Comprehensive Guide to TDS Return Filing Under the Indian Income Tax Act

Tax Deducted at Source (TDS) is a pivotal mechanism under the Indian Income Tax Act, 1961, designed to collect tax at the very source of income generation. Proper understanding and compliance with TDS provisions are essential for both deductors and deductees to avoid penalties and ensure seamless tax administration.

1. Overview of TDS and Its Significance

TDS is a system wherein the person responsible for making specified payments deducts a certain percentage of tax before making the payment to the recipient. This mechanism ensures a continuous flow of revenue to the government and minimizes tax evasion by collecting tax at the source itself.

Key Benefits of TDS:

• Ensures timely and steady revenue for the government.

• Simplifies tax collection and reduces the burden of lump-sum tax payments for taxpayers.

• Provides a mechanism for the government to track income and prevent tax evasion.

2. Legal Framework Governing TDS

The TDS provisions are comprehensively detailed in the Income Tax Act, 1961, spanning from Sections 192 to 196D, and are further supplemented by the Income Tax Rules, 1962.

Key Sections under Income Tax Act, 1961:

• Section 192: TDS on Salary payments.

• Section 193: TDS on Interest on securities.

• Section 194: TDS on Dividend payments.

• Section 194A: TDS on Interest other than Interest on securities.

• Section 194B: TDS on Winnings from lotteries, crossword puzzles, etc.

• Section 194BB: TDS on Winnings from horse races.

• Section 194C: TDS on Payment to contractors/sub-contractors.

• Section 194D: TDS on Insurance commission.

• Section 194DA: TDS on Payments in respect of life insurance policy.

• Section 194E: TDS on Payment to non-resident sportsmen or sports associations.

• Section 194EE: TDS on Payment in respect of deposits under National Savings Scheme.

• Section 194F: TDS on Payment on account of repurchase of units by Mutual Fund or UTI.

• Section 194G: TDS on Commission, etc., on the sale of lottery tickets.

• Section 194H: TDS on Commission or brokerage.

• Section 194I: TDS on Rent.

• Section 194IA: TDS on Payment on transfer of certain immovable property (other than agricultural land).

• Section 194IB: TDS on Payment of rent by certain individuals or HUFs.

• Section 194IC: TDS on Payment under Joint Development Agreements.

• Section 194J: TDS on Fees for professional or technical services.

• Section 194K: TDS on Income in respect of units.

• Section 194LA: TDS on Payment of compensation on the acquisition of certain immovable property.

• Section 194LB: TDS on Interest from infrastructure debt fund to non-residents.

• Section 194LBA: TDS on Certain income from units of a business trust.

• Section 194LBB: TDS on Income in respect of units of an investment fund.

• Section 194LBC: TDS on Income in respect of investment in securitization trust.

• Section 194LC: TDS on Income by way of interest from Indian companies.

• Section 194LD: TDS on Income by way of interest on certain bonds and government securities.

• Section 195: TDS on Payments to non-resident entities (other than salaries).

• Section 196: TDS on Interest or dividends to government, Reserve Bank, or certain corporations.

• Section 196A: TDS on Income in respect of units of non-residents.

• Section 196B: TDS on Income from units to an offshore fund.

• Section 196C: TDS on Income from foreign currency bonds or shares of an Indian company.

• Section 196D: TDS on Income of Foreign Institutional Investors from securities.

Relevant Rules under Income Tax Rules, 1962:

Rule 30: Time and Mode of Payment to the Government Account of Tax Deducted at Source

This rule governs the timelines and mode of depositing TDS to the credit of the Central Government. The rule distinguishes between two types of deductors: government offices and other deductors.

(1) Payment by Government Offices

• Same Day Payment Without Challan: For government deductors, if tax is paid without producing an income-tax challan, the deposit must be made on the same day.

• Payment with Challan: If tax is paid with an income-tax challan, the deposit should be made within seven days from the end of the month in which the deduction is made or when tax becomes due under Section 192(1A) (related to perquisites to employees).

(2) Payment by Non-Government Deductors

• For non-government deductors, the rule states that:

  • For payments made in March (usually year-end settlements), the due date for depositing TDS is 30th April.

  • For all other months, the TDS must be deposited within seven days from the end of the month in which the deduction is made.

(2A to 2D)

• These sub-rules specify special cases for deposits under specific sections, like:

  • Section 194-IA (TDS on transfer of immovable property), Section 194-IB (TDS on rent by certain individuals/HUFs), Section 194M (TDS on contract payments by individuals/HUFs), and Section 194S (TDS on virtual digital assets), where the TDS is to be paid within 30 days from the end of the month in which the deduction is made. These payments must be accompanied by a challan-cum-statement in specified forms (Form No. 26QB for 194-IA, Form No. 26QC for 194-IB, Form No. 26QD for 194M, and Form No. 26QE for 194S.)

(3) Special Cases for Quarterly Payment

In special cases, with the prior approval of the Joint Commissioner, the Assessing Officer may allow certain deductors (under Sections 192, 194A, 194D, or 194H) to make quarterly payments of TDS for the quarters ending in June, September, December, and March, with due dates on 7th July, 7th October, 7th January, and 30th April, respectively.

(4) Mode of Payment for Government Offices

Government offices paying TDS without challans must submit a statement in Form No. 24G to an agency authorized by the Principal Director of Income-tax (Systems).

(6A to 6D)

These sub-rules cover electronic remittance requirements, especially for payments accompanied by a challan-cum-statement (Form 26QB, 26QC, 26QD, or 26QE). The TDS must be electronically remitted within the specified timelines.

Rule 31: Certificate of Tax Deducted at Source

This rule mandates the issuance of a TDS certificate to the deductee, detailing the tax deducted and deposited.

(1) Forms of TDS Certificate

• Form 16: For TDS on salaries under Section 192.

• Form 16A: For TDS under other provisions of Chapter XVII-B.

(2) Information in TDS Certificate

The certificate must contain:

• PAN of the deductee.

• TAN of the deductor.

• Challan details, including the Book Identification Number (BIN) in case of government deductors or Challan Identification Number (CIN) for non-government deductors.

• Receipt numbers of quarterly TDS returns.

(3) Due Dates for Issuing Certificates

• Form 16: Must be issued by 15th June of the financial year following the year of deduction.

• Form 16A: Must be issued quarterly, within 15 days of the due date of the corresponding TDS return (under Rule 31A).

(3A to 3D)

Special provisions for issuing TDS certificates for deductions under Section 194-IA (Form 16B), Section 194-IB (Form 16C), Section 194M (Form 16D), and Section 194S (Form 16E), with a 15-day issuance period from the due date of the challan-cum-statement.

Rule 31A: Statement of Deduction of Tax under Section 200(3) (TDS Returns)

This rule governs the submission of TDS returns by deductors, as mandated under Section 200(3) of the Income Tax Act.

(1) Forms for TDS Returns

• Form 24Q: For TDS on salary payments (Section 192 and Section 194P).

• Form 26Q: For TDS on non-salary payments (for residents).

• Form 27Q: For TDS on payments to non-residents (excluding salary).

Proviso to Rule 31A(1):

The proviso to Rule 31A(1) specifically addresses the deduction of tax in transactions involving virtual digital assets (VDAs) under Section 194S, but it introduces a different form depending on who is responsible for the deduction:

• Form No. 26QE: This form is applicable when a specified person (as defined in Section 194S) deducts TDS on payments for the transfer of virtual digital assets. The specified person is typically an individual or HUF who is not subject to tax audits under Section 44AB.

• Form No. 26QF: This form is specifically mentioned in the proviso for use by an Exchange that has agreed to deduct tax on behalf of the buyer of the virtual digital asset (as per guidelines issued under Section 194S(6)). The Exchange refers to a platform or application that facilitates the transfer of virtual digital assets, and if they deduct tax on behalf of the buyer, they are required to file this quarterly statement.

Distinction Between Form 26QE and Form 26QF:

• Form 26QE: Used by a specified person (individuals/HUFs) who deducts TDS under Section 194S. This form must be filed within 30 days of the end of the month in which the deduction was made.

• Form 26QF: Used by an Exchange that facilitates transactions of virtual digital assets and deducts tax on behalf of the buyer (as per the guidelines issued under Section 194S(6)). This form must be filed quarterly.

(2) Due Dates for Filing TDS Returns

The TDS returns are to be filed quarterly, with the due dates:

• 31st July for the April-June quarter.

• 31st October for the July-September quarter.

• 31st January for the October-December quarter.

• 31st May for the January-March quarter.

(3) Requirements for Filing

When preparing and filing TDS returns, deductors are required to include specific details in the statements. These statements must be submitted using the relevant forms (such as Form 24Q, Form 26Q, Form 27Q, Form 26QE, and Form 26QF), depending on the nature of the transaction. Below is a breakdown of the necessary details to be provided in the TDS returns as per Rule 31A(4):

Mandatory Details to be Furnished in TDS Returns:

1. Tax Deduction and Collection Account Number (TAN):

   • The deductor must quote their TAN in the statement.

2. Permanent Account Number (PAN):

   • The PAN of the deductor (except in cases where the deductor is an office of the government).

   • The PAN of all deductees must be furnished.

3. Challan Identification Number (CIN):

   • If tax has been deposited through a challan, the Challan Identification Number (CIN) should be provided. The CIN consists of:

     • The BSR Code of the bank where the tax was deposited.

     • The date of deposit.

     • The challan serial number.

4. Book Identification Number (BIN):

   • In cases where tax has been deposited without a challan (e.g., for government deductors), the Book Identification Number (BIN) must be quoted.

5. Amount Paid or Credited:

   • The deductor must provide the total amount paid or credited to the deductees on which TDS was deducted. This must include the tax deducted at source.

6. TDS Exemptions:

   • If TDS has not been deducted on certain payments, the deductor must furnish the following details:

     • Details of amounts on which TDS was not deducted due to the issuance of a certificate for no deduction under Section 197 by the Assessing Officer.

     • Amounts exempted from TDS under provisions such as Section 197A (for certain declarations) or other applicable sections.

     • Amounts paid or credited where no tax was deducted due to a notification under Section 194 (e.g., exemptions to specified payments).

7. Particulars of Tax Paid:

   • The deductor must include details of the tax paid to the Central Government, whether through a challan or book adjustment, including the BIN or CIN.

8. TDS Certificates:

   • If the deductor is required to issue TDS certificates to deductees, the information furnished in the return must correspond to the details in the certificates (e.g., Form 16, Form 16A, Form 16B, etc.).

Additional Requirements for Specific Cases:

• Section 194S (Virtual Digital Assets):

  • For transactions related to virtual digital assets under Section 194S, deductors must provide specific details in Form 26QE (for specified persons) and Form 26QF (for Exchanges).

• Amounts Paid Without TDS:

  • Particulars of amounts paid without TDS, for example, in cases where a valid declaration under Section 197A is furnished by the deductee, must be reported.

• Section 194N (Cash Withdrawals):

  • Deductors must furnish details related to Section 194N (TDS on cash withdrawals), especially if no tax is deducted due to exemptions or provisions under the section.

Verification of the Statement:

• The statement must be submitted either with a digital signature or verified through an electronic process, as specified by the Principal Director General of Income-tax (Systems).

Book Identification Number (BIN) and Challan Identification Number (CIN):

• These identification numbers play a crucial role in reconciling tax deducted at source with the amounts deposited into the government account. Correctly quoting these numbers ensures proper tracking of the TDS deposits.

(4A to 4D): Specific provisions for reporting TDS under Sections 194-IA, 194-IB, 194M, and 194S, where a challan-cum-statement must be submitted electronically.

Rule 37BA: Credit for Tax Deducted at Source for the Purposes of Section 199

This rule governs the credit of TDS to the deductee.

(1) General Credit Rules

TDS credit is given to the person to whom payment has been made or credited, based on the information provided by the deductor.

(2) Special Credit Cases

In cases where the income is assessable in the hands of a person other than the deductee, TDS credit may be given to the other person, provided the deductee files a declaration with the deductor and the deductor reports it accordingly.

(3) Timing of TDS Credit

• Credit for TDS will be given for the assessment year in which the income is assessable.

• If income is assessable over multiple years, the credit will be apportioned accordingly.

(4) Credit Verification

TDS credit will be given based on:

• The information provided by the deductor in the TDS return.

• The information furnished in the deductee’s return of income.

3. TDS Deduction and Deposit: Procedures and Timelines

3.1. Deduction of TDS

The deductor is required to deduct TDS at the time of:

• Credit of income to the account of the payee; or

• Payment in cash, cheque, draft, or any other mode; whichever is earlier.

4. PAN and TAN Requirements

4.1. Permanent Account Number (PAN)

• Deductor: Must have a valid PAN for TDS compliance.

• Deductee: PAN is essential for accurate credit of TDS. In absence of PAN, tax is deducted at a higher rate as per Section 206AA.

Implications of Non-Availability of PAN (Section 206AA):

• TDS to be deducted at the higher of the following rates:

  • Rate specified in the relevant provision of the Act.

  • Rate in force.

  • 20%.

• For certain sections like 194-O (TDS on e-commerce transactions) and 194Q (TDS on purchases), the Section specifies that the rate in the absence of PAN is reduced from 20% to 5%.

Exceptions under Rule 37BC:

• Non-residents not having PAN can furnish specified details (like name, email, contact number, address, Tax Identification Number) to avoid higher TDS rates.

4.2. Tax Deduction and Collection Account Number (TAN)

• Mandatory for all deductors to obtain TAN as per Section 203A.

• TAN is used for all TDS-related correspondence and filings.

Cases Where TAN is Not Required:

• Individuals deducting tax under Section 194-IA (TDS on transfer of immovable property) can use PAN instead of TAN.

• Similar exemption applies under Section 194-IB (TDS on rent by certain individuals/HUFs), Section 194M (TDS on payments to contractors/professionals/commission agents by individuals/HUFs exceeding specified limits), and Section 194S (TDS on transfer of virtual digital assets by specified persons), where individuals or HUFs not liable for a tax audit can deduct TDS without obtaining a TAN and can use their PAN instead.

5. Consequences of Non-Compliance

Non-compliance with TDS provisions attracts severe penalties and interest as updated by the Finance Act (No. 2) of 2024.

5.1. Late Deduction and Payment

• Interest (Section 201(1A)):

  • Late Deduction: 1% per month or part thereof from the date tax was deductible to actual date of deduction.

  • Late Payment: 1.5% per month or part thereof from the date of deduction to actual date of payment.

5.2. Late Filing of TDS Returns

• Late Filing Fee (Section 234E):

  • Rs.200 per day of delay till the return is filed.

  • Total fee should not exceed the amount of TDS.

5.3. Penalty for Non-Filing or Incorrect Filing

• Penalty (Section 271H):

  • Ranges from Rs.10,000 to Rs.1,00,000 for:

    • Failure to file TDS returns within one month from due date.

    • Furnishing incorrect details such as incorrect PAN, TDS amount, etc.

5.4. Prosecution (Section 276B):

• In cases of willful default, imprisonment ranging from 3 months to 7 years along with fine.

6. Conclusion

Compliance with TDS provisions under the Income Tax Act, 1961, is a critical responsibility for all deductors. Understanding the detailed legal framework, adhering to prescribed procedures, and staying updated with recent legislative changes are essential to ensure seamless compliance and avoid punitive consequences.