCL) or Indian Railway Finance Corporation Ltd. (IRFCL) (Section 54 EC Bonds)
  • Interest on debenture of a public company if interest is up to Rs. 5000 paid to resident individual / HUF by account payee cheque.

Section 194 – TDS on Dividend

• Payer – Domestic Company
• Payee – Any Resident Person
• Rate – 10% (Rate is 7.5% from 14-05-2020 till 31-03-2021 i.e., Covid Period)
• Additional Point –
  • No TDS if dividend payable by any mode other than cash to individual up to Rs. 5000.

Section 194A – TDS on Interest (Other than interest on securities Section 193)

• Payer – Any Person (Exception: In case of individual / HUF required to be deducted only if last year’s turnover is greater than Rs. 1 Cr. In case of business or Gross receipt greater than Rs. 50 Lakh in case of the profession.)
• Payee – Resident Person
• Rate – 10% (Rate is 7.5% from 14-05-2020 till 31-03-2021 i.e., Covid Period)
• Additional Point –
  • No TDS if
    • Interest is up to Rs. 5000 p.a.
    • Interest paid / payable by Bank / Co. Operative Bank / Post office is up to Rs. 40000 (Limit is Rs. 50000 if the payee is a resident senior citizen)      Note: Bank opting for Core Banking Solution, the limit of Rs. 40000/50000 will not be per branch but will be per bank.
  • TDS is not applicable in the following cases –
    1. Interest on saving bank account
    2. Interest on income tax refund
    3. Interest by partnership firm to partners
    4. Interest paid to any Bank, LIC, UTI, & any Insurer.
    5. Interest paid by Co-Op Society (other than Co-Op Bank) to its members or any other Co-Op Society. Note: If last year’s turnover is more than Rs. 50 Cr. & Interest paid to Senior Citizens more than Rs. 50000 or any other person is more than Rs. 40000, then TDS is applicable.
    6. Interest credited on the compensation amount awarded by the motor accidents claims tribunal.
    7. Interest paid on compensation amount awarded by motor accident claims tribunal & interest is up to Rs. 50000 in a financial year.
    8. Interest paid in respect of certain schemes of Post office, Kisan Vikas Patra, Indra Vikas Patra, National Saving Certificate, Post office Monthly Income Account, Post Office Recurring Deposits.

Section 194B – TDS on Winning from Lottery, Cross Word, Puzzle, etc.

• Payer – Any Person
• Payee – Any Person
• Rate – 30%
• Additional Point –
  • No TDS if winning is up to Rs. 10000

Section 194BB – Winning from Horse Race

• Payer – Any Person
• Payee – Any Person
• Rate – 30%
• Additional Point –
  • No TDS if winning up to Rs. 10000
  • Note: (For Section 194B & 194B) If winning is in kind then the organization will release winnings only after ensuring that the tax on winning is paid to the government.

Section 194C – TDS on Contract

• Payer – Any Person (Exception: In case of individual / HUF required to be deducted only if last year’s turnover is greater than Rs. 1 Cr. In case of business or Gross receipt greater than Rs. 50 Lakh in case of the profession.)
• Payee – Resident Person
• Rate – If payee Individual / HUF applicable rate is 1% and Other than Individual / HUF 2% (Rate is 0.75% & 1.5% from 14-05-2020 till 31-03-2021 i.e. Covid Period)
• Additional Point –
  • No TDS if
    1. A single contract is up to Rs. 30000 or
    2. The aggregate contract is up to Rs. 100000 in P.Y.
  • Contract means work contract and it includes –
    1. Advertisement, Broadcasting & Telecasting
    2. Catering
    3. Carriage of goods or passengers by any mode other than the railway.
    4. Production of any product as per the requirement of the customer out of material supply / purchased from such customer or related party of the customer. (Related party means relative given u/s 40A (2).)
  • No TDS if the contract is for the personal purpose of the individual / HUF
  • No TDS if payment is made to the transporter & he does not own more than 10 vehicles at any time during the previous year and he furnishes declaration with PAN.
  • Contracts include Subcontracts
  • Payment made to TV Channel / Broadcaster to the production house for the production of the program if the program is produced as per specification & copyright is also transferred to the TV channel or broadcaster then TDS applicable u/s 194C but, if any right of the program already produced by production house is acquired then TDS not applicable u/s 194C.
  • In the case of a job, work material used and the value of material separately shown in the invoice then TDS is applicable on invoice value excluding material but if the value of the invoice is not separated in the invoice then TDS is applicable on the whole invoice value.

Section 194D – TDS on Insurance Commission

• Payer – Insurance Company
• Payee – Resident Person (Agent)
• Rate – 5% (Rate is 3.75% from 14-05-2020 till 31-03-2021 i.e. Covid Period)
• Additional Point –
  • No TDS if insurance commission is up to Rs. 15000 p.a.

Section 194DA – TDS on Maturity Proceed of Life Insurance Policy

• Payer – Any Person
• Payee – Resident Person
• Rate – 5% (Rate is 3.75% from 14-05-2020 till 31-03-2021 i.e. Covid Period)
• Additional Point –
  • No TDS if maturity amount is exempt u/s 10(10D)
  • No TDS if the maturity amount is less than Rs 10000
  • TDS is applicable only on the income portion that is Maturity amount minus the Premium paid.

Section 194E – TDS on Payment to Non-Resident Sports Persons / Sports Associations / Entertainers

• Payer – Any Person
• Payee – Non-Resident Sports Person / Sports Associations / Entertainers (Not a Citizen of India)
• Rate – 20% + 4% (Cess)
• Additional Point –
  • Payment is for –
    1. Participation in any games in India e.g. IPL, ISL, etc.
    2. Advertisements
    3. Contribution to any article in newspapers, magazines, etc.
    4. Performance in India (Entertainers)

Section 194G – TDS on Commission on sale of lottery ticket

• Payer – Any Person
• Payee – Any Person (Agent)
• Rate – 5% (Rate is 3.75% from 14-05-2020 till 31-03-2021 i.e. Covid Period)
• Additional Point –
  • No TDS if Commission is up to Rs. 15000 p.a.

Section 194H – TDS On Commission & Brokerage

• Payer – Any Person (Exception: In case of individual / HUF required to be deducted only if last year’s turnover is greater than Rs. 1 Cr. In case of business or Gross receipt greater than Rs. 50 Lakh in case of the profession.)
• Payee – Resident Person
• Rate – 5% (Rate is 3.75% from 14-05-2020 till 31-03-2021 i.e. Covid Period)
• Additional Point –
  • No TDS if commission/brokerage is up to Rs. 15000 p.a.
  • No TDS if commission/brokerage is related to securities i.e., brokerage on a public issue, underwriters commission, etc.
  • No TDS if the commission is paid by BSNL, and MTNL to their public call office (PCO) franchises.

Section 194I – TDS on Rent

• Payer – Any Person (Exception: In case of individual / HUF required to be deducted only if last year’s turnover is greater than Rs. 1 Cr. In case of business or Gross receipt greater than Rs. 50 Lakh in case of the profession.)
• Payee – Resident Person
• Rate – On Plant & Machinery 2% and On Land / Building / Furniture 10% (Rate is 1.5% & 7.5% from 14-05-2020 till 31-03-2021 i.e. Covid Period)
• Additional Point –
  • No TDS if rent is up to Rs. 240000 p.a. to per Co-owner
  • Nonrefundable deposits, advance rent, and arrears of rent are also eligible for TDS. If rent includes municipal taxes, then TDS is not applicable to municipal taxes

Section 194IA – TDS on Purchase of Immovable Property (Other than rural agriculture land)

• Payer – Any Person
• Payee – Resident Person
• Rate – 1% of Consideration (Actual consideration No Stamp Duty Value) (Rate is 0.75% from 14-05-2020 till 31-03-2021 i.e., Covid Period)
• Additional Point –
  • No TDS if consideration is less than Rs. 50 lakhs
  • Consideration shall include all charges of club membership fees, car parking fees, water, or electricity filling fees any other charges which are property.

Section 194IB – TDS on Rent of immovable Property

• Payer – Individual / HUF (Not covered under section 194I)
• Payee – Resident Person
• Rate – 5% (Rate is 3.75% from 14-05-2020 till 31-03-2021 i.e., Covid Period)
• Additional Point –
  • No TDS if rent is up to Rs. 50000 per month or Part of the month
  • TDS is required to be deducted at the time of credit of rent for the last month of the previous year or the last month of tenancy (If the property vacated during P.Y.) or at the time of payment whichever is earlier.
  • If the payee does not furnish PAN then TDS is required to be deducted at 20 % (u/s 206AA) but the TDS amount should not be more than the rent of last month.

Section 194IC – TDS on Payment under Joint Development Agreement

• Payer – Any Person (Builder)
• Payee – Resident Person
• Rate – 10% (Rate is 7.50% from 14-05-2020 till 31-03-2021 i.e., Covid Period)
• Additional Point –
  • Under this section, TDS is applicable only for money & not for consideration in kind.

Section 194J – TDS on Professional fees, Technical fees, Royalty, Non-Compete fees, Director fees

• Payer – Any Person (Exception: In case of individual / HUF required to be deducted only if last year’s turnover is greater than Rs. 1 Cr. In case of business or Gross receipt greater than Rs. 50 Lakh in case of the profession.)
• Payee – Resident Person
• Rate – 2% If payment made to call center, fees for technical service (not professional service), Royalty for sale/distribution/exhibition of films and for any other cases applicable rate is 10% (Rate is 1.5% & 7.5% from 14-05-2020 till 31-03-2021 i.e. Covid Period)
• Additional Point –
  • No TDS if professional fees is up to Rs 30000 p.a., fees for technical service is up to Rs 30000 p.a., royalty up to Rs 30000 p.a., non-compete fees up to Rs 30000 p.a. and there is no limit for director fees. Note: Limit of Rs 30000 apply separately for professional fees, technical fees, royalty and non- compete fees except director fees.
  • No TDS if professional service taken by individual / HUF for personal purpose
  • No TDS if royalty & non-compete fees paid by individual & HUF

Section 194K – TDS on Income from Mutual Fund & UTI (Unit Trust of India)

• Payer – Mutual Fund Company / UTI
• Payee – Resident Person
• Rate – 10% (Rate is 7.50% from 14-05-2020 till 31-03-2021 i.e., Covid Period)
• Additional point –
  • No TDS if Payment is up to Rs 5000 in a previous year

Section 194LA – TDS on Compensation of Compulsory Acquisition of Immovable Property

• Payer – Any Person
• Payee – Resident Person
• Rate – 10%
• Additional Point –
  • No TDS if compensation is up to Rs 250000 p.a.
  • No TDS on compulsory acquisition of rural agriculture land

Section 194M – TDS on Contract, Commission, Brokerage or Professional fees.

• Payer – Individual / HUF (Not covered u/s 194C/194H/194J)
• Payee – Resident Person
• Rate – 5% (Rate is 3.75% from 14-05-2020 till 31-03-2021 i.e., Covid Period)
• Additional Point –
  • No TDS if sum paid / credited to payee is up to Rs 50 lakhs in previous year

Section 194N – TDS on Cash Withdrawal more than Rs 1 crore

• Payer – Bank / Co-operative Bank / Post Office
• Payee – Any Person
• Rate – 2%
• Additional Point –
  • TDS is applicable only if payer paying aggregate amount in cash more than Rs 1 crore in previous year from one or more accounts maintain by payee with payer.
  • If payee has not file, the return of income for all 3-assessment year relevant to previous year for which time limit to file the return u/s 139(1) has expired before the previous year in which payment is made the TDS deducted as follows- Amount withdrawn more than Rs 20 lakhs but up to Rs 1 crore applicable TDS rate is 2%. If withdrawal amount is more than Rs 1 crore than applicable TDS rate is 5%.
  • Under this section TDS is applicable on excess amount of Rs 20 lakhs or Rs 1 crore.
  • TDS under this section is not applicable if payee is Government, Bank, Co-operative Bank, Post office, White Label ATM Operator, Business Correspondents of bank / co-operative bank, Authorized dealer & full fledge money changer licensed RBI, Cash replenishment agencies, Franchise agent of ATM operator, Commission agent or trader operating under agriculture produce market committee (APMC).

Section 194O – TDS on Payment of E-Commerce (Sale of goods & services) (Applicable from 1^st October 2020)

• Payer – Any Person (E-Commerce Operator)
• Payee – Resident Person (E-Commerce Participants)
• Rate – 1% of gross amount (Rate is 0.75% from 14-05-2020 till 31-03-2021 i.e. Covid Period) (If payee does not furnish PAN / Aadhar than applicable rate is 5%)
• Additional Point –
  • No TDS if all the following conditions are satisfied –
    1. The E-Commerce participant is individual / HUF
    2. The gross amount of sale or service is up to Rs 500000 in previous year
    3. The E-Commerce participant has furnished his PAN/ Aadhar to E-Commerce operator.

• • Under this section TDS deductible on gross amount on sale of goods/ services. For this purpose, any payment made by purchaser of goods/ services directly to E-Commerce participant facilitated by E-Commerce operator shall be included in the gross amount for the purpose of TDS
  • E-Commerce means supply of goods or service or both over a digital or electronic network
  • E-Commerce operator means a person who owns, operate, manage, digital or electronic platform for E-Commerce. E.g., Amazon, Flipkart etc.
  • E-Commerce participant means a person resident in India selling goods or services or both through digital and electronic form.
  • If TDS deducted in this section, then TDS cannot be deducted under any other section.