You probably know – TDS is a part of your income tax and it needs to be deducted by a person for particular payments that are made by them. It is basically the income tax that is reduced from the money that was paid during specific payments – like rent, fee, interest, and much more. Through TDS, the government ensures that the income tax is deducted in advance from the payments that you made.
For example:- You make a payment for the rent of your office. (the rent is Rs. 8,000) to the landlord. There has to be deducted 10% TDS. This means you need to deduct 8,000 and pay 72,000 to the landlord. It means the owner will be getting 72,000 – after the deduction. He will add 8,000 to his income and take credit for the amount that is already deducted as his final tax liability.
All of this being said, you mostly know what TDS deduction is, and most of you are probably already familiar with this process. But, you also need to know the new rule for TDS, or you would be lost. Wouldn’t you?
Section 194Q of the Income Tax Act is amended by the Finance Act – 2022 to include additional rules for TDS on the acquisition of goods. This became effective on July 1, 2022. There were some concerns regarding the new rules – thus, the CBDT clarified them in Circular No. 13 dated 30/06/2022.
Let us get a little more into the topic without just being brief.
1. Deduction of TDS
Any individual making certain payments as defined in the Income Tax Act is obligated to deduct TDS at the time the payment is made. However, no TDS should be deducted when the payer is an individual or HUF, and his or her records are not needed to be audited.
Individuals and HUFs are required to deduct TDS at 5% on rent payments over Rs 50,000 per month, even if the individual or HUF is not subject to a tax audit. Individuals and HUFs who are required to deduct TDS at the rate of 5% do not need to apply for a TAN number. Your employer deducts TDS at the applicable income tax slab rates, you would know that. TDS is deducted at a rate of 10% by banks. If they do not have your PAN, they may deduct it at a rate of 20%.
TDS rates for most payments are prescribed in the Income Tax Act, and TDS is deducted by the payer based on these rates. You do not have to pay any tax if you submit investment proofs – that is for claiming deductions to your employer and your complete taxable income is much less than the taxable limit. Resulting to that there is no TDS should be taken from your income.
Similarly, if your total income is less than the taxable limit, you can send Form 15G and Form 15H to the bank so that they do not take TDS on your interest income. If you were unable to provide documentation to your employer, or if your employer or bank has already deducted TDS and your total income is less than the taxable limit), you can file a return and demand a refund of this TDS. The complete list of Specified Payments that are eligible for TDS deduction, as well as the TDS rate.
2. New Rules of TDS Deduction
Most people are already quite familiar with TDS and have a TAN already in hand. While knowing the basics of your TDS deductions, you have also got to know what is new around you. Let’s find out.
According to the new provision – 194Q of the Income Tax Act, the buyer of the goods is required to deduct the TDS of the seller of the goods if the products purchased by the buyer from a specific seller have an annual value of Rs.50,00,000/- or more. This indicates that if you buy items from ‘X’ and your annual purchases exceed Rs.50,00,000/-, you must deduct TDS on purchases exceeding the Rs.50,00,000/- limit. This will take effect on July 1, 2022.
Any individual that buys goods from another person and the value of all that goods exceeds Rs.50,00,000/- in a calendar year. However, the following individuals are not deductors and are not obligated to deduct TDS:
This does not apply to the year the business is founded or incorporated.
This will not apply to individuals who had a gross turnover of less than Rs. 10 crores in the year preceding the year in which items are purchased.
This does not apply to non-resident purchasers. However, if the buyer has a Permanent Establishment (PE) in India, this could possibly apply.
It is never a bad idea to keep yourself up to date on TDS. Also, you can take advantage of the SMS updates and alerts from the Income Tax Department.
This is the most important thing you have got to remember – the TDS amount has to be deposited before the 7th of a month to the next month where TDS is deducted. This date would also fit in for the other TDS provisions. Hope you have got the due dates right!