Tax Deducted at Source (TDS) for Business

Tax Deducted at Source (TDS) falls under the ambit of the Indian Revenue Services i.e IRS. It is a form of tax that is collected by the Indian Government and is managed by the CBDT i.e. Central Board of Direct Taxes.

• When an assessee earns income, the person paying to the assessee will deduct the TDS and that will be submitted to the government. It is like an advance tax taken by the government on the income of a person. Under TDS, the tax is deducted by the person incurring the expenditure and not by the person receiving the income.
• The assessee will file the TDS return and whatever tax is calculated on his total income will be deducted and the final amount will either be a refund or a demand.
• Different items such as salaries, interest income, commission, lottery winnings, Dividend, etc, all have different rates of TDS to be deducted on them. We can check the different rates for the different items in the TDS rate chart.

Budget 2025 Update

The Union Budget 2025 proposed the rationalisation of Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) to ease compliance challenges for taxpayers especially for middle-income earners. The government has raised the threshold limits across various TDS sections, aiming to simplify the tax process. The proposed changes are as follows

Section	Present	Proposed
193 - Interest on securities	NIL	10,000
194A - Interest other than Interest on securities	(i) 50,000/- for senior citizen; (ii) 40,000/- in case of when payer is bank, cooperative society and post office (iii) 5,000/- in other cases	(i) 1,00,000/- for senior citizen (ii) 50,000/- in case of when payer is bank, cooperative society and post office (iii) 10,000/- in other cases
194 – Dividend, for an individual shareholder	5,000	10,000
194K - Income in respect of units of a mutual fund	5,000	10,000
194B - Winnings from lottery, crossword puzzle Etc. & 194BB - Winnings from horse race	Aggregate of amounts exceeding 10,000/- during the financial year	10,000/- in respect of a single transaction
194D - Insurance commission	15,000	20,000
194G - Income by way of commission, prize etc. on lottery tickets	15,000	20,000
194H - Commission or brokerage	15,000	20,000
194-I - Rent	2,40,000 (in a financial year)	6,00,000 (in a financial year)
194J - Fee for professional or technical services	30,000	50,000
194LA - Income by way of enhanced compensation	2,50,000	5,00,000
206C(1G) – Remittance under LRS and overseas tour program package	7,00,000	10,00,000

Note: 

• The Tax Collected at Source (TCS) will be removed on remittances made for educational purposes when these remittances are financed through loans from specified financial institutions (Section 80E).
• The Tax Collected at Source (TCS) on the purchase of goods will be removed, effective from April 1, 2025.
• The higher TDS rate will only apply in cases where taxpayers do not provide PAN. 

Points to Keep in Mind While Deducting TDS

• The person incurring the expenditure should have a valid PAN and he should also have the PAN of the person receiving the income. In case the PAN is not available, the rate of the TDS increases.
• The TDS rate has to be taken as per the relevant section provided in the Income Tax Act, 1961.
• TDS is exempted in the following 2 cases:
  • If the receiver gives a self-declaration saying that he had made the required investments in FORM 15G/15H or
  • There is a certificate of exemption given by the Assessing Officer.
• No TDS is to be deducted from any payment which is made to the Reserve Bank of India, the Indian Government, or any corporation by the central act.

TDS that has already been paid can be checked by downloading from 26AS from the site of the income tax department.

TDS will only be deducted if the threshold limit for the payment is crossed. For eg: If the interest from any bank doesn’t exceed Rs. 10,000 from a single bank in one year then there is no need to deduct the TDS or the salary of a person below the taxable limit.

Items Liable for a TDS Deduction

• Section 192 – TDS on salaries: TDS on salaries is deducted at the rate of the income tax slab for the relevant year. For the assessment year, 2020-2021 the exemption limit for an individual is Rs 2,50,000.
• Section 194B – TDS on winning from lottery, crossword or any game: A TDS of 30% is deducted from any amount received by the way of lottery, crosswords or any other game if the amount exceeds Rs. 10,000. For eg- any amount won at a game show will be liable to a deduction at the rate of 30% TDS.
• Section 193 – TDS on interest on securities: A TDS of 10% is to be deducted for individual and HUF on interest from securities received if the limit of Rs. 5000 on debentures and 10,000 on others are crossed.
• Section 194 – TDS on deemed dividend: There is a 10% TDS deduction rate on income from dividend if the limit of Rs. 5,000 is crossed.
• Section 194C – TDS on payments to contractors or sub-contractors: There is a 1%/2% TDS deduction on payments to Individual/HUF and other than Individual/HUF contractors or sub-contractors if the limit of Rs. 30,000 per contract or Rs. 1,00,000 during the year is crossed.
• Section 194EE – TDS on withdrawal of National Savings Scheme: There is a 20% TDS deduction on any withdrawal from the NSS if the limit exceeds RS. 2500.
• Section 194I – TDS on rent: There is a rate of 2% on Plant and Machinery and 10% on Land and Building if the limit exceeds Rs. 2,40,000 per annum.
• Section 194J – TDS on fees for professional or technical services: There is 2%/10% TDS deduction based on the nature of payment.
• Section 194Q – TDS on purchase of goods: Tax is to be deducted at source at the rate of 0.1% on the amount exceeding Rs 50 lakh in a financial year from a seller from whom the buyer(whose Turnover exceeds Rs.10 crore in Previous FY).
• Section 194R – TDS on benefit or perquisite in respect of business or profession: This section applies when any business, company or professional gives any perks, gifts, incentives or any other benefits (monetary or non-monetary) in cash, kind, or partially in cash and kind to a person exceeding Rs.20,000 during the financial year. TDS rate is 10%.

Due Date for Paying TDS

The due date to pay the TDS is the 7th of every succeeding month and a return has to be filed quarterly by the following dates:

• 1st Quarter – 31st July 
• 2nd Quarter – 31st October 
• 3rd Quarter – 31st January
• 4th Quarter – 31st May 

The TDS certificate will be given in:

• Form 16 – for the people receiving the salary
• Form 16A- for the people receiving income from any other source and
• Form 16B – TDS on sale of any immovable property

For the late filing of TDS return, there is a penalty of Rs. 200 per day or the amount of TDS payable whichever is lower out of the two.

Related Articles:

What is Tax Deducted at Source (TDS)

All about Tax Deducted at Source (TDS)

Tax Deducted at Source (TDS) under Goods and Service Tax