The main purpose of introduction of Tax deducted at source (TDS) is to curb Income Tax Evasion and collect Tax in advance.
Let’s understand Tax Deducted At Source (TDS) under Income Tax in simple words.
Suppose there are two ‘Persons’, namely ‘Mr A’ and ‘Mr B’.
Mr A pays a professional fees of Rs 2,00,000 to Mr B.
Now Mr B is supposed to show this Rs 2,00,000 as ‘Receipts’ in his Income Tax Return and is required to pay the Income Tax as per prevailing Tax Slab Rates. Suppose Tax Payable is @ 10%.
So Mr B has to pay Rs 20,000 as his income tax.
As per TDS system, Mr A will deduct Tax @ 10% from Rs. 2,00,000 while paying to Mr B. As per this system Mr A will pay Rs. 1,80,000 to Mr B and will deposit Rs. 20,000 to Government (Income Tax – TDS).
In the similar line, Mr A will issue a TDS certificate to Mr B stating that Rs 20,000 has been deducted and Deposited on behalf of Mr B as TDS.
So Mr B is not required to pay tax again on this receipt. Mr B is required to mention a TDS Certificate of Rs 20,000 in his Income Tax Return.
In the similar line, the ‘Payer’ of money, deducts and deposits TDS before paying the money to ‘Receiver’. This process is followed in different types of payments.
Please Note:
- If TDS is not deducted at proper time, interest is payable till the date of actual deduction.
- If TDS is not deposited within due time, interest is payable till the date of actual deposit.
- If TDS Return is not filed within due date, then Late Filing Fees @ Rs 200 per day is payable till the date of Actual Filing of TDS Return. (Subject to Maximum Limit of Total TDS).
- If TDS Certificate is not issued within due date then penalty of Rs 100 per day will have to be paid for delay.
- Over and above, if the payer does not deduct the tax at source while making the payment, the 30% payment made without deduction of tax at source (TDS) will not be available as expenditure, for deduction from Gross Receipts, for determining the Surplus from business activity.
