CHAPTER 1

INTRODUCTION TO TDS &TCS PROVISIONS OF

INCOME TAX ACT 1961

1.1 Introduction

Income tax in India is governed by Entry 82 of the Union List of the Seventh Schedule
to the Constitution of India, empowering the central government to tax non-agricultural
income; agricultural income is defined in Section 10(1) of the Income-tax Act,
1961.Income-tax law consists of the 1961 act, Income Tax Rules 1962, Notifications
and Circulars issued by the Central Board of Direct Taxes (CBDT), annual Finance
Acts, and judicial pronouncements by the Supreme and high courts.

The government taxes certain income of individuals, Hindu Undivided

Families (HUF's), companies, firms, LLPs, associations, bodies, local authorities and
any other juridical person. Personal tax depends on residential status. The CBDT
administers the Income Tax Department, which is part of the Ministry of
Finance's Department of Revenue. Income tax is a key source of government funding.

The Income Tax Department is the central government's largest revenue generator; total
tax revenue increased from ₹1,392.26 billion (US$18 billion) in 1997–98 to ₹5,889.09
billion (US$78 billion) in 2007–08.[3][4] In 2018–19, direct tax collections reported by
the CBDT were about ₹11.17 lakh crore (₹11.17 trillion).

1.1.1 Income Tax.

Income tax in India is a tax you pay to the government based on your income (and
profit, in the case of companies). The government uses this tax money for various
purposes including public services, infrastructure development, defence spending and
subsidies among other options. If you earn income beyond a certain limit, it is
mandatory to pay income tax every year.

Income tax as a concept has been present in India for many years, but James Wilson
who became India’s first finance (British) member introduced the first modern Income
Tax Act in 1860. “It was only for the good of his subjects that he collected taxes from
them, just as the Sun draws moisture from the Earth to give it back a thousand-fold,”
wrote Kalidas in his epic poem Raghuvansh.

1.2 History.

1.2.1 Ancient times.

Taxation has been a function of sovereign states since ancient times. The earliest
archaeological evidence of taxation in India is found in Ashoka's pillar inscription
at Lumbini. According to the inscription, tax relief was given to the people of Lumbini
(who paid one-eighth of their income, instead of one-sixth).

In the Manusmriti, Manu says that the king has the sovereign power to levy and collect
tax according to Shastra:

लोके च करादिग्रहणो शास्त्रदठः स्यात् । — Manu, Sloka 128, Manusmriti ("It is in

accordance with Sastra to collect taxes from citizens.")

The Baudhayana sutras note that the king received one-sixth of the income from his
subjects, in return for protection.According to Kautilya's Arthashastra (a treatise on
economics, the art of governance and foreign policy), artha is not only wealth; a
government's power depended on the strength of its treasury: "From the treasury comes
the power of the government, and the earth, whose ornament is the treasury, is acquired
by means of the treasury and army." Kalidasa's Raghuvamsha, eulogizing King Dilipa,
says: "it was only for the good of his subjects that he collected taxes from them just as
the sun draws moisture from the earth to give it back a thousand time."

19th and early 20th centuries.

British rule in India became established during the 19th century. After the Mutiny of
1857, the British government faced an acute financial crisis. To fill the treasury, the
first Income-tax Act was introduced in February 1860 by Sir James Wilson (British
India's first finance minister).[8] The act received the assent of the governor-general on
24 July 1860, and came into effect immediately. It was divided into 21 parts, with 259
sections. Income was classified in four schedules: i) income from landed property; ii)
income from professions and trade; iii) income from securities, annuities and dividends,
and iv) income from salaries and pensions. Agricultural income was taxable.
A number of laws were enacted to streamline the income-tax laws; the Super-Rich Tax
and a new Income-tax Act were passed in 1918. The Act of 1922 significantly changed
the Act of 1918 by shifting income-tax administration from the provincial to the central
government. Another notable feature of the act was that the rules would be outlined
by annual Finance Acts instead of the act itself.[9] A new Income-tax Act was passed
in 1939.

1.2.2 Present Day.

The 1922 act was amended twenty-nine times between 1939 and 1956. A tax on capital
gains was imposed in 1946, and the concept of capital gains has been amended a number
of times. In 1956, Nicholas Kaldor was appointed to investigate the Indian tax system
in light of the Second Five-Year Plan's revenue requirement. He submitted an extensive
report for a coordinated tax system, and several taxation acts were enacted: the wealth-
tax Act 1957, the Expenditure Tax Act, 1957, and the Gift Tax Act, 1958.

The Direct Taxes Administration Enquiry Committee, under the chairmanship

of Mahavir Tyagi, submitted its report on 30 November 1959 and its recommendations
took shape in the Income-tax Act, 1961. The act, which became effective on 1 April
1962, replaced the Indian Income Tax Act, 1922. Current income-tax law is governed
by the 1961 act, which has 298 sections and four schedules.

The Direct Taxes Code Bill was sponsored in Parliament on 30 August 2010 by
the finance minister to replace the Income Tax Act, 1961 and the Wealth Tax Act. The
bill could not pass, however, and lapsed after revocation of the Wealth Tax Act in 2015.

1.3 SOME BASIC TERMS UNDER INCOME TAX

1.3.1 Gross Total Income – The process of filing tax returns begins with the
computation of your Gross Total Income (GTI). GTI includes salary income; income
from house property; profit and gains of business & profession; capital gain and income
from other sources. These are computed after adjusting for the relevant exemptions
under each head, such as HRA, interest paid on home loan, eligible allowances, etc.

Net taxable income – This is the income chargeable to income tax and is computed after
deductions that are allowed under Income Tax Act (i.e. various Section 80s). You pay
tax on this amount.
1.3.2 Assesse – A ‘person’ who is liable to pay income-tax or any other sum of money
under the Income Tax Act. This could be an Individual, Hindu Undivided Family
(HUF), Association of Persons (AOP), Body of Individuals (BOI), Companies firms,
Limited Liability Partnerships (LLPs), local authority, and any artificial juridical person
(AJP) not covered under any of the above categories.

1.3.3 Assessment – The process of examining the returns filed by the assessee by the
Income Tax Department.

1.3.4 Assessment Year (AY) – The period of twelve months commencing on the 1st
day of April every year and ending on March 31 and succeeds the respective Financial
Year. For example, for FY 2019-20 the AY is 2020-21. An assessee is required to file
income tax returns for the respective AYs.

1.3.5 Previous Year (PY) – It refers to the financial year immediately preceding the
Assessment Year. To put it simply, PY is the same as the Financial Year. Provided that,
in the case of a business or profession newly set up, or a source of income newly coming
into existence, in the said financial year, the previous year shall be the period beginning
with the date of setting up of the business or profession or, as the case may be, the date
on which the source of income newly comes into existence and ending with the said
financial year.

1.3.6 Person:
As per section 2(31) of the Income-Tax Act 1961, a Person would be anyone who is-
1. An Individual
2. A HUF (Hindu Undivided Family)
3. A Company
4. A Firm
5. An association of person or body of individuals
6. A Local Authority
Every artificial and juridical person who is not included in any of the above-
mentioned categories.
1.3.7 Income:
The definition of Income as per section 2 (24) is inclusive but not exhaustive of the
below-mentioned items:

1. Any illegal income arising to the assessee

2. Any income that is received at irregular intervals
 3. Any Taxable income that has been received from a source outside India
4. Any benefit that can be measured in money
5. Any subsidy or relief or reimbursement
6. Gift the value of which exceeds INR 50,000 without any consideration by an
individual or HUF.
7. Any prize
8. Causal incomes like winning from lotteries or horse race gambling etc.

1.3.8 Income Tax Return – This is the form to report to the Income Tax Department
the income earned (under various heads: salary, house property, business & profession,
capital gain, and other sources) during the Previous Year or the applicable Assessment
Year. To do so, there are various forms (viz. ITR 1, ITR 2, ITR 3, ITR 4, ITR 5, ITR 6
and ITR 7) depending on the sources of incomes earned, the amount of income earned
and type of assessee (viz. Individual, Hindu Undivided Family, Firm, Company, etc.).

1.3.9 Tax Deduction at Source (TDS) – The tax that is deducted before the payment
is made to the receiver (the deductee), is called Tax Deducted at Source or TDS. Salary,
interest on bank deposits, commission, consultation fees, professional fees, rent
payment, etc, are subject to TDS as per the provision of the Income Tax Act. This
deduction is captured in the Form 26AS or TDS certificate issued by the deductor, or
the one making the payment. The assesse can use this certificate while filing income
tax to get claim credit for the tax paid.

1.3.10 Form 26AS – This is a tax credit statement. The tax deducted or collected by an
entity is reflected in Form 26AS of the respective Permanent Account Number (PAN).
Form26AS is a statement that consolidates the tax deducted from all sources (in Part A,
A1 and A2 of the Form), details of tax collected at source (in Part B of the Form),
advance tax paid by the assessee, self-assessment tax paid, regular assessment tax (in
Part C of the Form), details of refund (if any) in the financial year (in Part D of the
Form), and details of certain high-value financial transactions (in Part E of the Form).

1.3.11 Form 16 – This is a certificate issued by the employer and contains the
information necessary to prepare and file your Income Tax Return. Part A of the form
mentions the employer and employees full address, their Permanent Account Number
(PAN), the Tax deduction Account Number (TAN) of the employer, the amount of tax
deducted and deposited by the deductee for relevant Assessment Year and challan
numbers. Part B mentions details of salary paid, any other income, exemptions &
deductions availed and tax deducted.

1.3.12 Surcharge – It is the additional tax payable over and above the applicable tax
rate for assesses with a higher taxable income slab. It is, therefore, a tax on tax.

1.3.13 Advance Tax – The tax that needs to paid in advance, in four instalments (on or
before 15th June, 15th September, 15th December, and 15th March) instead of in lump
sum at the end of the financial year. This applies to any person whose tax liability is Rs
10,000 or more in a financial year, those in business, and taxpayers who have opted for
presumptive taxation scheme under Section 44AD or 44ADA, as the case may be.

1.3.14 Self-Assessment Tax – This is the income tax paid by the assessee after taking
into account Advance Tax and Tax Deduction at Source. Self-Assessment Tax is to be
paid in the assessment year before filing the Income Tax Returns.

(The following deductions are not available if one opts for New Tax Regime U/S
115BAC)

1.3.15 Section 80C – You can claim deduction up to Rs 1.5 lakh, annually, under
Section 80Cof the Income Tax Act by investing in several financial instruments. Some
of these include Public Provident Fund, Sukanya Samriddhi Yojana, National Saving
Certificate, 5-Year tax-saver term deposits, Senior Citizens Savings Scheme, National
Pension System, Equity Linked Savings Schemes, life insurance policies, and pension
plans. Moreover, contribution to the Employees’ Provident Fund, principal repayment
on housing loans, and tuition fees paid for children’s education are also entitled to
deduction subject to the overall limit of Rs 1.50 lakh, under Section 80C.

1.3.16 Section 80D – The premium paid for a health insurance policy makes you
eligible for a deduction up to Rs 25,000 in case of non-senior citizen and up to Rs
50,000 in case of senior citizens as per Section 80D of the Income Tax Act, 1961. This
deduction can be availed by an individual and Hindu Undivided Family.

1.3.17 Section 80E – This deduction is available only to individuals for interest
repayment on an education loan. The loan should be taken from a bank/financial
institution or any other approved charitable institution to pursue higher studies -- in
India or abroad. The deduction is available for a maximum of 8 years (beginning the
year the assessee starts repaying the interest) or till the interest is paid, whichever is
earlier. There is no restriction on the amount that can be claimed.

1.3.18 Section 80EE – This deduction is available only for individuals availing a home
loan for the first time, subject to certain conditions. The deduction is available on the
interest. The conditions include: the individual owns no other house property; the value
of the house should be Rs 50 lakh or less; the loan amount should not exceed Rs 35
lakh; the loan must have been sanctioned between 1st April 2016 and 31st March 2017.
The deduction is Rs 50,000 per annum from the Gross Total Income until the loan is
repaid in full. Over and above that the assessee can claim deduction under Section 24(b)
for interest payment on the home loan, subject to the maximum permissible limit of Rs
2 lakh per annum.

1.3.19 Section 80EEA – This deduction is for interest paid on home loan taken in the
affordable housing segment and available only to individuals. The deduction can be
availed provided, the borrower does not own any other house property on the date of
the sanction of the loan; the loan is taken from a bank/financial institution. The
individual cannot claim deduction under the existing Section 80EE. The individual can
claim deduction under Section 24(b) for interest payment on the home loan, subject to
the maximum permissible limit of Rs 2 lakh per annum.

1.3.20 Section 80TTA – This Section allows individuals and HUF to avail a deduction
for interest earned on a savings account (with a bank, co-operative society and post
office) to the extent actual interest or Rs 10,000, whichever is lower.

1.3.21 Section 80TTB – A similar deduction is available for senior citizens for interest
earned on savings account (with a bank, co-operative society and post office) to the
extent of Rs 50,000 or lower.

1.3.22 Exemption -Tax exemptions are specific amounts that reduce how much of your
taxable income is taxable. Generally, you can claim one exemption for yourself and one
for your spouse assuming you’re married. You can also claim one exemption for
each dependent. Be aware, while you may think differently, your spouse is never
considered your dependent.
1.4 Income Tax Act 1961

The Income Tax Act is a comprehensive statute that focuses on the different rules and
regulations that govern taxation in the country. It provides for levying, administering,
collecting and recovering income tax for the Indian government. It was enacted in 1961.

The Income Tax Act contains a total of 23 chapters and 298 sections according to the
official website of the Income Tax Department of India[1]. These different sections
deal with various aspects of taxation in India. The various heads for which you have to
pay income tax include:

1. Salary
2. Income from house property
3. Capital gains
4. Profit and gains from business or profession
5. Income from other sources

1.4.1 Income from Salary

This head essentially includes any remuneration, which is received by an individual on

terms of services provided by him based on a contract of employment. This amount
qualifies to be considered for income tax only if there is an employer-employee
relationship between the payer and the payee respectively. Salary also include the basic
wages, advance salary, pension, commission, gratuity, perquisites as well as annual
bonus.

The important point to note here is that salary is taxable on due basis or received basis
whichever is earlier. Let me explain this with the help of an example. If you receive
salary for the month of March 2020 in April 2020, it will still be taxable in the previous
year 2019-20. This is because it was due in March. Similarly if your employer has given
you salary of April and May in advance in the month of March, then it will be taxable
again in the month of March itself.
Therefore, salary income will be taxable on due basis or received basis whichever is
earlier.
1.4.2 Income from House Property

According to the Income Tax Act 1961, Sections 22 to 27 is dedicated to the provisions
for the income tax computation of the total standard income of a person from the house
property or land that he or she owns.

In simple terms, this head includes rental income received from the properties. For tax
computation purposes, the property in which you are staying and not earning any rental
income can give you benefits. This benefit is in the form of deductions of interest paid
on home loan.
However, if the property is utilized for letting out the normal course of business, then
the income from the rent will be considered.

1.4.3 Income from Capital Gain

Capital Gains are the profits or gains earned by an assessed by selling or transferring a
capital asset, which was held as an investment.

Capital asset can be real estate, stocks, Mutual funds, Bonds, Gold etc.

So whenever you sell a capital asset and earn gains. This is considered as your income
which will be taxable under the head Capital Gain.

Just to clarify, please note that rental income from the property is taxed under “Income
from House Property” but if you sell the property and experience gain, it will be taxed
under “capital gain”.

1.4.4 Income from Profits and Gains from Business or Profession

The income tax computation of the total income will be attributed from the income
earned from the profits of business or profession. The difference between the expenses
and revenue earned will be chargeable. Here is a list of the income chargeable under
the head:

1. Profits earned by the assesse during the assessment year

2. Profits on income by an organisation
3. Profits on sale of a certain license
4. Cash received by an individual on export under a government scheme
5. Profit, salary or bonus received as a result of a partnership in a firm
6. Benefits received in a business
1.4.5 Income from Other Sources

This is the last head of income. Any other form of income, which is not categorized in
the above mentioned 4 tax heads, can be sorted in this category.

Some of the examples can be interest income from bank deposits, lottery awards, card
games, gambling or other sports awards are included in this category.

These incomes are attributed in the Section 56(2) of the Income Tax Act and are
chargeable for income tax.

Now that you are aware of the five heads of income, take out a piece of paper, write
down all the sources of income that you have and classify it into these 5 tax heads. This
will help you to plan your taxes well. This is the first step to identify your incomes in
respective heads.

Every year, the Indian government presents a finance budget during the month of
February. The budget brings in various amendments to the Income Tax Act. This
includes changes in tax slabs wherever applicable. For example, the Finance Minister
announced that the tax rate for individuals in the lowest tax bracket of Rs. 2.5 lakh to 5
lakh would be cut from 10% to 5% in FY2017. Similarly, tax on Long Term Capital
Gains (LTCG) was re-introduced during the FY2018 budget. As a result, all gains
greater than Rs. 1 lakh from shares and equity mutual funds held longer than one year
is now eligible for LTCG tax at 10%.

The most recent budget presented by the current Finance Minister Nirmala Sitharaman
included the introduction of a new optional system of taxation that comes with reduced
income tax rates. These new rates shall be available as an option from the financial year
2020-21.

Such amendments become a part of the Income Tax Act from the following financial
year (beginning from 1st April) following the approval from the President of India.

1.5 Income taxpayers in India.

Every Indian citizen has to pay income tax if their annual income is above Rs. 2.5 lakh
(Rs. 3 lakh for senior citizens). In addition to individuals, entities such as Hindu
Undivided Family (HUF), Body of Individuals (BOI), corporate firms, companies,
Artificial Juridical Persons, local authorities and Association of Persons (AOP) also
pay income tax.

6.84 crore people filed Income Tax Returns (ITRs) during FY2017-18. This resulted in
net direct tax collections of Rs. 9.95 lakh crore for the year. This was 17.1% higher than
the collections for the previous year according to the Central Board of Direct Taxes
(CBDT).

1.6 Income tax slab rates

The income tax you pay depends on your annual income. Budget 2020 introduced new
reduced tax rates that shall come into effect from the year 2020-21. The tax slab rates
according to the new system are categorized in the following way:

Income tax slabs Income tax rates

Less than Rs. 5 lakhs Exempt
Between Rs. 5 lakhs and 7.5 lakhs 10%
Between Rs. 7.5 lakhs and 10 lakhs 15%
Between Rs. 10 lakhs and 12.5 lakhs 20%
Between Rs. 12.5 lakhs and 15 lakhs 25%
Above Rs. 15 lakhs 30%

From FY 2020-21, taxpayers shall have the option to choose between the existing
taxation system and the new regime. The new system has revised the income slabs and
reduced the rates thereon. Another major change in the new scheme is that many of the
deductions and exemptions generally applicable in the old tax regime are no longer
valid. Nearly 70 of the 100 or so existing deductions and exemptions are to be scrapped
in the new regime. Taxpayers can compare their tax liabilities under the two systems
and opt for the one that’s most beneficial to them.

For the financial year 2019-20, taxpayers shall continue to be governed by the old tax
system, under which all existing deductions can be claimed.

According to the Income Tax Act 1961, you can claim deductions under the following
sections:
Section 80C to 80: Under Section 80C, 80CCC & 80CCD of the Income Tax Act 1961,
you can reduce your taxable income by 1,50,000

1.6.1 Section 80CCD: Section 80CCD of the Income Tax Act, 1961 focuses on income
tax deductions that individual income tax assesses are eligible to avail on contributions
made towards the New Pension Scheme (NPS) and Atal Pension Yojana (APY)

1.6.2 Section 80D: Under section 80D, you can claim income tax deduction for medical
expenses and health insurance premiums

1.6.3 Section 80DD: Tax deduction under Section 80DD of the Income Tax Act can be
claimed by individuals who are residents of India and HUFs for the medical treatment
of a dependant with disability(ies) or differently abled

1.6.4 Section 80DDB: Tax deductions under section 80DDB of Income Tax Act 1961
can be claimed for medical expenses incurred for medical treatment of specific illnesses

1.6.5 Section 80TTA: Section 80TTA provides a deduction of Rs 10,000 on interest

income. This deduction is available to an Individual and HUF.

1.6.6 Section 80U: Under Section 80U, physically disabled persons can claim
deductions up to Rs.1,00,000.

1.7 Due dates for return

The due date for a return is:

1. 31 October of the assessment year - Companies without international

transactions, entities requiring auditing, or partners of an audited firm
2. 30 November - Companies without international transactions
3. 31 July – All other filers.

Individuals with an income of less than ₹500,000 (less than ₹10,000 of which is from
interest) who have not changed jobs are exempt from income tax.[15] Although
individual and HUF taxpayers must file their income-tax returns online, digital
signatures are not required.

1.8 Advance tax

The practice of paying taxes in advance rather than in a single sum at the end of the
fiscal year is known as advance tax. These taxes, often known as the 'pay-as-you-earn'
scheme, is paid on tax bills above ₹10,000 in installments instead of as a lump sum.
The schedule of advance tax payment for individual and corporate taxpayers are:

On or before 15 June – 15 percent of advance tax liability

On or before 15 September – 45 percent of advance tax liability

On or before 15 December – 75 percent of advance tax liability

On or before 15 March – 100 percent of advance tax liability

Amendments due to Covid-19

There was no change in the timeline for tax payment; however, if the deposit of
Advance Tax is delayed, a reduced interest rate of 9 percent per annum, or 0.75 percent
per month,[16] will be applicable instead of the current rate of 12 percent per annum,
or 1 percent, for payment of all taxes falling between 20 March 2020 and 30 June 2020.

1.9 Provision for Income Taxes.

A provision for income taxes is the estimated amount that a business or individual
taxpayer expects to pay in income taxes for the current year. The amount of this
provision is derived by adjusting the firm’s reported net income with a variety of
permanent differences and temporary differences. The adjusted net income figure is
then multiplied by the applicable income tax rate to arrive at the provision for income
taxes.

This provision can be altered to a considerable extent by the amount of tax planning
that a person or business engages in to defer or eliminate the income tax liability.
Consequently, the proportional size of this provision can vary significantly from
taxpayer to taxpayer, based on their tax planning abilities.

Tax provisions are considered current tax liabilities for the purpose of accounting
because they are amounts earmarked for taxes to be paid in the current year. Although
the basic definition sounds simple, what’s not always simple is how to prepare for tax
provision calculation in a way that is best for the business while being fast, accurate,
and defendable. Estimating each year’s tax provision is not a menial task and can
require a great deal of time and effort for corporate tax departments.

Budgeting for the Provision for Income Taxes

A planned provision for income taxes can also be included in a company's budget
model. In a well-crafted model, this planned provision would include both permanent
and temporary differences. In a more basic model, the provision is simply based on the
applicable tax rate.

1.10 TAX DEDUCTION AT SOURCE

Income tax is also paid by tax deduction at source (TDS):

1.10.1 Tax deducted at source (TDS).

TDS stands for tax deducted at source. As per the Income Tax Act, any company or
person making a payment is required to deduct tax at the source if the payment
exceeds certain threshold limits.

TDS has to be deducted at the rates prescribed by the tax department. The company or
person that makes the payment after deducting TDS is called a deductor and the
company or person receiving the payment is called the deducted.

It is the deductor’s responsibility to deduct TDS before making the payment and
deposit the same with the government. TDS is deducted irrespective of the mode of
payment–cash, cheque or credit–and is linked to the PAN of the deductor and
deducted.

1.10.2 Objectives of income tax deducted at source

1. To enable the salaried people to pay the tax as they earn every month. This helps
the salaried persons in paying the tax in easy installments and avoids the burden
of a lump sum payment.
2. To collect the tax at the time of payment of income to various assesses such as
contractors, professionals etc.
3. Government requires funds throughout the year. Hence, advance tax and tax
deducted at source help the government to get funds throughout the year and
run the government well

1.10.3 TDS is deducted on the following types of payments:

1. Salaries
 2. Interest payments by banks
3. Commission payments
4. Rent payments
5. Consultation fees
6. Professional fees

However, individuals are not required to deduct TDS when they make rent payments
or pay fees to professionals like lawyers and doctors.

TDS is one kind of advance tax. It is tax that is to be deposited with the government
periodically and the onus of the doing the same on time lies with the deductor.

For the deductee, the deducted TDS can be claimed in the form of a tax refund after
they file their ITR.

1.10.4 Features of TDS

TDS is modest both in terms of different incomes that come under its purview and the
share of tax collected at the time of payment in India. However, more than 80% of the
tax is collected in the form of TDS in countries like USA and Canada.
Thus, following are some of the features of Tax Deducted at Source:
 It is the responsibility of person making payment to deduct or collect tax at
source.
 These specific set of people responsible for deducting tax at source are
required to have a tax deduction account number.
 The time for payment of TDS to the government is stipulated by the tax
authorities.
 The tax deductor is responsible for issuing the Certificate of TDS to the
taxpayers in prescribed form and within the specified time period.
 The deductors responsible for deducting TDS are required to file quarterly
statements of TDS return.
 TDS is collected or deducted at specified rates as prescribed by the tax
authorities.
 Tax authorities specify the conditions under which less or no tax would be
deducted.
 Statements of TDS are required to be submitted on prescribed forms and
within specified time period.
 Penalty or consequences of non-payment or non-compliance too are stipulated
by the tax authorities.
1.11 How and When to File TDS Returns
Need to use the appropriate form based on the type of payment on which TDS has been
deducted. Corporates and payers making payments to NRIs, usually need to file TDS
returns every quarter.

Other payments will require a TDS return within a stipulated time as per the table
below:

Transactions reported in the return Due date Form

TDS on Salary Q1 – 31st July Form
Q2 – 31st October 24Q
Q3 – 31st January
Q4 – 31st May
TDS on all payments made to non- Q1 – 31st July Form
residents except salaries Q2 – 31st October 27Q
Q3 – 31st January
Q4 – 31st May
TDS on sale of property 30 days from the end of the month Form
in which TDS is deducted 26QB
TDS on rent 30 days from the end of the month Form
in which TDS is deducted 26QC

1.12 TDS Return

A deductor has to deposit the deducted TDS to the government and the details of the
same have to be filed in the form of a TDS return.

A TDS return has to be filed quarterly. Different types of TDS deductions have to be
filed using different TDS return forms.

Preparing TDS returns can be done easily using the ClearTDS software. Reach out to us if
you need any help with your TDS returns.
1.13 TDS certificates

A deductor is required to issue a TDS certificate called form 16 for salaried employees and
form 16A for non-salaried employees within a specified time.[5] Form 16D is a TDS Certificate
issued for payment of a commission, brokerage, contractual fee, the professional fee under
section 194M by the payer. Under Section 194M if the payments to resident contractors and
professionals exceeding INR 50,00,000 during the Financial Year, the payer/deductor has to
deduct tax at the rate of 5% from the sum payable to a resident payee/deductee.

Deductor has to issue TDS Certificates within two months of the next financial year.

There are two types of major forms under TDS namely:

Form 16: Form 16 is a certificate where the employer declares details about the salary an
employee earned during the year and details of deducted TDS. Form 16 has two parts Part A
and Part B. Part A consists of employer and employee details, which includes name,
address, PAN, TAN details, employment period, and details of TDS deducted & deposited with
the government. Part B includes salary, incomes, deductions, and tax payable details etc.

Form 16A: Form 16A is also a TDS Certificate but it is applicable for TDS on Income other
than Salary. This certificate features details such as name and address of deductor or deductee,
PAN/TAN details, challan details of TDS deposited, income, TDS deducted and deposited on
such income. Details from Form 16A will be fetched on Form 26AS.

Section Payment TDS threshold TDS

192 Salary Exemption limit As specified in Part
III of I Schedule
193 Interest on securities Subject to 10%
provisions
194A Other interest Banks – ₹10,000 10%
(under age
60); ₹ 50,000 (over
60). All other
interest – ₹5,000
194B Lottery winnings ₹10,000 30%
194BB Horse-racing winnings ₹10,000 30%
194C Payment to resident ₹30,000 (single 2% (companies); 1%
contractors contract); ₹100,000 otherwise
(multiple contracts)
194D Insurance commission ₹15,000 5% (individual), 10%
(domestic companies)
194DA Life-insurance payment ₹100,000 1%
194E Payment to non-resident Not applicable 20%
sportsmen or sports
association
194EE Payment of deposit under ₹2,500 10%
National Savings Scheme
194F Repurchase of unit by Not applicable 20%
Mutual Fund or Unit Trust
of India
194G Commission on sale of ₹15,000 5%
lottery tickets
194H Brokerage commission ₹15,000 5%
194-I Rents ₹180,000 2% (plant, machinery,
equipment), 10%
(land, building,
furniture)
194IA Purchase of immovable ₹5,000,000 1%
property
194IB Rent by individual or HUF ₹50,000 5%
not liable to tax audit
194J Professional or technical ₹30,000 10%
services, royalties
194LA Compensation on ₹250,000 10%
acquisition of certain
immovable property
194LB Interest paid by – 5%
Infrastructure
Development Fund under
 section 10(47) to non-
resident or foreign
company
194LC Interest paid by Indian – 5%
company or business trust
on money borrowed in
foreign currency under a
loan agreement or long-
term bonds
195 Interest or other amounts As computed by Avoiding double
paid to non-residents or a assessing officer on taxation
foreign company (except application under
under §115O) §195(2) or 195(3)

1.14 TDS: Advantages and Disadvantages

While TDS is reputed to be a powerful instrument for addressing the problem of tax
evasion, as a tax administration mechanism, it has both advantages as well as
disadvantages. Any TDS system, unless it is designed to minimise these inherent flaws,
will fail to facilitate tax administration or improve revenue collection ostensibly.

Therefore, familiarisation with both advantages and disadvantages of TDS

systems is important lest the expected benefits from TDS functions be lost. Among the
advantages may be mentioned:

(1) the intent of the law is more conveniently fulfilled since the tax flow should parallel
income flow more closely than without TDS;

(2) since tax is collected prior to receiving income, compliance is improved and
enforcement costs are reduced;

(3) because of improved cash-flow, government’s day-to-day borrowing needs are

eased;

(4) among those within the TDS net, the tax burden is shared more equitably; and (5)
since tax collection responsibility is shared by the collection agents, tax officers can
devote more time and resources to other functions of tax administration such as
expanding the universe of taxpayers, audit and scrutiny, and so on.

Among the disadvantages may be mentioned:

(1) the inequity implied in the inability to capture potentially large taxpayers in the
TDS net, and the relatively lower success in withholding tax on certain forms
of income such as dividends or professional and selfemployment income,
(2) for a developing country in particular, the inadequacy of trained tax
administrators may be further deepened by the addition of the TDS function
needing extra staff, infrastructure and processing particularly to check bogus tax
deduction claims, short deductions and short payments to the exchequer;
(3) the possible excessive burden on the taxpayers in terms of obtaining certificates
TDS from deductors, filling additional (and often complicated) tax forms,
followed by long waits for refunds; and
(4) the burden on deductors implied by the free service of withholding carried out
for the tax department even when it may be difficult to obtain the necessary
withholding forms and even while they may be subject to two scrutinies (audits)
by the tax department: the usual as well as an additional one specifically for
TDS.

1.15 Due date for deposit of TDS to the credit of Central Government:

Tax deducted at source shall be deposited to the credit of Central Government in accordance
with the following provisions:

1) In case deductor is an office of the Government

Particulars Due Date

a) Where tax is paid without production of an income-tax challan On the same day when tax is
deducted

b) Where tax is paid accompanied by an income-tax challan. On or before 7 days from the end
of the month in which the deduction is made or income-tax is due under Section 192(1A)

2) In case of any other deductor

Particulars Due Date

a) Where the amount is credited or paid in the month of March On or before 30th day of April
b) In any other case On or before 7 days from the end of the month in which the deduction is
made or income-tax is due under sub-section (1A) of Section 192

Any sum deducted under section 194-IA shall be paid to the credit of the Central Government
within a period of 30 days from the end of the month in which the deduction is made and shall
be accompanied by a challan-cum-statement in Form No. 26QB.

Similarly, any sum deducted under section 194-IB shall be paid to the credit of the Central
Government within a period of 30 days from the end of the month in which the deduction is
made and shall be accompanied by a challan-cum-statement in Form No. 26QC.

Further, any sum deducted under section 194M shall be paid to the credit of the Central
Government within a period of 30 days from the end of the month in which the deduction is
made and shall be accompanied by a challan-cum-statement in Form No. 26QD.

1.16 Mode of payment of TDS:

Taxes deducted at source shall be deposited to the credit of the Central Government in following
modes:

1.16.1 E-Payment: E-Payment is mandatory for :

a) All the corporate assesses.

b) All assesses (other than company) to whom provisions of section 44AB of the Income Tax
Act, 1961 are applicable.

1.16.2 Physical Mode: By furnishing the Challan No. 281 in the authorized bank branch

Note:

When tax is deducted/collected by government office, it can remit the amount to the Central
Government without production of an Income-tax challan and by making only book adjustment.
In such a case, it has to furnish Form No. 24G to NSDL with in prescribed time-limit.

1.17 TDS Deductions

The following process is involved in the deduction of TDS:

1. Calculating total earning - The employer is required to calculate the total

earning of the employee.
2. Calculating total amount eligible for the exemption - The employer is
accountable for calculating the total amount that is considered for tax
 exemption. The employee needs to declare the type of amount that is eligible
for exemption.
3. Obtaining declaration and investment proof - The employer is required to
collect investment and proofs from employees
4. Depositing TDS deductions - The employer will require depositing the
collected TDS to the central government.

The deduction on TDS under different Section follows below:

1.17.1 Section 80C
An employee can declare for a maximum of Rs.1,50,000 for tax exemption. The
following investments schemes are considering for exemption under Section 80C:

1. Investment in mutual funds and equity shares, such as ULIP, Linked Saving
Scheme of a Mutual Fund/UTI
2. Life insurance Premium paid
3. Contribution to statutory PF, 15 years PPF, and superannuation funds
4. Payments towards subscription for National Saving Certificates and Home
Loan Account Scheme
5. Interest earned through few of the National Savings Certificates are eligible
for a certain amount of tax
6. Fixed deposit scheme for a period of minimum 5 years
7. Here is a list of items on which deductions can be claimed under Section 80C:
8. Investment in Public Provident Fund
9. National Savings Certificate
10. Employee’s share of Provident Fund contribution
11. Premium payment towards life insurance policies
12. Tuition fees of children
13. Home loan principal repayment amount
14. Unit linked insurance plans
15. Equity linked savings schemes
16. Investment in Sukanya Samriddhi Account
17. Amount paid to buy deferred annuity
18. Senior Citizens savings scheme
19. 5-year deposit scheme
20. Subscription to notified deposits scheme / notified securities
21. Subscription to National Housing Bank’s Home Loan Account Scheme
22. Contribution to LIC’s notified annuity plan
23. Subscription to deposit scheme of companies involved in offering housing
finance or public sector companies
24. Contribution to notified Pension Fund set up by UTI or Mutual Fund
25. Subscription to NABARD’s notified bonds
26. Subscription to debentures / equity shares of approved eligible issues
1.17.2 Section 80CCG

An employee is eligible for a maximum of Rs.25,000 annual exemption if the employee

has made an investment under certain equity saving schemes. The investment should
be made for at least 3 years from the date of scheme acquisition.

1.17.3 Section 80D

The section 80D offer exemption for the premiums paid for a Medical Insurance. The
exemption is also extended to the individual's dependents.

There are various other Sections that regulates many other types of exemptions.

1.18 Major Responsibilities of Deductor

The deductor is required to do the following things in order to collect TDS from the
person making payment:
The deductor is required to obtain a Tax Deduction Account Number. This is a 10 digit
unique identification, alpha numeric number that is mandatory to collect TDS from the
taxpayer. For instance, ABCD12345E is a hypothetical Tax Deduction Account
Number. The deductor is required to quote this number in all the income tax matters
concerning TDS.
Deductor is required to obtain the PAN of the deductee, that is the person who is
receiving the payment.
He or she is required to deduct tax at correct rate in accordance with the rates specified
by the tax authorities.
TDS deducted by the deductor must be deposited in designated banks within specified
time period. This time period is as follows:
TDS needs to be deposited on the same day in case tax is collected by government or
any other person on behalf of the government.
However, tax should be deposited on or before seventh of the following month in cases
where TDS is collected by or on behalf of any other person. But, for the month of
March, TDS should be deposited by April 30th.
The deductor must use Challan No. 281 for depositing TDS amount.

1.19 Consequences if default is made in payment of TDS

A deductor would face the following consequences if he fails to deduct TDS or after
deducting the same fails to deposit it to the credit of Central Government’s account:
a) Disallowance of expenditure: As per section 40(a)(i) of the Income-tax Act, any sum
(other than salary) payable outside India or to a non-resident, which is chargeable to
tax in India in the hands of the recipient, shall not be allowed to be deducted if it is paid
without deduction of tax at source or if tax is deducted but is not deposited with the
Central Government till the due date of filing of return.

However, if tax is deducted or deposited in the subsequent year, as the case may be, the
expenditure shall be allowed as deduction in that year.

Similarly, as per section 40(a)(ia), any sum payable to a resident, which is subject to
deduction of tax at source, would attract 30% disallowance if it is paid without
deduction of tax at source or if tax is deducted but is not deposited with the Central
Government till the due date of filing of return.

However, where in respect of any such sum, tax is deducted or deposited in subsequent
year, as the case may be, the expenditure so disallowed shall be allowed as deduction
in that year.

b) Levy of interest: As per section 201 of the Income-tax Act, if a deductor fails to
deduct tax at source or after the deducting the same fails to deposit it to the account of
Central Government then he shall be deemed to be an assessee-in-default and liable to
pay simple interest as follows:

(i) at one per cent for every month or part of a month on the amount of such tax from
the date on which such tax was deductible to the date on which such tax is deducted;
and

(ii) at one and one-half per cent for every month or part of a month on the amount of
such tax from the date on which such tax was deducted to the date on which such tax is
actually paid.

c) Levy of Penalty: Penalty of an amount equal to tax not deducted could be imposed
under section 271C. Penalty shall be charged under section 221 if deductor fails to
deduct and pay tax to the credit of Central Government. The penalty shall be levied to
the extent the Assessing Officer directs, however, the total amount of penalty shall not
exceed the amount of tax in arrears.

d) Prosecution: If a person fails to pay to the credit of the Central Government the tax
deducted at source by him he shall be punishable with rigorous imprisonment for a term
which shall not be less than three months but which may extend to seven years and with
fine.

1.19.1 A summary of penalty/prosecution provisions provided in Chapter-XVII-

B is summarized below:
Section 201 (Consequences of failure to deduct or pay).

As per section 201 of the Income Tax Act, any person (including the principal officer
of a company),who is required to deduct any sum in accordance with the provisions of
this Act; or an employer,

 does not deduct, or

 does not pay, or
 after so deducting fails to pay, the whole or any part of the tax,

as required by or under this Act, then, such person, shall be deemed to be an assessee
in default in respect of such tax.

As per the first proviso of section 201, such person (payer/deductor) shall not be
deemed to be assessee in default in respect of such tax, if such payee (deductee)

 has filed Income tax return for respective period

 has taken into account said sum for calculating income
 has paid tax due on returned income

and the person furnishes a certificate to this effect from an accountant in Form No-
26A from Chartered accountant.

1.19.2 All of the aforesaid conditions of first proviso needs to be fulfilled by a

deductor otherwise he will be treated as assessee in default.

Further, as per section 201(1A), deductor is also liable to pay interest on the TDS not
deducted/short deducted or after deduction not deposited:

 1% per month or part of month on TDS amount if TDS short deducted/not

deducted
 1.5% per month or part of month on TDS amount if TDS was deducted but not
deposited.
As per the intention of law, TDS deducted by the deductor becomes the property of the
Government of India immediately after deduction and till the said amount is deposited
with the Government, deductor holds the TDS/TCS amount in trust on behalf of the
Government and, the person from whom such tax was deducted had no right over the
same.

Therefore, income tax department can recover the amount of TDS deducted but not
deposited alongwith interest from the assets of the person liable for depositing of TDS
by impounding assets of deductor.

1.19.3 Section 234E- Fee for default in furnishing statements.

As per section 201(3) of the Income Tax Act, any person deducting TDS after deposited
the TDS with government is liable to file prescribed statements in prescribed time
period.

1.19.4 The government has inserted section 234E effective from 01/07/2012 for
levying fee of Rs. 200 day for each day of default in filing TDS statement.

Prior to the introduction of Section 234 E, penalty for non-filing of the TDS statements
was Rs.100/- per day as provided for under Section 272 A(2) (K) of the Act. This
particular section 272(A)(2)(k) of penalty of Rs. 100 per day for delay in filing
TDS/TCS statements become ineffective with effect from 01/07/2012.

As per section 234 E of the Income Tax Act, without prejudice to the provisions of the
Act, where a person fails to deliver or cause to be delivered a statement within the time
prescribed section 200(3) or section 206C(3), he shall be liable to pay, by way of fee, a
sum of two hundred rupees for every day during which the failure continues.

Ex: Due date of filing of TDS return for Quarter-1 FY 2021-22 in Form-26Q is 31th July
2021 and XYZ company filed it TDS statement in Form-26Q on 30/10/2021 the
company is liable for payment of fees.

Due date of TDS Filing date of Delay in days Fee as per Fees
statement TDS statement section 234 E
31/07/2021 30/10/2021 91 days 200 18,200

It is worthwhile to note that there was no machinery provision u/s 200A of the Act for
processing of TDS statement which empowered the AO to make adjustment on account
of levy of late fee u/s 234E of the Act. The provision in statute by section 200A(1)(c)
bought by the Finance Act, 2015 w.e.f. 01.06.2015, provision for making such
adjustments while processing the TDS statement / return u/s 200A of the Act.

The Hon’ble Karnataka High Court in case of Fatehraj Singhvi & Ors. vs. UOI & Ors. 2016 (9)
TMI 964 is in favour of the assessee holding that the amendments brought in statute
w.e.f. 01.06.2015 are prospective in nature and as such, notices issued u/s 200A of the
Act for computation and intimation of payment of late filing fee u/s 234E of the Act
relating to the period of tax deduction prior to 01.06.2015 was not maintainable.

The Delhi ITAT in the case of Raj Veer Singh Vs ACIT (ITAT Delhi) by following
the decision rendered by Hon’ble Supreme Court in the case of Vegetable products
Limited 88 ITR 192 (SC) that when there are conflicting decisions, the view taken in
favour of the assessee should be followed, the impugned order passed by the ld. CIT
(A) confirming the late fee levied by the AO u/s 200A read with section 234E as the
defaults are prior to 01.06.2015, is not sustainable in the eyes of law, hence fee levied
u/s 234E is ordered to be deleted. Consequently, the appeal filed by the assessee is
allowed

1.19.5 In view of the aforesaid legal jurisprudence, we can say that section 234E
late fees is applicable from 01.06.2015.

Further, as per section 234E of the Act, fees under section 234C cannot exceeds total
amount of tax.

1.19.6 Penalty under section 271H for failure to furnish statement

As per section 271H of the Income Tax Act, assessing officer may levy penalty if
deductor/collector:

 Fail to file statements of TDS/TCS within time prescribed or

 Furnishes incorrect information in the statement

The minimum penalty under section 271H is Rs.10,000 and maximum penalty is Rs.
1,00,000/-.

Therefore, in any case penalty under section 271H cannot exceeds Rs. 1 lacs.
Further penalty under section 271H is not liable if deductor/collector has paid the due
tax alongwith interest, fee to government and filed prescribed statement before expiry
of 1 years of statements due dates.

1.19.7 Section 271C: Penalty for failure to deduct tax at source

As per section 271C of the Income Tax Act, if any person fail to-
 Deduct whole or part of tax required to be deducted
 Pay the whole or any part of tax

then such person shall be liable to pay penalty, a sum equal to amount of tax which such
person fail to deduct or paid.

Accordingly, if in any case deductor fail to deduct due TDS or after deduction fail to
deposit whole or part of TDS then assessing officer may levy penalty on deduction u/s
271C of the Income Tax Act equal to amount of tax.

Penalty under section 271C of the Income Tax Act is not automatic and if
deductor/collector is able to proves that there was reasonable cause for the said failure
the as per section 273B of the Income Tax Act penalty will not be imposed.

In a recent case of Sarv Estate Pvt. Ltd Vs JCIT (ITAT Delhi) (2020) held that penalty
under section 271C of the Income Tax Act is not liable if assessee did have bonafide
reason for not deducting the TDS. It has been held that it is necessary to establish
‘contumacious conduct’ on the part of the assessee for failure to deduct tax at source
for levy of penalty u/s 271C of the act.

The Bangalore ITAT in the case of Canara Bank (Erstwhile Syndicate Bank) Vs ACIT
(2020) held that bank has undertaken reasonable steps in terms of verifying the
assessee’s claim towards their LFC claims and there is an error of judgment on part of
the assessee bank in understanding and applying the provisions of section 10(5) of the
Act & bank has not deducted TDS intentionally. Accordingly, there was reasonable
cause in terms of section 273B of the Act for not deducting tax by the assessee Bank.
In the result, the penalty so levied under section 271C is hereby directed to be deleted.

In a recent ruling of Biocon Ltd Hon’ble Bangalore ITAT (2021) held that penalty can’t
be imposed for Non-Deduction of TDS as quantum of Payment not determinable. ITAT
found that there is a sufficient and reasonable cause for not deducting TDS on the year-
end provision. It is also observed that the assessee consistently follows this kind of
accounting system for year-end provisions which are subsequently reversed in the
subsequent year in the month of April, as and when the bills are received, and the
payment is made to the payee by deducting TDS.

Therefore in view settled legal precedents, we can say that penalty under section 271C
read with section 273B of the Income Tax Act is not automatic and liable if there is
reasonable cause on the party of deductor/collector for non-deduction of TDS.

1.19.8 Section 272A(2)(g) – Penalty for failure to furnish a certificate

As per section 272(A)(2)(g) of the Income Tax Act, if any person fail to furnish a
certificate to deductee/Collectte shall be liable for penalty of Rs. 100/- for every day
during which failure continues.

As per the provisions of section 203 of the Income Tax Act, 1961 read with rule 31A,
Certificate of tax deducted at source is to be furnished within fifteen (15) days from the
due date for furnishing the statement of tax deducted at source.

It is worthwhile to note that penalty for furnishing TDS/TCS certificate of Rs. 100/- per
day is not per deductee/Collecttee. It is cumulative penalty of Rs. 100 per day if
TDS/TCS certificate not furnished within prescribed time period irrespective of
TDS/TCS certificate.

1.19.9 Prosecution under section 276B/276BB: Failure to pay tax to the credit of
Central Government

As per section 276B/276BB of the Income Tax Act, if a person fails to pay to credit of
government, Tax deducted at source/TCS collected then he shall be punishable with
rigorous imprisonment for a term of which shall not be less 3 months but which may
be extend to 7 years and with fine.

In recent years income tax department has launched several prosecutions proceedings
under section 276B of the Income Tax Act on the wilful and routine defaulter of
TDS/TCS.

In a recent case of famous film producer Firoz Abdul Gafar Nadiadwala (2019), The
COURT OF ADDL. CHIEF METROPOLITAN MAGISTRAT , MUMBAI held
that Mens rea is not a requisite ingredient of the offence under section 276B of the
Income Tax Act. Court is of the considered view that accused is liable for possible
sentence of 3 months rigorous imprisonment and fine. It is the minimum punishment.
The Court is not having discretion in reducing the sentence. Therefore, accused shall
undergo rigorous imprisonment for a period of 3 months and fine of Rs.5,000/ (Rs. Five
Thousand only) for having committed offence U/sec. 276B of IncomeTax Act.

In case Sowparnika Projects and Infrastructure Pvt. Ltd. and Ors. v/s ACIT TDS Circle-
3(1), Criminal Review Petition No. 456/2019 (Judgment), the Hon’ble Court of the LIX
Additional City Civil and Session Judge, Bangalore City (District Court) upheld the
launching of prosecution proceedings for delayed deposit of tax deducted at source
(TDS) by the Company pertaining to Financial Year (FY) 2012-13.

Recently cases of delayed deposit of TDS with the government, the instances of
initiation of prosecution proceedings against the directors has been on the rise. Since
the IT Act does not make a distinction between a complete failure to deposit the TDS
with the government OR a delayed deposit of TDS with the government, the tax
authorities have generally been launching prosecution proceedings even in case of
delayed deposit of TDS with the government.

The issue of applicability of prosecution proceedings under section 276B of the Income
tax Act on non-deposit of TDS or delay deposit within the prescribe time period is a
matter of debate for courts.

In many cases court held that prosecution proceedings u/s 276B of the Act can be
initiated to failure to pay TDS amount in the prescribed time period, however in some
cases, courts have quashed the prosecution launched for an offence for delay in deposit
of TDS under section 276B of the Income Tax Act.

No penalty or prosecution shall be made or launched against the assessee for any failure
referred to in section 276B if he proves that there was a reasonable cause for the said
failure.

But if there is no reasonable cause for such failure, then the concept of compounding
comes in the picture. Compounding of offences means that the assessee can, instead of
serving imprisonment term, pay a fee to the revenue department and waive his
prosecution charges.
A person shall not be proceeded against for an offence u/s 276B, 276BB except with
the previous sanction of the Commissioner or Commissioner (Appeals) or the
Appropriate Authority.

1.20 TAX COLLECTED AT SOURCE (TCS)

Tax collection at source (TCS) is an additional amount collected as tax by a

seller of specified goods from the buyer at the time of sale over and above the sale
amount and is remitted to the government account. As per Income Tax Act 1961 certain
persons, being the sellers must collect a specified percentage of tax (as given in para 8
below) at the time of receipt of amount from their buyers or at the time of debiting of
the account of the buyer whichever is earlier. Section 206C of the Income Tax Act
mentions the particulars of goods, on sale of which tax needs to be collected from the
purchasers.

However, no collection of tax (TCS) shall be made in case buyer, who is

resident of India, if such buyer furnishes to the collector (seller) the declaration in
writing to the effect that the goods are to be utilized for the purpose of manufacturing,
processing or producing article or things (all for the purpose of generation of power)
and not for trading purpose. One copy of such declaration is required to be submitted
to the Chief Commissioner of Income Tax or Commissioner of Income Tax on or before
expiry of 7 days from the end of the month in which the sale is effected. For example
If sale is effected on 10th of September, the declaration is to be filed before 7th of
October.

Besides sale of goods, every person who enters into an agreement of lease,
license or contract for parking lot, toll plaza or mining or quarrying will collect an
amount @ 2% from such parties as TCS.

The person collecting tax has to obtain Tax Collection Account Number (TAN)
and quote it in all challans, certificates and returns and all other documents pertaining
to the transactions. The buyer shall furnish his Permanent Account Number (PAN) to
the seller, failing which tax shall be collected at the higher rate (twice or 5
percent whichever is higher).
 If the person responsible for collection of TCS fails to collect or after collecting
fails to pay, he shall be deemed to be an assessee in default in respect of the tax and
various consequences will follow.

1.21 Classification of Sellers and Buyers for TCS

(a) Under TCS mechanism a Seller is defined as any of the following:

1. Central Government

2. State Government

3. Local Authority

4. Statutory Corporation or Authority

5. Company registered under Companies Act

6. Partnership firms

7. Co-operative Society

8. Any person or HUF who is subjected to an audit of accounts under Income Tax Act
for a particular financial year.

(b) A Buyer is classified as a person who obtains goods or the right to receive goods in
any sale, auction, tender or any other mode.

TCS is not necessary for the following buyers:

a. Public Sector Companies

b. Central Government

c. State Government

d. Embassy of High commission

e. Consulate and other Trade Representative of a Foreign Nation.

f. Clubs such as Sports clubs and Social Clubs

g. Local authority for the purpose of purchase of vehicle.

1.22 Goods and transactions covered under TCS provisions and rates
applicable to them

The rate of TCS is different for goods specified under different categories :

Nature of Goods Rate applicable from 01 Rate applicable from

.04.202 to 13.05.2020 14.05.202 to
31.03.2021
Liquor of alcoholic nature, 1% 1%
made for consumption by
humans
Timber obtained under a forest 2.5% 1.875%
lease
Tendu leaves 5% 3.75%
Timber obtained by any other 2.5% 1.875%
mode than forest leased
A forest produce other than 2.5% 1.875%
Tendu leaves and timber
Scrap 1% 0.75%
Minerals like lignite, coal and 1% 0.75%
iron ore
Purchase of Motor vehicle 1% 0.75%
exceeding Rs. 10 Lakhs
Parking lot, Toll Plaza and 2% 1.5%
Mining and Quarrying

1.23 TCS Payments

a) The seller shall deposit the TCS amount in Challan 281 within one week of the last
day of the month in which the tax was collected. This payment can be made in any
branch of RBI, SBI or any other authorized bank or the same can also be paid
electronically.

b) All sums collected by an office of the Government should be deposited on the same
day of collection.

1.23.1 Failure to make payment to Government Account

a) If the tax collector responsible for collecting the tax and depositing the same to the
Government does not collect the tax then he will be liable to pay interest of 1% per
month or a part of the month. In addition to the amount of TCS he failed to collect. If
after collecting doesn’t pay the tax to the Government within due dates, then he is liable
for interest @ 1% per month of delay (if due date falling between 01.04.2020 to
29.06.2020) rate of interest is 0.75% per month or part of the month.

b) The person would also be liable for penalty u/s 271CA of the Act, which would be
equal to amount of tax liable to be collected.

c) The person will also be liable to prosecution u/s 276BB of the Act, term of which is
upto 7 years of imprisonment.

1.24 TCS Returns & Certificate of TCS

It is mandatory for all collectors of tax to furnish Quarterly TCS returns (Form 27EQ)
online to CPC-TDS in electronic mode within the prescribed time. The collector can
also file correction statement for rectification of any mistake, add/delete or update the
information already furnished.

Note: Filing of TCS return after due date is liable for Late Filing Fee of Rs.200/- per
day for the period of delay from due date.

The Collector of TCS has to provide a TCS certificate in Form 27D to the purchaser of
the goods.
1.25 The due dates for delivering TCS quarterly returns and issue of
TCS certificates is as under:

Quarter Ending Due Date o Date for generating Form 27D

filing return
30th June 31st March 2021 As Per 15th April 2021
Notification No.35 /2020
30th September 31st March 2021 As Per 15th April 2021
Notification No.35 /2020
31st December 15th January 30th January
31st March 15th May of the FY 30th May
immediately following
the FY in which
collection is made.
Note: Failure to furnish certificate may attract penalty of Rs.100/- for every day of
delay.

1.26 TCS Exemptions

Tax collection at source is exempt in the following cases:

a. When the eligible goods are used for personal consumption

b. The purchaser buys the goods for manufacturing, processing or production and not
for the purpose of trading of those goods.

1.27 NEW PROVISIONS APPLICABLE FROM 01 OCTOBER, 2020

a. Every authorized dealer who receives an amount of Rs. 7 lakhs or more in a financial
year for remittance out of India from a buyer of foreign currency remitting under
Liberalized Remittance Scheme (LRS) (other than overseas tour program package) is
liable to collect tax @ 5% (if no Aadhaar or PAN @10%) at the time of debiting or
receipt of amount. {Section 206C(IG)(a) of IT Act, 1961).

b. Every seller whose gross turnover exceeds Rs. 10 crores in preceding financial year,
receives sale consideration of any goods exceeding Rs. 50 lakhs is liable to collect tax
© 0.1% (If no Aadhaar or PAN-1%) of sale consideration exceeding Rs. 50 lakhs from
the buyer at the lime of receipt. {Section 206C(H) of IT Act 1961}.

1.28 Due date for deposit of TCS to the credit of Central Government:

Tax collected at source shall be deposited to the credit of Central Government in

accordance with the following provisions:

1) In case tax is collected by an office of the Government:

Where tax is paid without production of an income-tax challan, on the same day when
tax is collected.

Where payment of tax is accompanied by an income-tax challan, on or before 7 days

from the end of the month in which tax is collected.

2) In case tax is collected by non-government persons, within one week from the last
day of the month in which tax is collected.

1.29 Mode of deposit TCS:

Taxes collected at source shall be deposited to the credit of the Central Government in
following modes:

1) E-Payment: E-Payment is mandatory for:

a) All the corporate assesses;

b) All assesses (other than company) to whom provisions of section 44AB of the
Income Tax Act, 1961 are applicable.

2) Physical Mode: By furnishing the Challan No. 281 in the authorized bank branch

Note:

When tax is collected by government office, it can remit the amount to the Central
Government without production of an Income-tax challan and by making only book
adjustment. In such a case, it has to furnish Form No. 24G to NSDL with prescribed
time-limit.

1.30 Consequences if default is made in payment of TCS

A collector would face the following consequences if he fails to collect TCS or after
collecting the same fails to deposit it to the credit of Central Government’s account:

a) Levy of interest: If the person responsible for collecting tax at source does not collect
it or after collecting fails to pay it to the Government, he shall be liable to pay simple
interest at the rate of 1% per month or part thereof on the amount of such tax from the
date on which such tax was collectible to the date on which the tax was actually paid
and such interest shall be paid before furnishing the quarterly statement for each
quarter.

b) Levy of Penalty: If any person fails to collect the whole or any part of the tax, then
such person shall be liable to pay by way of penalty under Section 271CA, a sum equal
to the amount of tax which such person failed to collect.

c) Prosecution: If a person fails to pay to the credit of the Central Government the tax
collected by him he shall be punishable with rigorous imprisonment for a term which
shall not be less than three months but which may extend to seven years and with fine.