TDS-Tax Deducted At Source, Complete understanding and Legal ProceduresTAX DEDUCTION AT SOURCE and further formalities are the most time consuming legal Compliances. The Penalties are too high and so are fines. A big cost consuming legal requirements for businesses. I will write about entire TDS flow. When, how and what to be done to manage your TDS compliances cost efficiently.

Who need to Deduct Tax at Source?

Tax needs to be deducted by a tax payer if he falls within the criteria prescribed by Income Tax Laws. For example, In case you make payments to Professional for an amount exceeding 30,000; Tax has to be deducted. There are further more categories of payments or bookings on which one need to deduct Tax. Some of these categories are Payments to Contractors, Consultants, Interest, Commission, foreign remittances for service received etc.

Once Tax is deducted what is the next step?

First of all once you fall under the criteria of TDS, you need to obtain TAN (Tax deduction and collection account Number). Whatever amount that is deducted from the payments need to be remitted to government treasury before 7th of following month. Suppose you deducted Tax in month of April than before 7th of May the money should be remitted to government treasury.

The applicable section should be selected before making the payment. For example if you are paying the Tax deducted on Rent than select 94(i).

What are the other formalities, are there any returns to be filed?

Yes quarterly returns are to be filed. Again here the selection of forms should be made based on the type of section under which payments were made. For example select Form 24Q or Form 26Q based on whether you deducted Tax on Salary or others.

If I don’t file quarterly returns or don’t pay Tax deducted to government, what are the penalties?

Penalty for non-filing of quarterly return is Rs.200 per day of default. If collected tax is not remitted or Tax is not deducted than Interest at 1.5% per month.

Also Indirect implications include disallowance of expenses under section 40 of Income Tax Act. The tax deductor will not be able to claim the expenses on which Tax was to be deducted but not deducted or remitted to government.

What is the benefit of this entire cycle to government or Tax Payers?

Benefits to government are:

  1. Government gets its treasury filled throughout the year and not only at the year end.
  2. The data of payee is available to government and incase payee does not file the Income Tax Return; such payees can be easily identified by government.
  3. Government allows TDS credit to tax payers based on data available in form 26AS, and the data in 26AS is collected through TDS quarterly filing and Advance Tax payments.
  4. Almost all transactions with heavy money falls under TDS laws, government have the records of all these transactions based on quarterly returns filed.

Benefits to Tax Payers is that once tax is deducted and quarterly returns are filed, the TDS amount is reflected in form 26AS. It becomes very easy to claim these deduction based on 26AS.

If TDS return is filed late, and Notice is received what to be done next?

TDS notices are common, as things are online and its easy for CPC to proceed data and a small inaccuracy can lead to notice.

Any notice is received should be carefully scrutinized. Based on the facts in notice the steps to be taken. If notice is received for Interest than Interest payments should be made selecting the applicable section. And same is for penalty. Once the demanded money is remitted, revise the quarterly return.

For more details discuss here How to reply the TDS notices received for Interest and Penalties?

Posted 4 years ago by CA Pulkit Sharma

hi pulkit, nice writeup. i have a practical doubt in ETDS returns. TDS will not be deducted in any of the 3 cases 1. Payment below threshold limit specified under particular sections 2. Payment to Transport agencies with Valid PAN 3. Where TDS Certificate for lower rate/ no deduction has been produced by the deductee. Now assume in a particular quarter there are no TDS deductions and as usual you want to file NIL returns. Now, when you try to validate the returns from RPU software, its not validating. It gives an error stating, "NIL challan with no deductee records is not allowed" According to the New FVU launched i.e. 4.0, we will have to mention atleast one deductee Name & PAN even though its a NIL return. How to deal with this practical problem ?

Posted 4 years ago by HS VEDANTA DESHIKA

Also, interesting thing is as per the FAQ given under nsdl website, it says NIL returns is not mandatory. Extracts of the FAQ for your reference. If there is no deduction in a particular quarter, should I file the NIL statement? The filing of a NIL statement is not mandatory. In case of NIL statement in the fourth quarter, do I need to show salary details of deductees mentioned in first three quarters? If there is no deduction in the fourth quarter but statements for all or any of the first three quarters were filed, statement for the fourth quarter giving only salary details (Annexure II) should be filed.

Posted 4 years ago by HS VEDANTA DESHIKA

What is your opinion on this since CBT is yet to come out with any circular in this matter. Is Nil returns mandatory ??

Posted 4 years ago by HS VEDANTA DESHIKA

Since its not possible to file quarterly returns without mentioning challans. You can not file nil returns. So in a particular quarter if you don't have any TDS challan than no need to file TDS returns.

Posted 4 years ago by CA Pulkit Sharma

NICE WRITE UP. IF NIL RETURN then LOGIN to TRACES and Declare as not liable to file Return due to Reason. Some Reasons are listed in the website you can check over there.

Posted 2 years, 11 months ago by SANJAY KUMAR GANNA

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