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Tax Withholding

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Tax Withholding

There is an obligation on the payer (either resident or non-resident) of income to withhold tax (also called as TDS) when certain specified payments are credited and/or paid. Tax has to be withheld at a prescribed rate (depending upon nature of payment) and has to be deposited with government within a prescribed time limit. Subsequently tax withholding (TDS) returns have to be filed and TDS certificates to be issued within prescribed time limit. If any of the activities, i.e. tax deduction, payment, filing return or issuing TDS certificate is not done in a prescribed way or time frame, there is a penalty, interest and late filing fee attached to it. Hence it is of paramount importance that tax withholding compliances are handled carefully.

We assist clients in reviewing their tax withholding compliances at regular intervals and also undertake tax withholding compliances. Our expertise in international tax law enables us to provide comprehensive solutions by examining tax treaties and related documentation. Our solutions provide a balance between the legal requirements and business realities to help businesses deal with contentious issues.

Contact Greenvissage for hassle-free services of Tax Withholding!

Our service for Tax Withholding (TDS) compliances includes following

Checking TDS applicability and rate applicable

Withholding tax rate varies depending upon the nature of transaction. Below is the table reflecting nature of transactions and respective rates:

 

Payments to resident companies:

Nature of payment

WHT rate (%)

Specified type of interest

10

Non-specified type of interest

10

Professional or technical service

10

Commission and brokerage

5

Rent of plant, machinery, or equipment

2

Rent of land, building, or furniture

10

Contractual payment (except for individual/HUF)

2

Contractual payment to individual/HUF

1

Royalty or fees for technical services

10

Deemed dividend

10

Notes:

  1. Payments have different threshold limits. The payer is only required to withhold tax if the total payment within a tax year to a single person (except where specified otherwise) is above the threshold limit.

  2. If the Permanent Account Number (PAN) of the deductee is not quoted, the rate of WHT will be the rate specified in relevant provisions of the Income Tax Act, the rates in force, or the rate of 20%, whichever is higher.

Payments to non-resident companies:

Nature of payment

WHT rate (%)

Interest on foreign currency (subject to conditions)

5

Interest on money borrowed in foreign currency under a loan agreement or by way of long-term infrastructure bonds (or rupee denominated bonds)

5

Interest on investment in long-term infrastructure bonds issued by Indian company (rupee denominated bonds or government security)

5

Non-specified type of interest

20

Royalty and technical fees

10

Long-term capital gains on equity shares of a company or units of an equity-oriented fund/business trust on which STT is paid

10

Income by way of winning from horse races

30

Other income

40

Royalty or fees for technical services

10

Deemed dividend

10

Notes:

  1. Percentage to be increased by a surcharge and health and education cess to compute the effective rate of tax withholding.
  2. Dividends received from Indian companies are tax-free in the hands of the shareholder.
  3. There is no threshold for payment to non-resident companies up to which no tax is required to be withheld.
  4. If the PAN of the deductee is not quoted, the rate of WHT will be the rate specified in relevant provisions of the Act, the rates in force, or the rate of 20%, whichever is higher. The government has notified rules that do not mandate quoting of PAN, subject to certain conditions.
  5. Some tax treaties provide for lower WHT rates from certain types of income

Payment of TDS to government

The TDS has to be paid within 7 days from the end of the month in which TDS has been deducted.  In case of any delay, there is an interest to be paid.  TDS can be paid through a list of banks authorized by government. We assist companies in making tax payment in cases where they do not have an account with authorized banks or they do not want to take a risk of making payment under wrong account codes.

Filing of withholding tax returns

There are 3 types of TDS returns to be filed which include for employees (form 24Q), vendors (form 26Q) and non- residents (form 27Q). TDS return due dates are as under:

Quarter

Quarter period

Last date of filing

Q1

Quarter ended 30 June

31 July

Q2

Quarter ended 30 September

31 October

Q3

Quarter ended 31 December

31 January

Q4

Quarter ended 31 March

31 May

If you fail to file the TDS return within the due date, then you will be liable to pay a penalty of INR 200 per day till you file the return. This fine is applicable each day until the fine amount equals the total liable TDS amount.

In case the taxpayer crosses 1-year time limit to file the return or provides wrong details of PAN, TDS sum, then the taxpayer will be required to pay a fine of minimum INR 10,000 to maximum INR 100,000.

Generating and issuing TDS certificates

TDS certificate is a certificate of deduction of tax at source. According to section 203 of the Income Tax Act, the deductor is required to provide a certificate to the deductee, wherein the details are provided regarding TDS for several transactions between the deductor and the deductee.  The issue of TDS certificates to taxpayers is mandatory.  TDS certificates have to be generated electronically on the income tax portal. It is important to take utmost care at the time of filing TDS returns to ensure that correct TDS certificates are generated from income tax portal.

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Frequently Asked Questions

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 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. As per Section 58(1A) (as amended with effect from the assessment year 2018-19), the provisions of section 40(a)(ia) and 40(a)(iia) shall also apply in computing the income chargeable under the head “Income from other sources”.

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 Government’s account 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 or paid could be imposed under section 271C​.

d) Late filing of return of TDS

​TDS returns are required to be filed in the last month of following quarter i.e. 31st July, 31st October, 31stJanuary and in the case of March it is 31st May. Fees under section 234E are levied @ Rs 200/- per day subject to maximum amount of TDS until the return is filed.

e) Penalty for late filing of TDS return

Assessing officer may direct a person who fails to file the statement of TDS within due date to pay penalty minimum of Rs. 10,000 which may extend to Rs.1,00,000. The penalty under this section is in addition to the penalty u/s 234E and also cover the cases of incorrect filing of TDS return.

Below are the types of returns to be filed depending upon the nature of payments:

FormReturn type
Form 24 QDeductions made from salary payments
Form 26 QDeductions made from non-salaried payments
Form 27 QDeductions made in the case of non-residents

 

If you have more than one office/branch you can file a consolidated e-TDS/TCS return for all offices/branches. In this case you should quote the same TAN. You can also file e-TDS/TCS returns office/branch-wise individually. In such cases you need to have separate TAN for every branch. In case you do not have separate TAN for each branch then you should apply for TAN for each of the branches filing separate e-TDS/TCS return.

 

Sec 194J levies TDS on technical and professional services. As per the provisions of the Companies Act, director of the company is also a manager and thus, a technical personnel. As per Section 194J(1)(ba), any payment made to director in the nature of sitting fees, remuneration or any other sum other than those on which tax deductible under section 192 is to be considered for deduction of tax at source @ 10% under section 194J. Further, there is no threshold limit for deduction of tax at source.

Is it mandatory to deduct TDS on salary?

 

 

It is mandatory to employer to deduct TDS on salary if total salary exceeds the threshold exemption limits provided under Income tax act.  Yes, it is compulsory to deduct tax under section 192 of Income tax act, 1961.  Any salary paid for work done in India is deemed to accrue or arise in India.

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