Indian Income Tax

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Rates for TDS

What is TDS?

In a simple language TDS stands for tax deducted at source. It is a tax that is deducted from the earning of the employee by the employer in other words it is a tax that is deducted at source. It is deducted as per the finance act of that year. TDS should not be confused with the income tax return; TDS is a different tax than income tax . Tax deduction is useful to reduce the income taxand provide tax relief. TDS is deposited in the government treasury and later on assigned to central government. TDS came into existence because government wants to expand their tax bracket in the country.

Let’s have a look at some of the income that is subjected to tax deduction at source (TDS).

  1. Income through the salary
  2. Interest rate generated from nay mode
  3. Rental charges
  4. Insurance commission
  5. Prize money from betting, lotteries and horse races
  6. Commission on sale of lottery ticket
  7. Income generated from the foreign countries
  8. Fees for professional and technical services
Latest TDS (tax deducted at source) rate – 2010 -2011
Payment source Threshold in Rs. co-operative society/Local authority/company firm (rate in %) HUF (rate in %)
Winning from lotteries 100003030
Winning from horse races50003030
Commission on insurance200001010
Rent or property 1800001010
Interest from bank 100001010
Commission/brokerage 50001010
Professional fees 300001010
Scrap -11
Toll plaza -22
Mining /quarrying -22
Interest on debenture and securities-10-
Withdrawal from NSS 250020-
Payment to nonresident sportsmen -10-
Income from ling term capital gain -20-
Income by way of short term capital gain-15-
Fees for technical services payable by Government or an Indian concern in Pursuance of an agreement made by non- Resident with the government -10-

TDS is not applicable if Pan is provided by the transporter. Surcharge and cess is not applicable on TDS with effect from 1 April 2009 on any payment made by the resident.

Calculation of how to deduct correct TDS

  • Salaries

    1. Estimate the annual approximate salary.
      1. As it’s an approximate deduction from the employee salary. Calculate the exact taxable salary amount payable till current month of financial year.
      2. Calculate the approximate salary that will pay for next financial year.
    2. For the correct calculation of TDS it needs to calculate any other mode of income declared by the employee.
    3. Deduct any loss declared by the employee such as loss of the house.
    4. Declaration as per 80C, 80D, 80G etc.
    5. Calculate the surcharge, income tax and cess on the net income of the employee.
    6. Deduct any type of rebate.
    7. Calculate the total tax now deduct the TDS made till last month from it.
    8. Divide the net TDS by “remaining number of months in the FY” including this month.
    9. Deduct this month from employee salary.

  • Non salaries
    1. In this check that no payment should be paid to government, reserve bank or mutual fund.
    2. It is always preferable to calculate the threshold.
    3. Deduct the amount as per the declaration 197A for non deduction of TDS.
    4. Check that employee has not submitted a certificate by Assessing officer under section 197 for non-deduction of TDS or deduction at a lower rate.
    5. If you want to get effective TDS rates you need to include surcharge and cess.
Wrong or non calculation of TDS
  1. Any payment that is payable as interest, commission, rent or brokerage. It should be added to the income tax to get the final tax structure.
  2. Attract penalty that is applicable for the person who is not able to pay the amount of tax on time.
Interest earned from securities, horse racing, insurance commission and lottery prizes are applicable for the TDS. Tax deduction is applicable for any kind of charity and if the person is suffering from any kind of disability.

All people who want to pay TDS are required to apply for TAN (tax deduction and collection account number)

TDS certificate

Section 192 – This certificate on form 16 is submitted by the payer with in one month prior to next financial year.

Let’s have a look at the key sections:

  • Section 192 – payment of salary or payment of wages.
  • Section 193 – Payment of securities or payment of interest.
  • Section 194 A – Interest other than securities.
  • Section 194 B – Amount generated from lotteries or card game.
  • Section 194 BB- Winning from horse race.
  • Section 194C – Payment to contractor.
  • Section 194 H – payment of commission or brokerage.
  • Section 194 I – Payment of rent of plant and payment of machinery
  • Section 194J- Payment of professional charges.

TDS implications on payment of commission or brokerage are like if a person who is responsible for paying to a resident, and any income that comes in the form of commission or brokerage have to deduct tax at source from there.

There are few charges that are exempted from tax at source (TDS)

The discount that is avail by the stamp vendor should not be confused with TDS as per section 194H, in the course of buying and selling of goods the discount comes does not come under the provision of commission or brokerage the tax will be deducted at source.

Deduction of tax by airlines from its agent. In this tax will be deducted at source as per the section 194H. TDS will be deducted from the actual cost of the airline fare.

TDS is not applicable in RBI due to the turnover commission payable by the reserve bank of India to the agency bank.

For PCO franchisee no deduction shall b e made by BSNL or MTNL.

  • In case of transport contract if PAN is provided then there will not be any deduction for TDS from 01/10/2009 to 31/03/2010.
  • If PAN is not provided then TDS deduction would be 1 %.
  • As per the new clause the charges for the rent paid, plant and machinery the TDS would be 2% however for land, furniture and building it would be 10%.
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