Overall Working Process for TDS Compliance

Tax deducted at source, as the name suggests, is the tax deducted at the time the income is received by or credited to the “person” so that collection of tax is preponed and there is regular flow of taxes to the government. Tan or tax deduction and collection number (tan) is mandatory 10-digit alpha number required to be obtained by all persons who are responsible for tax deduction at source (TDS) or tax collection at source (TDS) on behalf of the government. TDS is deducted on various types of income such as salary, interest on bank deposits and bonds, winnings from lotteries and horse races, payment to contractors and sub-contractors, insurance commission, commission or brokerage, rent, fees for professional and technical services etc.

TDS must be deposited to the credit of the central government and TDS returns should be filed within due dates prescribed by the income tax act, 1961. TDS certificates must be issued by the detector giving details of tax deducted. TDS returns are due quarterly.

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HIGHLIGHTS

TAN Registration

TAN is a 10-character alpha-numeric code issued by the Income Tax Department for persons responsible for deducting or collecting tax at source. 5-10 working days required to obtain registration number.

TDS Payments

Tax Deducted at Source must be paid into authorized bank, quoting the TAN and using Challan 281. TDS need to be paid on or before due date of payment to avoid interest.

TDS Returns

TDS must be deposited monthly within 7th of the following month. TDS Returns are to be filed quarterly. For non-filling of TDS return in due time penalty will be applicable.

Validity

Once a TAN is allotted, it is valid for lifetime. TDS return filling arise on the quarterly basis. For non-filling of TDS return in due time penalty will be applicable. It important to file returns only if you have deducted taxes.

Penalty

Failure to deduct tax at source shall attract penalty equal to the amount of tax deductible along with interest @ 1% per month. There are various other rigorous penalties for non-deposit, short deposit or late deposit.

TDS Sections

TDS is deducted under various activities subject to the nature of income such as Salary, Rent, Interest, Income from business, etc. The rates of TDS and threshold limits are different under different sections.

Frequently Asked Questions (FAQs)

What is Tax Deduction at Source (TDS)?

TDS is an amount which is deducted from payment made to the vendor or employee where threshold limit cores and deposited with the Government. The vendor or employee gets credit of that amount while filing his Income Tax Return.

What is a Nil Return?

Return, which comprises of Only Zero/NIL Deductions in deduction details and no challan details (Apart from a NIL Challan Indication) is called NIL Return.

Who will allot TAN?

TAN is allotted by the Income Tax Department based on the application submitted to TIN Facilitation Centers (TIN-FC) managed by NSDL.

Who must apply for TAN?

Every person liable to deduct tax at source or collect tax at source is required to obtain TAN. However, a person required to deduct tax under ​section 194IA (*) can use PAN in place of TAN as such person is not required to obtain TAN.

Why is it necessary to have TAN?

As per section 203A of the Income-tax Act, 1961, every person who deducts or collects tax at source has to apply for the allotment of TAN. Section 203A also makes it mandatory to quote TAN in TDS/TCS return (including any e-TDS/TCS return), any TDS/TCS payment challan, TDS/TCS certificates and other documents as may be prescribed. As per section 272BB, failure to apply for TAN or not quoting the TAN in the specified documents attracts a penalty of Rs. 10,000.

Can I use PAN to pay the TDS deducted into government account?

No. You are required to have a separate Tax Deduction Account Number (TAN) by making an application in Form 49B with the TIN facilitation center of NSDL.

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