Tax is one of the major sources of State income accruing to the government, enabling them to roll out schemes and initiate action to satisfy public demands, meet public duties and ensure welfare. Income taxes constitute one of the important direct taxes imposed in India, paid directly to the government. Tax evasions turn out to be the biggest bottleneck in ensuring compliance to income tax imperatives imposed by the Income Tax Laws. TDS or Tax Deducted at Source is a mechanism introduced by the Income Tax Department towards ensuring compliance by avoiding tax evasions. This article delves into the process of making TDS Payments online and answers allied questions involved.
Tax Deducted at Source
The concept of Tax Deducted at Source or TDS on professional was introduced by the Income Tax Department in the year 2004. TDS or tax deducted at source is a deduction made by someone while making a payment or crediting the account, whichever is early; deducted at the very source, as the name suggests. The same could be applied to situations where a property is being purchased, a rent being paid or where payment of salary is being done; that is, where different sorts of payments are being done. Different rates are prescribed for different payments.
The person who pays will have to deduct the tax and then subsequently pay it to the government i.e., payment deducted, and tax is deducted on the payee’s behalf to the income tax department. The payment received would be the net amount. As per this concept, a person (deductor) who is liable to make payment of specified nature to any other person (deductee) shall deduct tax at source and remit the same into the account of the Central Government.
How does TDS Work?
The working principle of TDS effectively gets the person who makes the payment to deduct tax from the payment amount as per the rates prescribed in the Income Tax Act for such specific kind of payments and depositing the same in the government’s account. These rates could be found on the website of the Income Tax Department. The person who pays and deducts the amount is referred to as the ‘deductor’ and the person who gets the payment is referred to as the ‘deductee’.
The deductor is duty-bound to deposit the TDS with the government. Once deposited, this amount reflects in the Form 26AS of individual deductees on the TRACES[1] website linked to the income tax department's e-filing website. The rates of TDS for different kinds of payments are provided under relevant sections of the Income Tax Act, i.e., Sections 192, 192A, 193, 194 and ,194C TDS 194 A to 194IB
Here, it is pertinent to note that the TDS deductions are made only if the said payment exceeds the minimum threshold specified for the respective kind of payment. This threshold for each kind of specified payments is prescribed by the Income Tax Department. Payments below the said thresholds are exempted from TDS payments.
TDS Certificate
Section 203 of the Income Tax Act mandates the furnishing of a TDS Certificate by the deductor. The said deductor is supposed to furnish the certificate to the one to whom the payment is made i.e., the deductee. This certificate should necessarily contain the amount of tax deducted and the rate at which the same was deducted. Credit will be given under section 199 to the one from whom tax is deducted, on production of the said certificate.
Time Limit to pay TDS
There could be two outcomes here depending on who the payer is:
- If the payment is made by or on behalf of the Government, the TDS has to be filed on the very same day without the use of any challan form.
- Where the payment is not made by or on behalf of the Government, the payment has to be made on or before 7 days from the end of the month in which deduction is made, where tax is paid accompanied by an Income tax challan[2]. It should be noted that interest will be added on to the TDS for late deduction or late payment of the same, as the case may be. In case of late deduction of TDS, either in whole or part, as per section 201 (A) of the Income Tax Act, the interest will be calculated at the rate of 1% per month. It is applicable from the date on which tax was deductible to the date of actual deduction. Whereas, in case of late payment of TDS, either in whole or part, as per the same section, the interest will be calculated at the rate of 1.5% per month from the date of deduction to the day of TDS payment.
Paying TDS Online
Here, we will be delving into the process of how to make tds return or pay tds online. To begin with, we need to understand the concept of TAN or Tax deduction Account Number. TAN refers to a 10 digit alphanumeric number required to be obtained by all persons who are responsible for deducting or collecting tax. Under Section 203A of the Income Tax Act, 1961, it is mandatory to quote TAN allotted by the Income Tax Department on all TDS returns. An application for this account number can be done online by filling up Form 49B.
The payment could be made online as per the steps given by the Income Tax Department on their website, by logging on to the payment portal on the National Securities Depository Limited website
In short, the general process involves selecting the relevant challan and filling it up with relevant details including PAN/TAN. And on confirmation of the said given details on the confirmation screen, which will appear post submission, the taxpayer will be redirected to the net banking URL of the respective bank. Here, the taxpayer makes the payment and receives a challan counterfoil, which acts as the proof of payment. The said online payment method is mandatory for all corporate assesses and all assesses (other than company) to whom provisions of section 44AB of the Income Tax Act, 1961 are applicable
The person making the payment deducts tax and deposits it with the government. Form 26AS is a statement which shows the amount of tax deducted and deposited in a person's name/PAN. This form works as an acknowledgement mechanism or a mechanism to view/check the TDS payments.
Online Payment System
The system of online payment of TDS was brought into play by a transition from manual tax collection process to Online Tax Accounting System (OLTAS). This ushered in a system of tax collection sans human intervention and errors, as far as possible. This system also facilitates a mechanism for taxpayers to check the status of their payments made through e-challans deposited at banks. There are three types of challans, each of which will be dealt in detail in the upcoming sections of this article. They are:
- Challan ITNS 280 – issued for depositing income tax
- Challan ITNS 281 – issued for depositing Tax Deducted at Source (TDS) and Tax Collected at Source (TCS)
- Challan ITNS 282 – issued for depositing gift tax, wealth tax, Securities Transaction Tax (STT) and other direct taxes
Challan ITNS 280
This challan, as mentioned above, is used to pay Income Tax. This could include self-assessment tax, advance tax, tax on regular assessment, surcharge, tax on distributed profits or tax on distributed income. This challan is required whether you are paying the income tax online or offline.
The basic steps of payment are pretty much the same as described above. But there are certain points to be noted with respect to filling up this particular challan. When the Income Tax is levied on a company, the option to be selected under ITNS 280 is 0020 – Income Tax levied on Company. Whereas, in other cases, where the tax is levied on a partnership, individual etc. -- which cannot be identified as Companies -- the option to be selected is 0021, which is for entities other than Companies. The assessment year has to be selected carefully, since it displays option to pay taxes for previous years as well. Further, it is pertinent to note that the kind of payment is to be specified; that is, Self-assessment tax or Advance tax. If the tax is paid for the current financial year, it is called advance tax, whereas if the tax is paid at the end of the financial year, it is called self-assessment tax.
Challan ITNS 281
Here, the online process for paying TDS begins with logging on to the tin-nsdl website and selecting Challan No./ ITNS 281. At the time of payment of taxes the following details have to be filled in Challan ITNS 281. Even here, you need to select option 0020 if the deductee is a company and 0021 if the deductee is any non-company entity. Assessment year has to be entered carefully. You also need the Tax deduction Account Number to move forward with the payment. The nature of payment has to be selected from the drop-down list. Further, the type of payment is to be selected as 200 if the TDS/TCS is a regular transaction and 400 if the payment is being made for a demand raised by the income tax authorities. Rest of the procedures are the same as what is explained under the general process of payment of TDS.
TDS Return filing
A TDS return is a report of every transaction made related to TDS in a quarter. This is a quarterly statement submitted by the deductor to the Income Tax Department. There are due dates for filing TDS returns in every quarter. This due date is usually the 31st of the month succeeding the end of that particular quarter. The date of filing of the TDS return for March has been, rationalised and pushed to 31st of May. Stipulations for fine in case of late filing of TDS returns also exist. As per the new rules, effective from April 1, 2017, one is liable to pay a maximum penalty of Rs. 10,000 for late filing of TDS Return.
Here, it is important to note that there are different kinds of TDS return forms. The form 24Q deals with statement for tax deducted at source from salaries. 26Q is assigned for statements for tax deducted at source on all payments other than salaries. Form 27Q could be used in cases of statements for tax deduction on income received from interest, dividends, or any other sum payable to non-residents. And finally, Form 27EQ is used for statements of collection of tax at source.
Bottom line
The system for online payment of TDS serves as a convenient method for paying tax online without the hassles and hiccups of human intervention. Also, the system of TDS is commendable since it brings into place a solution for a regular income for the government.
External Links:
[1] TRACES: To see deposited TDS amount in the Form 26AS of deductee
[2] Download Income Tax Challan: To pay TDS.
