47855042-tax-deducted-at-source

8/7/2019 47855042-TAX-DEDUCTED-AT-SOURCE

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TAX DEDUCTED AT SOURCE

STRUCTURE

15.0 Introduction

15.1 Objective

15.2 TDS on Salary

15.3 TDS on interest on securities

15.4 TDS on dividend

15.5 TDS on Winning15.6 TDS on contractors

15.7 TDS on Professional Fees

15.8 TDS on Rent

15.9 Let us Sum Up

15.10 Glossary

15.11 Self Assessment Exercise

15.0 INTRODUCTION

Assessee pays tax in the assessment year on the income earned in previous year. Due to this rule the tax collection is

delayed till the completion of the previous year. Even sometimes people conceal their income and the tax is not aid

at all. In order to overcome these problems, government started deducted some amount of tax from the amount

which is receivable by the assessee. The amount of tax so deducted is called as Tax Deducted at Source, i.e., TDS.

15.1 OBJECTIVE

After going through this lesson you will be able to understand what the scheme of tax deduction at source is. How

tax is deducted from salary income, interest and dividend income, winning from lottery, crossword puzzle, races

including horse races, gambling, betting etc., and payments of Rent, contractors and Professional fees.

15.2 TDS ON SALARY

TDS on salaries [Sec 192] - Any person responsible for paying Salaries (i.e. employer) is required to deduct tax on the

salaries payable by him. Tax is to be deducted at the prescribed rate applicable for P.Y. TDS is deducted after

considering the following 198:

1. If salary exceeds minimum non-taxable limit (Rs.1,00,000/Rs.1,35,000/Rs. 1,85,000)

2. Value of perk is to be included in salary.3. Employee can claim deduction u/s 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E, 80G, 80GG and 80U.

4. Salary shall be rounded off in multiple of Rs 10 and tax in multiple of Rs 1

5. Income from any other heads if disclosed by assesses shall be considered

6. If employee was earlier employed somewhere else during the P.Y. then the present employer should consider the

amount of income & TDS on that for computing the TDS on total income of employee

7. TDS shall be deducted on monthly basis.

15.3 TDS ON INTEREST ON SECURITIES

TDS on Interest on securities [sec 193] - Any person responsible for paying interest on securities shall deduct interest

at the prescribed rates. Tax is to be deducted at the time of:-

1. Payment of interest or

2. Making interest due; whichever is earlieryNo TDS on following: -

a)4 %National Defence bondsb)National development bondsc)7 yrs National Saving Certificatesd)6 % or 7% Gold Bondse)National Development Bondsf)Debentures of Co-operative society

yNo TDS on interest on debentures issued by a listed public company if following conditions aresatisfied: -

1.Interest is paid by A/c payee cheque2.Interest is paid to an resident Individual and


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3.If interest is less then Rs.2, 500 p.a.4.Debentures are listed in a stock exchange

The rate of T.D.S is:

y10% plus surcharge plus education cess - for Listed Debenturesy20% plus surcharge plus education cess - for Non- Listed Debentures

15.4 TDS ON DIVIDEND

TDS on Dividends [Sec 194] 199 - The principal officer is required to deduct tax at prescribed rates on dividend

(including Deemed dividend) payment to a resident individual shareholder (both preference & equity). No TDS on

dividend paid by a Company in which public is substantially interested, i.e., a public company, if following conditions

are satisfied: -

1. Dividend is paid by an A/c payee cheque

2. Dividend is paid to a resident Individual

3. Dividend is less than Rs 5000 p.a.

However, from 1.6.97 no TDS is required in case of dividend paid by a domestic company. Thus this section is now

relevant only for non-Indian company declaring dividend in India and domestic company declaring deemed dividend

Now Indian Companies are required to pay corporate dividend tax @ 10% on dividends paid or declared u/s 115-O.

The rate of T.D.S is 10% plus surcharge plus education cess.

15.5 TDS ON WINNING

TDS on winning from lottery or crossword puzzle [Sec 194 B] - Any person responsible for paying income on winning

from lottery or crossword puzzle shall deduct tax @ 30% plus surcharge plus education cess. TDS is payable if the

amount of winning exceeds Rs 5,000. Thus, there is no TDS on payment of Rs 5,000 or less.

TDS on winning from Horse Races [Sec 194 BB] - Same provisions as in lottery & crossword puzzle. Only difference is

Rs 5,000 to be read as Rs 2,500.

15.6 TDS ON CONTRACTORS

Payment to contractors and subcontractors [Sec 194 C]

1.If payment is made to an OR contractor.2.Payment should be made as a part of contract.3.Payment should be made by:

a)Govt.b)Trustc)Local Authorityd)A statutory cooperation/ Companye)A firm Co-Operative Societyf)University established under Actg)Societyh)Authority established under Act

4.Tax to be deducted if payment exceeds Rs. 20,000.5.Tax to be deducted at the time of making due or making payment, whichever is earlier 2006.TDS rate is 2 % plus surcharge plus education cess of contract amount (1 % in case of advertising contract)

TDS on payment to Sub Contractors [Sec 194 C]

If payment is made to a contractor or subcontractor

1.Payment should be made as a part of contract2.Payment should be made by any person, except HUF & individuals3.Tax to be deducted at the time of making due or making payment.4.Tax to be deducted @ 1% plus surcharge plus education cess of contract amount

15.7 TDS ON PROFESSIONAL FEES

TDS on Professional or Technical Fees [Sec 194 J]

1.Payment should be made by any person, except HUF & individuals2.Tax to be deducted at the time of making due or making payment, whichever is earlier.3.Tax to be deducted @ 5 % plus surcharge plus education cess of total amount.


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4.No TDS on payment made due before 1.7.955.TDS only if amount exceeds Rs. 20,000

15.8 TDS ON RENT

TDS on Rent [Sec 194 I]

1.Payment should be made by any person, except HUF & individuals2.Tax to be deducted at the time of making due or making payment, whichever is earlier.3.Tax to be deducted @ 20 % plus surcharge plus education cess of total amount (15% in case payment is

made to Individual or HUF)

4.TDS only if amount exceeds Rs. 1, 20,000.

15.9 LET US SUM UP

T.D.S stands for tax deducted at source, which literally means the tax required to be paid by the assessee, is

deducted by the person paying the income to him. Thus, the tax is deducted at the source f income itself. Although it

is worth mentioning here that whole of tax is not deducted at the source but only a certain part is deducted. In some

cases it may also get excess while in other cases it may be less than the total tax liability. However, in case of salary

the total tax liability can be deducted at source itself. The intention behind T.D.S is fast collection of tax and to avoid

tax evasion, by concealing income.

15.10 GLOSSARY

Contractors: Contractor is a person who undertakes the work of others and completes it as per the agreement and

receives the payment for the job completed by him.

Dividend: Dividend is the share of profit of any corporate which is divided among the shareholders of that corporate

body.

Interest: Interest is periodic payment made for borrowing some money.

Professional: Professional is a person who has some specialized skill or knowledge which he has acquired after some

formal education and training.

15.11 SELF ASSESSMENT EXCERCISE

1.Discuss the provisions of the T.D.S on income from salary in the income tax act.2.Compare the T.D.S provisions of professional and contractors.

CHECK YOUR PROGRESS

Activity A: What are rates of T.D.S in case of?

Dividend

Interest on securities

Professional Fees

Rent

Contractor

Winning from lotteries, crossword puzzles etc.

Activity B: What is the maximum amount on which Tax is not required to be deducted in case of?

Dividend

Interest on securities

Professional Fees 201 Rent

Contractor

Winning from lotteries, crossword puzzles etc.

15.12 FURTHER AND SUGGESTED READINGS

1)Dr. Vinod K. Singhania and Monica Singhania; Students Guide to Income Tax; Taxmann Publications Pvt. Ltd.2)Mahesh Chandra & D.C. Shukla; Income-tax Law and Practice; Pragati Publications.3)H.C. Mehrotra; Income-tax Law and Accounts; Sahitya Bhawan.4)Girish Ahuja and Ravi Gupta; An Elementary Approach to Income Tax & Sales Tax; Bharat Publications.5)Dinkar Pagare; Law and Practice of Income Tax; Sultan Chand & Sons; latest edition.


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Rules of tax rebate on home loans

Tax benefits are available on home loans. They can be claimed on both the principal and interest components of a

home loan as per the Income Tax Act. These deductions are available to assessees who have taken a loan to either

buy or build a house, under Section 24(b). Interest on borrowed capital is deductible as:

If these conditions are satisfied, interest on borrowed capital is deductible up to Rs 1.5 Lakhs:

1.Capital is borrowed on or after April 1, 1999 for acquiring or constructing a property2.The acquisition/construction should be completed within three years from the end of the financial year inwhich capital was borrowed3.The lender certifies interest payable on amount advanced for acquisition or construction of the house, or as

refinance for the principle amount outstanding under an earlier loan taken for such acquisition or

construction

4.If the conditions stated above are not satisfied, the interest on borrowed capital is deductible up toRs.30,000. However, for that, these conditions have to be fulfilled:

a)Capital should be borrowed before April 1, 1999 for purchase, construction, reconstruction, orrepairs of a house

b)The capital is borrowed on or after April 1, 1999, and construction is not completed within threeyears from the end of the year in which capital is borrowed.

In addition to the above, principal repayment of the loan/capital borrowed is eligible for a deduction of up to Rs.1

Lakh under Section 80C from assessment year 2006-07.

The maximum deduction permissible in a financial year for the original loan (if any) plus for any additional loans

taken is Rs 1.5 Lakhs. Hence, if a borrower's deductions on an existing loan are less than Rs 1.5 Lakhs, he can claim

further benefits from the additional loan taken, subject to an upper limit of Rs 1.5 Lakhs for a financial year.

It is to be noted that the tax benefits under Section 24 and deduction under Section 80C of the Income Tax Act can

be claimed only when the payment is made. If a person fails to make EMI payments, he cannot claim tax benefits for

them.

Who is eligible for rebate?

According to the Income Tax Act, only the person who has taken the loan can claim tax rebates. A husband and wife,

both of whom are taxpayers with independent income sources, can get tax deduction benefits, with respect to the

same housing loan. In this case, the tax benefits can be shared to the extent of the amount of loan taken in their

respective names. If it is proved that the home loan is simply an arrangement between the loan-seeker and the

builder or with a third party for the purpose of claiming tax benefits, they will not be allowed and benefits previously

claimed will be clubbed to the income and taxed accordingly.

Capital gains tax

If a person buys a house and sells it within the same year/after three years, and if any profit is made, then a capital

gains tax liability arises. For example, if X purchases a house for Rs.25 Lakhs by taking a loan and he sells it in the

same year for Rs.35 Lakhs, he makes a profit of Rs.10 Lakhs. On this profit, he will be liable to pay short-term capital

gains tax since the sale took place in the same year.

But, if the sale had taken place after three years, a long-term capital gains tax liability would have arisen. The long-

term capital gains will be exempt from tax if the profit amount (after factoring in the indexation benefits) is invested

in capital gains tax saving bonds or in a house as specified under Section 54.


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