TDS/TCS Provisions and Compliance Income Tax Act 1961 Chapter XVII

Article Contains TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) provisions.

TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) are one of the mode through which government gets revenue instantly at the time of generation of Income. TDS/TCS provisions play a very important role in maintenance of liquidity of fund to the Government of India. Government gets approximately more than 40 per cent revenue in current fiscal year from TDS and TCS. It helps Government in minimizing tax evasion. It make cautious to tax payers while calculating his annual income and get credit of TDS/TCS as reflected in form 26AS or TDS certificate issued by deductor. It is important for tax professionals because they have to execute and complete the whole process of TDS provisions on behalf of clients.

TDS/TCS Provisions and Compliance Income Tax Act 1961 Chapter XVII

TDS provision was introduced in India by the Income Tax Act, 1922. Initially only four source of Income was covered under TDS.

• Salary
• Interest on securities
• Interest other than Interest on securities
• Dividends.

In compliance of TDS/TCS provisions, Information Technology is involved. For ready reference IT ACRONYM & TECH WORDS

• TDS: Tax Deducted at Source
• TCS: Tax Collected at Source
• RPU: Return Prepare Utility
• FVU: File Validation Utility
• JR: Justification Report
• Cons. File: Conso file
• csi file
• fvu file

Steps involved in TDS AND TCS Provision and Compliance

• DEDUCTION AT SOURCE UNDER SECTION 192 TO 196 OF IT ACT, 1961
• COLLECTION AT SOURCE UNDER SECTION 206(C )
• DEPOSIT OF TAX DEDUCTED AT SOURCE OR COLLECTED AT SOURCE IN GOVERNMENT’S TREASURY WITHIN THE STIPULATED TIME
• SUBMISSION OF TDS RETURN WITHIN STIPULATED TIME
• SUBMISSION OF TCS RETURN WITHIN STIPULATED TIME
• TAG OR ADD OF CHALLAN TO THE TDS STATEMENT
• DOWNLOAD OF TDS/TCS CERTIFICATE FROM TRACES

Briefs of Section and Rate for TDS 

Other Requirements of TDS/TCS

If recipient not furnish his/its PAN Tax shall be deducted at the normal rate or at the rate of 20% , whichever is higher

CERTIFICATE FOR DEDUCTION AT LOWER RATE OR NO DEDUCTION AT SOURCE

• On application made to Assessing officer, if he satisfied that the total income of recipient justifies the deduction of income tax at any lower rates or no deduction of income tax, the AO shall give him such certificate under section 197.
• The person responsible for paying the income shall deduct income tax at the rates specified in such certificate or deduct no tax as the case may be, mentioned in certificate issued under section 197.
• The person responsible for TDS, shall submit one copy before the Chief commissioner or commissioner of TDS.

NO DEDUCTION

• Section 197A
• Amount of any income does not exceed the maximum amount which is not chargeable to tax
• An individual, resident in India has furnished Form 15G in duplicate to the deductor
• An individual, resident in India ( Senior Citizen) has furnished form 15H in duplicate to the deductor
• By Offshore Banking Unit from the interest paid to nonresident or a person not ordinarily resident in India
• From any payment to any person for or on behalf of the New pension system[10(44)]
• From such specified payment to such institution, association or body or class of institutions as may be notified by the Central Government whose income is unconditionally exempt under section 10 and who are not statutorily required to file return under section 139.
• Local Authority, SAARC fund, IRDA, Prime minister’s National relief fund, Recognised provident fund, ESIC fund etc,

Threshold for no deduction of TDS

Provision for TCS

Profits and gains from the business of trading, grants of lease or license, sale of motor vehicle under section 206C as Income tax collected at source i.e. TCS

• Every person , being a seller shall at the time of debiting of the amount payable by the buyer to the account of buyer or at the time of receipt of such amount from the said buyer, whichever is earlier, collect from the buyer of such amount as income tax.
• TCS shall not be collected if buyer declares that purchase of goods shall be utilized for the purpose of manufacture, processing or producing articles or things.

RATE OF TAX COLLECTION AT SOURCE (TCS)

TIME OF DEPOSIT TDS/TCS 

TDS/TCS Payment

• TDS/TCS should be deposit in Challan No. 281
• TDS/TCS will have to deposit through internet banking.
• Indicate accurate PAN in challan
• Minor Head of Challan – 200 : TDS payable by tax payer
• Minor Head of Challan – 400: TDS Regular assessment raised by Income Tax Department.
• Amount of TDS, Interest, Late filing fee, penalty etc, should be separately shown while filing the challan
• Note down BSR code, Challan serial number, Date of payment, and amount of challan. This will help you in case challan is misplaced.

TDS/TCS Return forms to be submitted Quarterly 

DUE DATE OF SUBMISSION OF TDS/TCS QUARTERLY RETURN

MODE OF FURNISHING QUATERLY RETURNS OF TDS/TCS

• In case where deductor or collector are an office of Govt. or Principal officer of a company or is person who is required to get his account audited u/s 44AB in immediately preceding financial year or when the numbers of deductee’s/collectee’s are more than 20, then TDS/TCS quarterly return shall be submitted electronically.
• Other than above, any other deductor/collctor can submit TDS/TCS return either in paper format or electronically.
• Electronic return can be uploaded with Digital signature or verification of form 27A electronically
• Electronic return will be uploaded in FVU file
• FVU file can be generated through e TDS/TCS RPU (return prepare utility) which is available in https://www.tin-nsdl.com/services/etds-etcs/etds-rpu.html
• In every quarter download latest e TDS/TCS RPU
• In e TDS/TCS return details of challan paid [ i.e. TDS amount, Interest, Fee, Other/penalty, BSR code, Challan serial No., Date of challan, Minor head] , details of deductee/collectee has to fill like section under which payment made, PAN, Name, Date of payment, Date deposit of TDS/TCS, amount paid, amount of TDS/TCS, Rate of TDS/TCS etc,.

Process of TDS/TCS return by the Income tax department through Traces

• After uploading of TDS/TCS return, IT department will process the return.
• Deductor/Collector has to registered in Traces site and create User ID and Password
• After uploading return, TDS/TCS return can be process without default. If TDS/TCS return is process with default, that means there is some error in return and there may be demand of short deduction, interest, late filing fee or penalty.
• To know details of process with defaults, justification report has to be downloading.
• If there is demand of short deduction or interest or late filing fee, then deductor/ collector has to deposit the demand under minor head 400 showing separately TDS/TCS, Interest, late fee or others penalty and add this challan to the respective quarterly statement.
• After Tag/add of challan, again TDS/TCS correction return has to be uploaded.
• When TDS/TCS return is process without default, that means TDS/TCS return process is completed. Thereafter TDS/TCS certificate has to download.

Certificate of TDS/TCS

Time limit for issuing TDS certificate in case of other than salary 

Time limit for issuing TCS certificate 

SALARY TDS CERTIFICATE IN FORM 16

• In the TDS return of salary of quarter 4, data of annual salary paid and TDS deducted of employee’s have to fill.
• Form 16 is divided into two part i.e. Part A and Part B
• Part A of Form 16 contains information of employer and employee, assessment year, summary of TDS, challan details etc,
• Part B of Form 16 contains details of salary paid, other incomes, amount deducted under chapter VI- A etc,

CONSEQUANCE ON DEFAULT IN TDS/TCS PROVISIONS 

DISSALLOWANCE OF EXPENSES

• U/S 40(a)(i):- 100% expenditure shall be not allowed to deduct from income chargeable under the “profits and gains from business or profession”, if any assessee fail to deduct tax at source or fail to deposit TDS deducted from interest, royalty, fee for technical services payable outside India, or in India to a non-resident, not being a company or a foreign company.
• U/S 40(a)(ia):- 30% expenditure shall be not allowed to deduct from income chargeable under the “profits and gains from business or profession”, if any assessee fail to deduct tax at source or fail to deposit TDS deducted to a resident