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How to deduct correct eTDS

August 14th, 2009

The sections 192 to 196 of Income Tax Act, directs “Any person responsible for paying any income chargeable to tax” to deduct income-tax thereon at the rates specified respectively.

Salaries:
While making the payment of Salary, deductor should consider the following and deduct correct TDS from the payment being made.

  1. Calculate the annual Approximate/Actual Salary
    1. Calculate the Exact Taxable Salary amount Paid/Payable till current month for the financial year.
    2. Calculate the approximate salary that will be paid for rest of the FY, assuming the current month salary for rest of the year salary.
  2. Add any other income reported by the Assessee [Employee].
  3. Deduct if any Loss declared by the Employee, from the annual taxable salary. Note that, only House property loss (interest in case of Self Occupied House Property) should be considered.
  4. Deduct the allowed deductions declared by employee under Section 80C, 80D, 80G, etc.
  5. Calculate the Income Tax, Surcharge and cess on the net Income, as per the “Rates in Force”
  6. Deduct if any rebate U/s 88E or Relief U/s 89. (explain the heads)
  7. Keeping it as 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 current month”.
  9. Deduct this amount from employees Salary

Non Salaries:
A deductor accordingly, should follow the below points while making/preparing each payment.

  1. Categorizing each payment to relevant “type of Payment” or “Section”.
  2. Check that the payment is not a payment is being done to Government, Reserve Bank, certain corporations established under Central Act, or Mutual Funds. [comes under Section 196]
  3. Refer the Threshold limit for such section or Type of Payment.
  4. Refer the Rate of Tax
    1. Check the Assessee [party] has not submitted his declaration under Section 197A for non-deduction of TDS. [Only for payment of Interest (Securities and Other than securities), Dividends and Interest on NSC, Viz: sections 194, 194A, 193, 194EE]
    2. Check the Assessee [party] has not submitted a certificate by Assessing Officer under Section 197 for non-deduction of TDS or deduction at a Lower Rate.
    3. Check the relevant rate of TDS under respective type of payment [sections 193 to 196]
  5. Get the effective rate TDS, including Surcharge and Cess [if any].
  6. Deduct the amount as per the effective rate of TDS from the amount being paid.

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Budget 2009-10: TDS changes

August 7th, 2009
TDS Rates
Applicable for AY 2010-11 (FY 2009-10)
1. 194-I: Rental Payments
a. Earlier rates:
Plant and Machinery = 10%
Land or building or furniture or fittings to Individual/HUF = 15%
Land or building or furniture or fittings to Others = 20%
b. Revised Rates:
Plant and Machinery = 2%
Land or building or furniture or fittings to anyone = 10%
2. 194-C: Contracts
a. Earlier rates:
Contracts = 2%
Sub-Contracts = 1%
Advertisement Contracts = 1%
b. Revised Rates:
Contracts to Individuals/HUF = 1%
Contracts to others = 2%
Surcharge and Cess
1. No surcharge or Cess is applicable for TDS. Only the specified TDS rates should be considered for deduction
2. Applicable for AY 2010-11 (FY 2009-10).
Payment to Transporters:
1. For any Transporters, if they Provide the PAN number, the TDS on contract payments is NIL.
2. But, if they do not provide the PAN during the payment, 1% TDS has to be made for Individuals/HUF and at 2% for others.
3. Payments to transporters without deducting TDS (as they have quoted PAN) should be reported by Deductor with PAN details
to the Income Tax Department in the prescribed format.
4. Applicable for AY 2010-11 (FY 2009-10).
Compulsory PAN (Section 206AA)
1. It is mandatory to quote PAN in all correspondence, bills and vouchers exchanged between Deductor and deductee.
2. TDS shall be made at a flat rate of 20% (or actual rate, whichever is higher) for any payments, where assessee has not
quoted the PAN during the payment.
a. This is applicable even in case where assessee gives Form 15G/15H u/s 197A.
b. This is also applicable for Non resident Payments.
3. Assessing officer shall not rise the letter for lower/no deduction, If assessee doesn’t quote a PAN.
4. Applicable for AY 2011-12 (FY 2010-11). Means the payments made on or after 01st April 2010.
TDS reconciliation (Section 200A)
1. A new section 200A is introduced.
2. TDS return filed by the deductor will be processed by the following way:
a. TDS deductible will be computed on the basis of data in TDS statement, after adjusting any arithmetic error or an
incorrect claim.
b. The interest, if any, shall be computed on the basis of the sums deductible on the basis of data in TDS statement.
c. Any amount payable by / refund to Deductor shall be determined.
d. Intimation shall be sent to Deductor on Amount payable / refundable.
e. The amount refundable, if any shall be granted to Deductor.
TDS returns
1. Currently returns has to be filed Quarterly in Form 24Q/26Q/27Q/27EQ
2. Currently government is not allowed to decide the Periodicity of TDS returns, as the power is limited only for structure
of forms and the manner.
3. In order to provide administrative flexibility in deciding the periodicity of such TDS related statements, the existing
provisions are modified, so as to allow the Government to prescribe periodicity of such TDS statements besides prescribing
their form and manner.
4. Applicable from 01st October 2009.
Computerized processing of TDS returns
1. Currently every TDS return involves manual-cum-computerized processing inside the department.
2. To make the process efficient, department will computerize whole process, where statements regard to TDS will be
processed.
a. This will be on the same lines, how IT returns processing has been computerized in Income Tax Department.
b. This processing will allow manual interference for
A. Any arithmetical error in the statement.
B. An incorrect claim, if such incorrect claim is apparent from any information in the statement, for example, in respect
of rate of deduction of tax at source where such rate is not in accordance with the provisions of the Act.
c. A Centralized Processing Center may be established in this regard.
d. Applicable for AY 2011-12 (FY 2010-11).

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Know Form 27A/B

July 22nd, 2009

Form No. 27A/B is a control chart of quarterly e-TDS/TCS statements to be filed in paper form by deductors/collectors alongwith quarterly statements. It is a summary of e-TDS/TCS returns which contains control totals of ‘amount paid’ and ‘income tax deducted at source’. The control totals of ‘amount paid’ and ‘income tax deducted at source’ mentioned on Form No. 27A/B should match with the corresponding control totals in e-TDS/TCS return. A separate Form No. 27A/B is to be filed for each e-TDS/TCS return.
In case of Annual Returns the relevant control charts are Form 27A for e-TDS and Form 27B for e-TCS.

While submitting Form No. 27A/B, one should ensure that:
a) There is no overwriting/striking on Form No. 27A/B. If there is any, then the same should be ratified (signed) by the authorised signatory.
b) Name and TAN of deductor and control totals of ‘amount paid’ and ‘income tax deducted at source’ mentioned on Form No. 27A/B should match with the respective totals in the e-TDS/TCS return.
c) All the fields of Form No. 27A/B are duly filled.

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Basics about eTDS / eTCS

July 17th, 2009

Annual e-TDS/TCS return is the TDS return under section 206 of the Income Tax Act (prepared in Form Nos. 24, 26 or 27) or TCS return under section 206C of the Income Tax Act (prepared in Form No. 27E), which is prepared in electronic media as per prescribed data structure. Such returns furnished in a CD/floppy should be accompanied by a signed verification in Form No. 27A in case of Annual TDS returns or Form No. 27B in case of Annual TCS return.

TDS/TCS returns filed in electronic form as per section 200(3)/206C, as amended by Finance Act, 2005, are quarterly TDS/TCS statements. As per the Income Tax Act, these quarterly statements are required to be furnished from FY 2005-06 onwards. The forms used for quarterly e-TDS statements are Form Nos. 24Q, 26Q and 27Q and for quarterly e-TCS statement is Form No. 27EQ. These statements filed in CD/floppy should be accompanied by a signed verification in Form No. 27A in case of both e-TDS/TCS statements.

As per Income Tax Act, 1961, all corporate and government deductors/collectors are compulsorily required to file their TDS/TCS returns on electronic media (i.e. e-TDS/TCS returns). However, deductors/collectors other than corporate/government can file either in physical or in electronic form.

An e-TDS return should be filed under Section 206 of the Income Tax Act in accordance with the scheme dated August 26, 2003 for electronic filing of TDS return notified by the Central Board of Direct Taxes (CBDT) for this purpose. CBDT Circular No. 8 dated September 19, 2003 may also be referred.
An e-TCS return should be filed under Section 206C of the Income Tax Act in accordance with the scheme dated March 30, 2005 for electronic filing of TCS return notified by the CBDT for this purpose.
As per section 200(3)/206C, as amended by Finance Act 2005, deductors/collectors are required to file quarterly TDS/TCS statements from FY 2005-06 onwards.

CBDT has appointed National Securities Depository Limited, (NSDL), Mumbai, as e-TDS/TCS Intermediary. NSDL has established TIN Facilitation Centres (TIN-FCs) across the country to facilitate deductors/collectors file their e-TDS/TCS returns.

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Due dates for filing quarterly TDS Returns

July 5th, 2009
Quarter Due Date Due Date for 27 Q
April to June July 15 14 July
July to September October 15 14 October
October to December January 15 14 January
January to March June 15 14 June

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