Tax Deduction at Source (TDS) is an important tax compliance. TDS applies to any payment that is changing hands as an income for the receiving party. The payor must deduct TDS from any such payment if it exceeds the threshold limit specified for that kind of transaction.
CBDT and Ministry of Finance have specified the rates for such TDS deductions. The rates and threshold limits vary based on the purpose of the transaction or type of income.
Also, any TDS deductions must be submitted to the central government account
A taxpayer (deductor) who makes payment of specified nature to the deductee, is responsible to deduct tax at source and submit the same into the account of the Central Government.
Here is the TDS rate chart for a person other than a company AY 2021-22, i.e., FY 2020-21:
|Section & Transaction||Threshold Limit (₹)||TDS Rates (April 2020 to May 13, 2020) (%)||TDS Rates (May 14, 2020, to March 2021) (%)|
|(192) Salaries||-||Normal slab rate||Normal slab rate||Normal slab rate||Normal slab rate|
|(192A) Premature withdrawal from EPF||50,000||10||10||10||10|
|(193) Interest on securities - 8% Savings (Taxable) Bonds, 2003 or 7.75% Savings (Taxable) Bonds, 2018 during the financial year||10,000||10||-||7.5||-|
|(193) Interest on securities - Interest on securities for money issued by or on behalf of any local authority/statutory corporation, listed debentures of a company (other than Demat form), any other interest on securities||5,000||10||-||7.5||-|
|(194A) Interest (Banking co., co-operative society engaged in banking, post office)||40,000||10||-||7.5||-|
|(194A) Interest (Any other person)||5,000||10||-||7.5||-|
|(194B) Winning from lotteries||10,000||30||30||30||30|
|(194BB) Winning from Horse race||10,000||30||30||30||30|
|(194C) Contractor-Single transaction||30,000|
|(194C) Contractor – Consolidated Payment During the F.Y.||1,00,000|
|(194D) Insurance commission||15,000|
|- Other than Company||5||-||3.75||-|
|(194DA) Maturity of Life insurance policy||1,00,000||5||-||3.75||-|
|(194E) Non-resident sportsmen or sports association||-||-||20||-||20|
|(194F) Repurchase units by MFs||-||20||20||15||20|
|(194I) Rent of - Plant/Machinery /Equipment||2,40,000||2||-||1.5||-|
|- Land and Building/Furniture & Fixture||10||-||7.5||-|
|(194IA) Transfer of certain immovable property other than agricultural land||50 Lakh||1||-||0.75||-|
|(194IB) Rent by Individual/HUF||50,000 per month||5||-||3.75||-|
|(194IC) Payment under Joint Development Agreements to Individual/HUF||-||10||-||7.5||-|
|(194J) Professional Fees||30,000||10||-||7.5||-|
|(194J) Technical Fees (w.e.f. 01.04.2020)||30,000||2||-||1.5||-|
|(194J) Payment to call center operator (w.e.f. 01.06.2017)||30,000||2||-||1.5||-|
|(194J) Director's fees||-||10||-||7.5||-|
|(194K) Payment of any income in respect of (a) units of a mutual fund as per section 10(23D); or (b) the units from the administrator; or (c) units from a specified company (w.e.f. 01.04.2020)||5,000||10||-||7.5||-|
|(194LA) Compensation on the transfer of certain immovable property other than agricultural land (TDS exempted if covered under RFCTLARR Act w.e.f. 01.04.2017)||2,50,000||10||-||7.5||-|
|(194LB) Income by way of interest from infrastructure debt fund||-||-||5||-||5|
|(194LBA) Income from units of business trust||-|
|- interest received or receivable from a special purpose vehicle; or||10||5||7.5||5|
|- dividend referred to in sub-section (7) of section 115-O||10||10||7.5||10|
|(194LBA) Distribution of rental income to unitholders||-|
|- Other than Company||10||30||7.5||30|
|(194LBB) Income in respect of units of investment fund|
|- Other than Company||10||30||7.5||30|
|(194LBC) Income in respect of investment in securitization fund||-|
|- Other Person||30||30||22.5||30|
|(194LC) Income by way of interest by an Indian specified company to a non-resident/foreign company on foreign currency approved loan / long-term infrastructure bonds from outside India||-||-||5||-||5|
|(194LC) Income by way of interest by an Indian specified company on a rupee-denominated bond / any long-term bonds from outside India, which is listed only on a recognized stock exchange located in any International Financial Services Centre||-||-||4||-||4|
|(194LD) Interest on certain bonds from Govt. securities||-||-||5||-||5|
|(194M) Certain payments by Individual/HUF||50 lakh||5||-||3.75||-|
|(194N) Payment of a certain amount in cash||1 Crore||2||2||2||2|
|(194N) Payment of certain amount in cash (first proviso of section 194N) if:|
|- Amount is more than Rs.20 lakh but up to Rs. 1 crore||N.A||N.A||2||2|
|- Amount exceeds Rs. 1 crore (Applicable from 01.07.2020)||N.A.||N.A.||5||5|
|(194-O) Applicable for e-commerce operator for the sale of goods or provision of services facilitated by it through its digital or electronic facility or platform (Applicable from 01.10.2020)||-||N.A||-||0.75||-|
|(195) Income of Investment made by an NRI||-||-||20||-||20|
|(195) Long-term capital gain||-|
|- Under Section - 115E/112(1)(c)(iii)/112A||-||10||-||10|
|- Any Other Gains||-||20||-||20|
|(195) Short-term capital gain - 111A||-||-||15||-||15|
|(195) Fees for technical services||-||-||10||-||10|
|(195) Interest income payable by Govt./Indian concern (other than section 194LB or 194LC)||-||-||20||-||20|
|(195) Any Other Income - Other than Company||-||-||30||-||30|
|(196A) Income in respect of: - Units of a Mutual Fund specified under clause (23D) of section 10; or - From the specified company referred to in the Explanation to clause (35) of section 10||-||-||20||-||20|
|(196B) Income from units to an offshore fund||-||-||10||-||10|
|(196C) Income from foreign currency bonds or GDR of an Indian company||-||-||10||-||10|
|(196D) Income of foreign Institutional Investors from securities (not being dividend or capital gain)||-||-||20||-||20|
TDS Slab Rates for Salaried Professionals
TDS deduction for you will happen at the slab rates if you are salaried. Starting FY 2020-21, you have the option of sticking with the old income tax slabs or go for the New Tax Regime.
Here are the TDS slab rates for salaried under the new regime:
|Income Tax Slab||TDS Slab Rates FY 2020-21||Max. Tax in Rs.|
|Rs 0.0 – 2.5 Lakhs||NIL||0|
|Rs 2.5 Lakhs - 3 Lakhs*||5%||2500|
|Rs. 3 Lakhs – 5 Lakhs*||5%||12,500|
|Rs. 5 Lakhs - 7.5 Lakhs||10%||37,500|
|Rs 7.5 Lakhs – 10 Lakhs||15%||75,000|
|Rs 10 Lakhs - 12.50 Lakhs||20%||1,25,000|
|Rs. 12.5 Lakhs - 15 Lakhs||25%||1,87,500|
|> Rs. 15 Lakhs||30%||1,87,500 + 30% of income over Rs 15 lakhs|
* Tax rebate u/s 87a is available
However, under the new tax regime section 87A is the only tax rebate available. All other modes of tax saving and set-off and carry forward of losses will not apply from the old regime.
Thus, if you have been following the tax saving investments to reduce your tax liability, you should continue with the old regime of TDS slab rates.
Sunset Period for Lower TDS Rates due to COVID-19
Due to COVID-19 pandemic, the Government has specified Lower TDS rates.
The TDS rates for the specified non-salaried payments made to the residents have been reduced by 25% of the applicable rates. This is for the period from 14th May 2020 to 31st March 2021.
These shall be the concessional rates of TDS that will be applicable only till 31st March 2021. Hence, old TDS rates shall apply with effect from 1st April 2021.
Detailed Explanations of Changes to TDS in Budget 2021
The changes in the TDS rules in the Union Budget 2021 are explained below:
i. TDS Rate Change
The new section 194Q has been introduced to provide for TDS deduction @ 0.1% by a buyer for paying any sum to a resident for the purchase of goods.
ii. Tax Deductor
TDS u/s 194Q is to be deducted only by the buyer whose total sales or gross receipts / turnover from the business carried on by him is above Rs 10 Crores during the previous financial year.
The TDS deduction by the buyer, if the purchase of goods by him from the seller is of the value or aggregate of such value exceeding Rs. 50 Lakhs in the previous year.
iv. Where is TDS Not Applicable
The provisions for TDS Deduction under this section shall not apply to:
- Transaction on which TDS is deductible under any provision of the Act; and
- Transaction, on which TDS is collectible u/s 206C
v. TDS Exemption
Central Government may exempt a person from obligation of TDS under this section on fulfillment of conditions as may be specified in that notification. The Board with the approval of the Central Government has been empowered to issue guidelines for removing difficulty in giving effect to the provisions of this section.
vi. TCS Exemption
In case of a transaction where TDS or TCS is to be deducted under any other provision, TDS u/s 194Q shall not apply.
However, if on a transaction both TCS u/s 206C(1H) and TDS u/s 194Q apply, then only TDS shall be deducted.
Note: Under section 206C(1H), if his/her turnover is more than Rs 10 crores, the taxpayer has to collect TCS on his/her receipts from sale of goods from buyers from whom s/he has received more than Rs. 50 Lakhs as sale consideration.
vii. Higher TDS rate due to PAN not available
If PAN is not provided, TDS is required to be deducted at the rate of 5%.
viii. TDS/ TCS on non-filers of ITR at higher rate
If income-tax return is not filed, TDS deduction shall be at higher rate of the following:
- at twice the rate specified in the relevant provision of the Act; or
- at twice the rate or rates in force; or
- at the rate of 5%
Given below are two such tax-saving plans from Canara HSBC Oriental Bank of Commerce Life Insurance:
A. Guaranteed Income4Life Plan
If you are 40 years or above, you can start investing in annuity plans. Annuity plans help you to preserve your hard-earned wealth against inflation and taxes. After you retire these plans will help you turn your wealth into a stream of regular income.
Guaranteed Income4Life is one such plan from Canara HSBC Oriental Bank of Commerce Life Insurance:
i. Invest any time after 40 years of ageii. Start your annuity immediately or after 5 to 10 yearsiii. You can opt for the long-term income option of 15 or 20 years, oriv. Choose the lifelong income option till 99 years of your age.v. The investment is eligible for deduction u/s 80CCC of Income Tax Act. Thus, reducing your TDS and overall tax liability.
B. Invest 4G
This is a smart tax saving plan with several features to help you grow, preserve and distribute your money. With this plan you can:
i. Opt for the Century Option, i.e., continue the plan for a lifetime
ii. Invest in a mix of equity and debt funds
iii. Use simple strategies to automatically manage your risky investment
iv. Use systematic withdrawal feature for automatically withdrawing from the plan
v. Make your wealth tax-free:
- Ensure your annual investment does not exceed 10% of the life cover in the plan
- If you have bought one or more plans on or after 1 February 2021, ensure your annual contribution to all such plans remains below Rs 2.5 lakhs
So, these are some of the tax-saving retirement planning steps that can help you increase your savings for retirement.