TAX 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:
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?