Tax deduction at source for individuals

As per Income Tax Act 1961, an individual who receives income on a regular basis/ irregular basis, is subjected to Tax Deduction at Source (TDS). It is based on the principle “Pay as you earn”. TDS helps the government and the taxpayer. For government, TDS prevents tax evasion, advances tax collection, widens tax collection base and assures steady flow of revenue to the government. For the taxpayer, it distributes tax incidence and provides simple and hassle-free avenue for payment of tax.

Any salaried individual is subjected to TDS based on the estimated income for the financial year. The estimated income is arrived at by calculating the projected salary plus other income declared by the employee. If the estimated income exceeds the income tax slab, TDS has to be deducted on a monthly basis as per slab rates and remitted to the government. The employer has the obligation to issue Form 16 to the employee for the financial year, latest by May 31.

If the estimated income is less than the prevailing income tax slab, the employee can submit Form No 15G/15H for exemption of TDS deduction. Form 15G is for individuals and Form 15H is for senior citizens. However, if an individual’s estimated income is more than the tax slab, then one cannot seek exemption from TDS through 15G/15H. Alternatively, an individual can apply to the Assessing Officer in Form No 13 and obtain a certificate for non-deduction of TDS or lower rate of TDS which is valid one year.

Rent received from Immoveable Property/Plant and Machinery has to be treated as income as per Section 194 (I ). If the rent is paid by an individual, TDS is not applicable. However, if the rent of Rs 1,80,000 or more in a year is paid by businessman having a turnover of more than Rs 1 crore and a professional having a turnover of more than Rs 50 lakh and are subjected to Tax Audit, attracts TDS. The rate of TDS for rent on immoveable property is 10%, and 2% for rent on plant and machinery. Liability of TDS falls on the payer of rent.

Interest received as income from investment in other than securities are liable for TDS at 10%. The threshold limit for interest paid by banks/co-operative banks and post office is Rs 10,000 in a financial year. If an individual receives interest from more than one branch of a bank, and the aggregate interest exceeds Rs 10,000, TDS is applicable. Institutions/companies other than banks/cooperative banks/post office paying interest more than Rs 5,000, attracts TDS at 10%. PAN number of the individual is mandatory.

Under Section 192A, if an individual withdraws amount from his Provident Fund Account within a period of five years from the account opening date, then withdrawal will attract TDS of 10%. However, if the amount of withdrawal is less than Rs 50,000 or withdrawal of any amount after five years will not attract TDS. Non furnishing of PAN number attracts TDS of 30%.

The amount paid to an individual consultant, professional, and technicians up to Rs 30,000 is exempted from TDS. If it exceeds Rs 30,000, the rate of TDS applicable is 10% under section 194J. However, remuneration paid to director of a company attracts TDS of 10% without any threshold limit.

Under Section 194DA, if an individual receives the maturity value of a policy from an insurance company which is not exempted under Section 10(10D), the insurance company has to deduct TDS at 1%, if the amount exceeds Rs 1,00,000.

An individual who receives proceeds from sale of immoveable property, less than Rs 50 lakh will not attract TDS under section 194IA. However, if it exceeds Rs 50 lakh, TDS of 1% is applicable. The purchaser has to apply in Form No 26QB, which is a Challan-cum-Return within seven days from receipt of the transacted amount.

Form 26QB has to be filed online. However, one can file the return offline by downloading the form and paying in any nationalised bank. TDS thus deducted will be reflected in Form 26AS. TAN is not necessary for any individual to file Form 26QB. However, if an individual is doing frequent real estate transactions, then TAN becomes mandatory. Sub-Registrar can refuse registration of a property, if proof of filing Form 26QB is not produced at the time of registration.

TDS is also applicable on income from insurance commission, commission on lottery tickets and brokerage at 5% with threshold limit of Rs 15000.

(The writer is Assistant Professor at Manipal Academy of Banking, Manipal University, Bengaluru Campus)