Applicability of TDS Provisions on Individual and HUF as a Deductor

The concept of TDS was introduced with an aim to collect tax from the very source of income. 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. The deductee from whose income tax has been deducted at source would be entitled to get credit of the amount so deducted on the basis of Form 26AS or TDS certificate issued by the deductor.

Taxes shall be deducted at the rates specified in the relevant provisions of the Act or the First Schedule to the Finance Act. However, in case of payment to non-resident persons, the withholding tax rates specified under the Double Taxation Avoidance Agreements shall also be considered.

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 194-IA can use PAN in place of TAN as such person is not required to obtain TAN. Further, a person required to deduct tax under section 194-IB, section 194M shall not be required to obtain tax deduction account number (TAN).

Applicability on Individual/ HUF—

Generally, an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him does not exceed one crore rupees in case of business or fifty lakh rupees in case of profession is not required to deduct TDS until unless specifically notified.

Further, an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed one crore rupees in case of business or fifty lakh rupees in case of profession, they must deduct TDS as per applicable rates.

In following cases, individual/HUF is required to deduct TDS

1. TDS from sum paid to buy an immovable property (Section 194-IA)

2. TDS on Rent by Certain Individual or HUF (Section 194-IB)

3. Payment under specified agreement (Section 194-IC)

4. Payment of commission, brokerage, contractual fee, professional fee to a resident person by an Individual or a HUF who are not liable to deduct TDS under section 194C, 194H, or 194J (Section 194M)

1. TDS from sum paid to buy an Immovable Property —Section 194-IA provides that any person buying an immovable property (other than rural agricultural land) from a resident seller shall deduct tax at the rate of 1% from the sales consideration or the stamp duty value of such property, whichever is higher. The tax shall be deducted if the amount of sales consideration or stamp duty value is Rs. 50 lakhs or more.

Any person (buyer) who is responsible for making payment of sales consideration in respect of purchasing an immovable property (other than rural agriculture land) shall deduct tax under this provision. The tax is deducted at the time of payment or at the time of credit of consideration, whichever is earlier. There is no requirement to apply or obtain Tax Deduction or Collection Account Number (TAN) for deducting tax under this section. Hence, a deductor can use his PAN in place of TAN.

The seller of immovable property shall be the deductee under this provision. However, the tax shall be required to be deducted under this section only if the seller is resident in India. If the seller is a non-resident in India, the tax shall be deducted under Section 195.

The person responsible for the deduction of tax at source under this provision is required to furnish a challan-cum-statement in Form 26QB electronically.

The deductor shall issue a TDS certificate to the assessee in Form No. 16B within 15 days from the due date of furnishing of the TDS statement.

2. TDS on Rent by Certain Individual or HUF— Section 194-IB provides that every Individual and HUF, whose turnover or gross receipt from business or profession doesn't exceed Rs. 1 crore in case of business and Rs. 50 lakhs in case of a profession in the immediately preceding financial year, shall deduct tax from the payment of rent for use of any land or building or both. The tax shall be deducted at the rate of 2% (5% till 30-09-2024) if the rent paid or payable exceeds Rs. 50,000 per month or part of the month.

Every Individual or HUF shall be required to deduct tax at source under this provision if his gross receipts or turnover in the financial year immediately preceding the financial year, in which rent is paid or credited, does not exceed Rs. 1 crore in the case of business and Rs. 50 lakhs in case of a profession. 

Rent means any payment under any lease, sub-lease, tenancy, or any other agreement or arrangement for use of any land or building or both.

Tax is required to be deducted only if the rent is paid or payable to a person who is resident in India. The tax shall be deducted under Section 195 if the sum is payable to a non-resident.

Exemption from TDS— No tax is required to be deducted from any sum paid or payable to the following:

a) The Government

b) The Reserve Bank of India

c) Corporation established by or under a Central Act which is, under any law for the time being in force, exempt from income tax on its income

d) Mutual Fund specified under Section 10(23D); or

The person responsible for the deduction of tax at source under this provision is required to furnish a challan-cum-statement in Form 26QC electronically.

The deductor shall issue a TDS certificate to the assessee in Form No. 16C within 15 days from the due date of furnishing of the TDS statement.

3. Payment under specified agreement (Section 194-IC) — any person responsible (including individual and HUF) for paying any sum by way of consideration under a Joint Development Agreement shall deduct tax therefrom. The tax is deducted at the time of payment or at the time of credit of the sum to the account of the deductee, whichever is earlier.

The tax shall be deducted if the payment is made to a resident individual or HUF.

The tax shall be deducted at the flat rate of 10%. The tax shall be deducted at 20% if Section 206AA or Section 206AB apply.

4. Payment of commission, brokerage, contractual fee, professional fee to a resident person by an Individual or a HUF who are not liable to deduct TDS under section 194C, 194H, or 194J (Section 194M)

Section 194M [inserted by Finance (No. 2) Act, 2019] provides for deduction of tax, at the rate of 5%, from the sum paid or credited to a resident, in a year on account of contractual work, commission (not being insurance commission as referred to in Section 194D), brokerage or professional fees, by an individual or a HUF [whose books of account are not required to be audited under Section 44AB], if aggregate of such sum exceeds Rs. 50 lakhs in a year.

Consequences if default is made in payment of TDS

A deductor would face the following consequences if he fails to deduct TDS or after deducting the same fails to deposit it to the credit of Central Government’s account:

a) Disallowance of expenditure: As per section 40(a)(i) of the Income-tax Act, any sum (other than salary) payable outside India or to a non-resident, which is chargeable to tax in India in the hands of the recipient, shall not be allowed to be deducted if it is paid without deduction of tax at source or if tax is deducted but is not deposited with the Central Government till the due date of filing of return.

However, if tax is deducted or deposited in the subsequent year, as the case may be, the expenditure shall be allowed as deduction in that year.

Similarly, as per section 40(a)(ia), any sum payable to a resident, which is subject to deduction of tax at source, would attract 30% disallowance if it is paid without deduction of tax at source or if tax is deducted but is not deposited with the Central Government till the due date of filing of return.

However, where in respect of any such sum, tax is deducted or deposited in subsequent year, as the case may be, the expenditure so disallowed shall be allowed as deduction in that year.

b) Levy of interest: As per section 201 of the Income-tax Act, if a deductor fails to deduct tax at source or after the deducting the same fails to deposit it to the account of Central Government then he shall be deemed to be an assessee-in-default and liable to pay simple interest as follows:

(i) at one per cent for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted; and

(ii) at one and one-half per cent for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid.

c) Levy of Penalty: Penalty of an amount equal to tax not deducted could be imposed under section 271C. Penalty shall be charged under section 221 if deductor fails to deduct and pay tax to the credit of Central Governm?ent. The penalty shall be levied to the extent the Assessing Officer directs, however, the total amount of penalty shall not exceed the amount of tax in arrears.

Accordingly, the TDS provisions for individuals and HUF aim to cover significant payments such as rent, property purchases, and contractor services which ensures tax compliance.