TDS in Simple Words

Contents Covered

• TDS in Simple Words
• Key Provisions of Section 194Q
• Key Provisions of Section 194R
• Key Provision of Section 194N
• Summary

TDS in Simple Words

Tax deducted at source (TDS) in India is a system where tax deducted at the source of income, such as salary, interest, rent, or any other specified payments. The TDS provisions are outlined in the Income Tax Act, 1961 under various sections.

Here is a table that provides an overview of TDS (Tax Deducted at Source) sections, their corresponding threshold limits, and the applicable TDS rates under the Income Tax Act, 1961 of India.

Highlighted Section are generally used the most.

*Note-01- section 194A [Interest (other than on securities)]

• TDS is not required to be deducted if the interest amount is below ₹40,000 in a financial year.
• For interest payments made to senior citizens, the threshold limit for TDS is ₹50,000 in a financial year.

• For any other case the threshold limit is ₹5000

TDS is applicable on interest paid by banks, post offices, and other financial institutions on deposits such as:

• Fixed Deposits (FDs)
• Recurring Deposits (RDs)
• Savings Account interest
• Corporate Bonds (other than those qualifying as “securities”)

*Note- 02- Section 194C (Payments to contractors/subcontractors)

Example of Contractual expenses–

• Advertisement services, Construction services, Consultancy services, Transport and Logistic services, Business promotion Expenses.

*Note- 03-Section 194H (Commission or brokerage)

Examples of Payment covered

• Commission paid to insurance agents, Brokerage paid to real estate agents, Commission paid to sales agents.

*Note-04- Section 194I [Rent (Immovable Property)]

TDS applies to payments made for:

• Land, buildings, Leasing of office space or factory buildings etc.

*Note-05- Section 194I [Rent (Machinery/Equipment)]

TDS applies to payments made for:

• Machinery, Plant, or equipment, Furniture or fittings, other similar assets leased or rented.

*Note-06- Section 194IA (Purchase of Immovable Property)

• TDS under section 194IA applies when:
• An immovable property (land, building, or a part of a building) is being transferred.
• The consideration for the transfer is ₹50 Lakh or more.
• The property is not agricultural land.

*Note-07- Section 194IB [Rent (Land or Building)]

TDS under section 194IB applies to individuals and HUFs who pay rent but are not subjected to a tax audit in the preceding financial year.

*Note-08- Section 194J (Professional or technical fees)

Section 194J of the Income Tax Act, 1961 relates to Tax Deducted at Source (TDS) on fees for professional or technical services. This section covers payments made to professionals, such as consultants, doctors, lawyers, technical experts, and other service providers.

*Note-09- Section 194Q (Payments for the purchase of Goods)

Key Provision of Section 194Q

• Buyer: The TDS under this section applies to a person who is buying goods and whose total sales, gross receipts, or turnover from the business exceeds ₹10 crore in the previous financial year.
• Seller: The goods must be purchased from a resident seller (Indian vendor).
• TDS will be applicable when the aggregate purchase amount from the seller in the financial year exceeds ₹50 lakhs.

*Note -10- Section 194R (TDS on Benefits or Perquisites)

Key Provision of Section 194R

• TDS is applicable to any person (business, company, or individual) who provides any benefits or perks to a resident in the course of their business or profession.
• The recipient of the benefit/perk must be a resident individual, Hindu Undivided Family (HUF), or a firm, etc., and the benefit must be provided in the context of their business or profession.
• The term benefit or perk refers to any gift, voucher, coupon, free goods, services, entertainment benefits, or any other form of

*Note-11- Section 194N (TDS on cash withdrawal)

Key Provision of Section 194N

Applicability:

• Section 194N applies to cash withdrawals from a bank, post office, or any other financial institution by a person.
• It applies to both individuals and entities (e.g., businesses, companies, partnerships, etc.) that make cash withdrawals.

• TDS is deducted on withdrawals made by residents only (non-residents are not covered under this section for cash withdrawals).

• TDS is applicable only when the total cash withdrawal in a financial year exceeds ₹20 lakh for a non-taxpayer (i.e., a person who has not filed tax returns in the last three years).
• For taxpayers (those who have filed income tax returns in the previous three years), the threshold is ₹1 crore.

This means:

• TDS of 2% will be deducted on cash withdrawals above ₹20 lakh but below ₹1 crore if the person has not filed tax returns.
• TDS of 2% will be deducted if cash withdrawals exceed ₹1 crore for a taxpayer who has filed tax returns in the last three years.
• If the person has not filed tax returns in the last three years, a higher rate of 5% applies on cash withdrawals exceeding ₹20 lakh but less than ₹1 crore.

*Note-12- Section 194T (TDS on Payment by Partnership Firm to Partners)

Section 194T of the Income Tax Act, 1961 deals with the Tax Deducted at Source (TDS) on payments made by partnership firm to partners such as salary, bonus, commission, interest on loans.

*Note 13- Key Provisions of Section 195:

Section 195 of the Income Tax Act, 1961 deals with the Tax Deducted at Source (TDS) on payments made to non-residents (including foreign companies) for income earned in India. This section is crucial for ensuring that income arising in India and paid to non-residents is taxed at the time of payment.

• Section 195 applies to payments made to non-residents, including foreign companies, for any income that arises or is deemed to arise in India.
• The payments may be for interest, royalties, fees for technical services, professional fees, dividends, or any other type of income.
• The person making the payment to the non-resident (payer) is responsible for deducting TDS at the time of payment or credit, whichever occurs first.

Summary

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