Chapter-Tax Deducted at Source

📚TDS on Salary (Section 192)

1. Applicability of Section 192

● Who deducts TDS?

The employer is responsible for deducting TDS before making salary payments to
an employee.

● Who is liable to pay TDS?

TDS is deducted from the salary income of the employee.

● When is TDS deducted?

TDS is deducted at the time of payment of salary, not at the time of accrual. Even if
the salary is due but not paid, TDS is not deducted until the salary is actually paid.

2. Definition of Salary (Section 17)

The term salary includes the following:

● Basic Salary
● Dearness Allowance (DA)
● House Rent Allowance (HRA)
● Conveyance Allowance
● Leave Travel Allowance (LTA)
● Gratuity
● Perquisites (such as car, accommodation, etc.)
● Bonus and commissions
● Pension received by an employee
● Advance salary or arrears of salary
● Encashment of leave at the time of retirement

3. Rate of TDS under Section 192

● Slab Rate Application:

TDS is calculated based on the income tax slab rates applicable to the individual
for the financial year.
The tax slabs for individuals below 60 years for FY 2024-25 are:

Income Slab (Old Regime) Tax Rate

Up to ₹2,50,000 Nil

₹2,50,001 – ₹5,00,000 5%

₹5,00,001 – ₹10,00,000 20%

Above ₹10,00,000 30%

 Optional New Regime (Section 115BAC)

● Employees can opt for the new tax regime under Section 115BAC, where
concessional tax rates are available but most exemptions and deductions are not
applicable.
● New tax slabs under Section 115BAC:

Income Slab (New Regime) Tax Rate

Up to ₹3,00,000 Nil

₹3,00,001 – ₹6,00,000 5%

₹6,00,001 – ₹9,00,000 10%

₹9,00,001 – ₹12,00,000 15%

₹12,00,001 – ₹15,00,000 20%

Above ₹15,00,000 30%

Choice Between Old and New Regime:

● Employees must intimate their employer regarding their choice of regime at the
beginning of the financial year.
● The default regime is the old regime if the employee does not opt for the new
regime.

4. Computation of TDS on Salary

TDS is deducted after computing the total taxable salary by considering:

Step 1: Gross Salary

● Calculate total salary income including all allowances and perquisites.

Step 2: Allowable Exemptions (Section 10)

● Deduct eligible exemptions:

○ House Rent Allowance (HRA):
■ Exempt under Section 10(13A) subject to certain conditions.
○ Leave Travel Allowance (LTA):
■ Exempt under Section 10(5) for actual travel expenses for self and
family.
○ Gratuity: Exempt for government employees and up to a limit for private
employees.
○ Perquisites: Some perquisites such as medical reimbursement, education
allowance, etc., are exempt within prescribed limits.

Step 3: Deductions Under Chapter VI-A

Deductions are allowed under various sections to reduce taxable income:

Section Nature of Deduction Maximum Limit

80C PPF, EPF, LIC, NSC, ELSS, etc. ₹1,50,000

80CCC Pension fund contributions ₹1,50,000

80CCD(1B) Additional NPS contribution ₹50,000

80D Health insurance premium ₹25,000 (₹50,000 for senior citizens)

80E Interest on education loan No limit

80G Donations to charitable institutions Varies (50%/100%)

24(b) Home loan interest ₹2,00,000

Step 4: Tax Calculation

● Apply the applicable tax slab rates to the net taxable income.
● Add cess @ 4% on the income tax amount.

5. Relief under Section 89 for Arrears of Salary

● Employees receiving arrears of salary can claim relief under Section 89 by filing
Form 10E.
● The relief ensures that the additional tax burden due to arrears is spread over the
years to which the salary pertains.

6. Submission of Form 12BB by Employees

● Employees need to submit Form 12BB to declare their proposed investments and
claim deductions.
● Declaration includes:
○ HRA details with rent receipts.
○ Interest on home loan.
○ Investments made under Section 80C, 80D, etc.

7. New Tax Regime Declaration (Form 10-IE)

● Employees opting for the new tax regime under Section 115BAC must submit Form
10-IE before filing their ITR.
● Form 10-IE is mandatory if the employee wishes to switch between the old and new
tax regimes.

8. TDS Deposit and Compliance by Employer

● Due Date for TDS Deposit:

TDS deducted must be deposited with the government by the 7th of the next
month. For March, the due date is April 30.
 ● Quarterly TDS Return:
Employers must file a quarterly TDS return using Form 24Q.

● Issuance of Form 16:

○ Form 16 is issued annually by the employer by June 15 of the following

financial year.
○ It contains details of salary paid, exemptions claimed, and TDS deducted.

9. Penalties and Consequences for Non-Compliance

● Late Deduction of TDS:

○ Interest at 1% per month for failure to deduct TDS on time.

● Late Deposit of TDS:

○ Interest at 1.5% per month for delay in depositing TDS after deduction.
● Penalty for Late Filing of TDS Return:

○ Rs. 200 per day of delay, subject to the maximum amount of TDS.
● Penalty for Non-Filing of Return:

○ Fine ranging between Rs. 10,000 to Rs. 1,00,000.

10. Key Points to Note

● Tax Deduction Certificate (Form 16):

○ Mandatory for employers to issue Form 16 annually.

● Adjustment for Previous Months:

○ If excess TDS is deducted or lesser TDS is deducted, adjustments can be

made in subsequent months.
● TDS in Case of Multiple Employers:

○ If an employee changes jobs during the year, both employers must consider
previous income and deductions to compute correct TDS.
● Annual Reconciliation:

○ Employees should verify TDS details with their Form 26AS to ensure
consistency.

Conclusion:

TDS on salary ensures that taxes are collected in advance, reducing the tax burden on
employees at the end of the year. Employers play a crucial role in complying with Section 192
by computing tax correctly, considering all exemptions and deductions, and filing returns on
time. Employees must ensure they provide accurate information to the employer to avoid
incorrect TDS deductions.
📚 TDS on Interest on Securitiess (Section 192)

The rules regarding TDS (Tax Deducted at Source) on interest on securities in India are
governed mainly by Section 193 of the Income Tax Act, 1961. Below is a detailed
breakdown:

1. Applicability of Section 193

TDS under Section 193 applies to interest on securities payable to a resident.

Examples of such securities:

• Debentures or bonds issued by a company

• Government securities (with exceptions)

• Listed/unlisted securities

2. When is TDS Required to be Deducted?

TDS is to be deducted at the time of credit of such income to the account of the payee or at
the time of payment, whichever is earlier.

3. Rate of TDS

• 10% – If PAN is provided

• 20% – If PAN is not provided (as per Section 206AA)

4. Threshold Limits (When TDS is Not Applicable)

Nature of Security Issuer Threshold TDS Applicability

Company ₹5,000 p.a. & payment by No TDS if conditions

Listed debentures
(publicly listed) A/c payee cheque met

Government securities RBI/Govt No threshold Exempt from TDS

Unlisted debentures Any company No threshold TDS applicable

Interest payable to Financial TDS not applicable as

No threshold
banks, LIC, etc. Institutions per exemption

5. Exemptions from TDS under Section 193

TDS is not applicable in the following cases:

1. Interest on Government securities

2. Interest paid to:

o LIC

o GIC and its subsidiaries

 o Any other insurer

o Recognised Provident Fund, Superannuation Fund, or Gratuity Fund

3. Interest paid to banking companies, financial institutions, etc.

4. Interest on National Savings Certificates (NSC)

5. Interest on 8% / 7.75% Savings (Taxable) Bonds (if held in demat form and paid
electronically)

6. Time Limit for Deposit of TDS

• For non-government deductors:

o By 7th of next month (for months April–Feb)

o By 30th April (for March)

7. TDS Return Filing

• Quarterly TDS return in Form 26Q

• Due Dates:

Quarter Due Date

Q1 (Apr–Jun) 31st July
Q2 (Jul–Sep) 31st October
Q3 (Oct–Dec) 31st January
Q4 (Jan–Mar) 31st May

8. Consequences of Non-Compliance

• Interest for delay (1% or 1.5% per month depending on nature)

• Penalty u/s 271C

• Disallowance of expense under Section 40(a)(ia)

9. Submission of Form 15G/15H

• If the recipient submits Form 15G/15H, and their income is below the taxable limit,
no TDS is required to be deducted.
📚 TDS on Interest Other than on Securities: Section 194A

1. Applicability

TDS under Section 194A applies to:

• Individuals (other than HUF) who are required to get their books audited under
Section 44AB

• Firms

• Companies

• Cooperative Societies

• Banks

• NBFCs

Not Applicable to:

• Individuals and HUFs not liable to tax audit in the previous year

• Interest paid to non-residents (covered under Section 195 instead)

2. Time of Deduction

TDS must be deducted:

• At the time of credit of interest to the payee's account or

• At the time of payment, whichever is earlier

3. Rate of TDS

• 10% – If PAN is furnished

• 20% – If PAN is not furnished (as per Section 206AA)

4. Threshold Limits for TDS (When TDS is Not Required)

Threshold (per
Payer Remarks
financial year)
Bank / Cooperative Bank /
₹40,000 For general depositors
Post Office
Bank / Coop Bank / Post
₹50,000 For senior citizens (age 60 or above)
Office
Others (non-banking Example: interest on loans, deposits
₹5,000
entities) from NBFCs or other firms

5. Exceptions – When TDS is Not Applicable under Section 194A

TDS not required if interest is paid to:

1. Banking Companies, LIC, UTI, Insurance Companies

2. Any cooperative society carrying on banking business

3. Public financial institutions

4. Interest on savings bank account

5. Interest credited or paid by a firm to its partner

6. Interest on compensation awarded by Motor Accident Claims Tribunal up to

₹50,000

7. Interest paid to:

o Recognised Provident Fund

o Notified Institutions under Section 10(23C)

o RBI

o SBI or its subsidiaries

6. Form 15G/15H – Non-deduction of TDS

• Form 15G – For individuals (non-senior citizens) declaring that total income is below
taxable limit

• Form 15H – For senior citizens with nil tax liability

These forms must be submitted in duplicate to the deductor at the beginning of the
financial year.

7. Time Limits for TDS Payment

Deductor Type Payment Time

Govt (with challan) 7th of next month

Others 7th of next month (except March)

For March 30th April

8. TDS Returns (Form 26Q)

Quarter Due Date

Q1 (Apr–Jun) 31st July
Q2 (Jul–Sep) 31st October
Q3 (Oct–Dec) 31st January
Q4 (Jan–Mar) 31st May
 9. Interest and Penalty for Non-Compliance

Issue Section Consequence

Failure to deduct TDS 201 Treated as assessee-in-default
Delay in deduction 201(1A) Interest @ 1% p.m.
Delay in payment after deduction 201(1A) Interest @ 1.5% p.m.
Late filing of TDS return 234E ₹200/day (max to TDS amount)
Penalty 271H ₹10,000–₹1,00,000

TDS on Commission or Brokerage- Section 194H

1. Applicability

Section 194H applies to:

• Any person (except individuals or HUF not liable to tax audit under section 44AB in
the previous year)

• Who pays commission or brokerage to a resident person

2. Definition of "Commission or Brokerage"

Includes any payment received or receivable:

• For services rendered (not being professional services)

• For any services in the course of buying or selling goods

• For acting as an agent or otherwise in relation to any transaction

Examples:

• Insurance commission

• Brokerage on sale of goods

• Commission to travel agents, real estate brokers, etc.

• Commission to dealers/distributors

Excludes:

• Professional services (covered under Section 194J)

• Salary payments (covered under Section 192)

3. TDS Rate
Condition TDS Rate
PAN provided 5%
PAN not provided 20% (as per Section 206AA)

4. Threshold Limit

• ₹15,000 per financial year (per payee)

• If the aggregate amount of commission/brokerage paid or credited exceeds

₹15,000, TDS is applicable

5. Time of Deduction

TDS is to be deducted at the time of credit to the account of the payee or at the time of
payment, whichever is earlier.

Note: Even if the amount is credited to "Suspense Account", TDS must still be deducted.

6. Exceptions (No TDS)

TDS under Section 194H is not required in the following cases:

1. If the payer is an Individual or HUF not liable for audit under Section 44AB in the
previous year

2. If the commission amount does not exceed ₹15,000

3. If the payee submits Form 15G/15H and is eligible

4. Payments to banks or financial institutions may be exempt depending on CBDT

notifications

7. Due Dates

TDS Deposit:

• 7th of next month (except March → 30th April)

TDS Return (Form 26Q):

Quarter Due Date

Q1 (Apr–Jun) 31st July
Q2 (Jul–Sep) 31st October
Q3 (Oct–Dec) 31st January
Q4 (Jan–Mar) 31st May

TDS Certificate:

• Form 16A – to be issued quarterly, within 15 days from due date of filing TDS return

8. Penalties for Non-Compliance

Type Section Penalty
Non-deduction of TDS 201 Tax + interest (1% or 1.5% p.m.)
Late deposit of TDS 201(1A) Interest @ 1.5% p.m.
Late filing of return 234E ₹200/day (max = TDS amount)
Failure to file return 271H ₹10,000 to ₹1,00,000

9. Special Notes

• TDS to be deducted even if commission is paid in kind.

• Discounts to distributors may be treated as commission (as per CBDT Circular No.
619 & 713) – e.g., if there's an agency relationship.

• Be cautious with incentives to channel partners, they may fall under 194H
depending on the structure.

TDS Rates and Rules – Comprehensive Summary Table

Rate
Threshold Time of
Nature of Payment Section of Applicability
Limit Deduction
TDS
As per Slab Employer to At the time of
Salary 192
applicable slab rates employee payment
₹5,000 Credit or
(₹10,000 for payment,
Interest on securities 193 10% Resident
listed securities whichever is
by demat) earlier
₹40,000
(₹50,000 for Credit or
Interest (other than senior citizens payment,
194A 10% Resident
securities) with banks); whichever is
₹5,000 for earlier
others
Winning from lotteries, At the time of
194B ₹10,000 30% Any person
crossword puzzles payment
Winning from horse At the time of
194BB ₹10,000 30% Any person
races payment
Credit or
payment,
Insurance commission 194D ₹15,000 5% Resident
whichever is
earlier
Credit or
payment,
Commission/Brokerage 194H ₹15,000 5% Resident
whichever is
earlier
 Rate
Threshold Time of
Nature of Payment Section of Applicability
Limit Deduction
TDS
Credit or
₹30,000 per
Contractor payment,
194C contract or 1% Resident
(Individual/HUF) whichever is
₹1,00,000 p.a.
earlier
Contractor (Others) 194C Same as above 2% Resident Same as above
Credit or
Rent (Land, Building, payment,
194I ₹2,40,000 p.a. 10% Resident
Furniture) whichever is
earlier
Rent (Plant, Machinery,
194I ₹2,40,000 p.a. 2% Resident Same as above
Equipment)
Purchase of Immovable Resident At the time of
194-IA ₹50,00,000 1%
Property Seller payment/credit
Payment for transfer of
Joint
certain immovable Credit or
194-IC No threshold 10% development
property (other than payment
agreement
agricultural land)
Credit or
Professional Fees / payment,
194J ₹30,000 p.a. 10% Resident
Technical Services whichever is
earlier
Credit or
TDS on Dividend 194 ₹5,000 10% Resident
payment
Banks/Co-
At the time of
Cash Withdrawal 194N > ₹1 crore 2% ops/Post
withdrawal
Office
Commission on sale of Credit or
194G ₹15,000 5% Resident
lottery tickets payment
₹5,00,000
TDS on Payment to E- Credit or
194-O (Individual/HUF 1% Resident
commerce participant payment
only)
Buyer with
TDS on Purchase of Credit or
194Q ₹50,00,000 0.1% turnover >
Goods payment
₹10 Cr
TDS on EPF withdrawal At the time of
192A ₹50,000 10% Individual
(before 5 years) payment
TDS on income from Credit or
194K ₹5,000 10% Resident
units (mutual funds) payment
TDS on
Before providing
benefits/perquisites in 194R ₹20,000 10% Resident
benefit/perquisite
business/profession

Additional Notes:
 • If PAN is not provided, TDS is deductible at 20% or higher under Section 206AA.

• If the recipient submits Form 15G/15H (and is eligible), TDS may not be required.

• For non-residents, TDS applies under Section 195 at different rates depending on
the DTAA or Income Tax Act.

Difference Between TDS and TCS

TCS (Tax Collected at
Feature TDS (Tax Deducted at Source)
Source)
Tax deducted by the payer while Tax collected by the seller
Meaning making specified payments (e.g., while receiving payment on
salary, interest) specified goods or services
A car dealer sells a car worth
A company pays ₹1,00,000 as
₹12 lakh → It collects TCS
professional fees to a consultant → It
Example @ 1% = ₹12,000 from the
deducts TDS @ 10% = ₹10,000 and
buyer and deposits it with
pays ₹90,000 to the consultant.
the government.
Who
Deductor (payer) Collector (seller)
Deducts/Collects
On sale of specific goods
On expenses/payments like salary,
like liquor, scrap, minerals,
Applicability interest, rent, commission,
cars, foreign remittances,
professional fees, etc.
etc.
Relevant Sections Sections 192 to 196D Section 206C
To collect tax at source of income To collect tax at source of
Purpose before the income reaches the revenue at the time of
recipient sale/receipt
When is it At the time of credit or payment, At the time of receipt of
deducted/collected? whichever is earlier payment or sale
Applicable if payment exceeds Applicable on sales beyond
Threshold Limits prescribed limit (e.g., ₹30,000 for limits (e.g., ₹50 lakh on sale
contractor) of goods under 206C(1H))
Filing Return Form 26Q, 24Q, 27Q Form 27EQ
Challan for payment Challan ITNS 281 Same – ITNS 281
7th of next month (except March:
Due Date for Deposit 7th of next month
30th April)
TDS Certificate Form 16 / 16A issued to payee Form 27D issued to buyer
Rate if PAN not
20% under Section 206AA 5% or higher under 206CC
provided
Higher rate for non- Section 206AB – higher of 5%, 2x Section 206CCA – similar
filers rate, or 20% higher rate