Who Must Pay TDS in India? Deductors, Individuals, Businesses & Government
Tax Deducted at Source (TDS) ensures that tax is collected at the time of payment. Both individuals and organizations that make specific payments such as salaries, rent, or professional fees may be required to deduct TDS and deposit it with the government. Understanding who is liable helps avoid penalties and ensures compliance.
What is TDS and Who is a Deductor?
TDS is a mechanism where a person making a payment (the deductor) withholds tax before paying the recipient (the deductee).
A deductor can be an employer, a business, a bank, a government body, or even an individual making certain high-value payments. The deducted tax is then deposited with the Income Tax Department.
TDS Liability for Different Categories
TDS liability varies depending on the type of payer and nature of payment.
TDS by Employers (on Salary Payments)
Employers must deduct TDS on employee salaries based on applicable income tax slab rates under Section 192.
TDS by Businesses and Companies (on Contracts, Rent, Fees)
Companies deduct TDS on contractor payments , rent, professional fees, interest, and commissions under sections such as 194C, 194I, and 194J.
TDS by Banks and Financial Institutions (on Interest Payments)
Banks deduct TDS on interest earned on fixed deposits and recurring deposits under Section 194A when it exceeds the threshold limit.
TDS by Individuals (High-Value Payments)
Individuals paying rent above ₹50,000 per month (Section 194IB) or buying property worth over ₹50 lakh (Section 194IA) must deduct TDS.
TDS by Government and Public Sector Undertakings
Government departments and PSUs are also liable to deduct TDS on payments for contracts, services, or salaries as per relevant sections.
Conditions When TDS Must Be Deducted
TDS is deducted when the payment crosses the specified threshold and falls under the defined categories.
Threshold Limits for Deduction
Examples include ₹50,000 per month for rent (individuals) or ₹40,000 per year for bank interest.
Applicable Rates for Various Payments
Rates vary: 10% for professional fees (194J), 1% for property purchase (194IA), etc.
Exceptions and Exemptions
TDS may not be required if the payee submits Form 15G/15H or if the payment falls below the threshold.
Compliance Requirements for Deductors
Every deductor must follow strict compliance norms.
TAN Requirement
A valid Tax Deduction Account Number (TAN) is mandatory to deduct and deposit TDS.
TDS Deposit Due Dates
TDS deducted must be deposited to the government by the 7th of the following month, except for March (due by 30 April).
Filing TDS Returns
Quarterly returns (Forms 24Q, 26Q, 27Q) must be filed to report deductions.
Issuance of TDS Certificates
Deductors must issue TDS certificates (Form 16/16A) to deductees for claiming credit.
Penalties for Failure to Deduct or Deposit TDS
Failure to comply invites penalties and interest.
Interest Charges on Late Deduction/Deposit
Interest at 1% per month for late deduction and 1.5% per month for late deposit is applicable.
Penalty Under Section 271H
A penalty ranging from ₹10,000 to ₹1,00,000 can be imposed for failure to file returns or for incorrect details.
Disallowance of Expenses
The expense for which TDS was not deducted may be disallowed while computing taxable income.
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Conclusion
TDS is a critical compliance requirement for employers, businesses, banks, individuals, and government bodies. Understanding thresholds, rates, and due dates ensures proper deduction and avoids penalties. Every deductor should maintain accurate records and stay updated on tax rules to remain compliant.
As a Chartered Accountant with over 18 years of experience, I have honed my skills in the field and developed a genuine passion for writing. I specialize in crafting insightful content on topics such as GST, income tax, audits, and accounts payable. By focusing on delivering information that is both engaging and informative, my aim is to share valuable insights that resonate with readers.
Frequently Asked Questions
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Who is responsible for deducting TDS on salary?
The employer is responsible for deducting TDS on salary under Section 192 based on the employee’s income and applicable tax slab.
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Is an individual required to deduct TDS while paying rent?
Yes, individuals must deduct TDS at 5% if monthly rent exceeds ₹50,000 under Section 194IB.
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Do government departments deduct TDS?
Yes, government agencies and public sector undertakings are required to deduct TDS on applicable payments.
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What happens if TDS is not deducted or deposited?
The deductor faces interest, penalties under Section 271H, and disallowance of expenses in tax computation.
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Can TDS liability be shifted from deductor to deductee?
No, the deductor is legally responsible for TDS deduction and deposit. The deductee can only claim credit once TDS is deposited.