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Tax Deducted at Source (TDS) in India

Tax Deducted at Source (TDS) is an income tax subjected to every person making specified type of payments. These payments range widely, including professional fee, salary, commission, interests, rents, and so on. The deductor/buyer (person making the payment) is required to deduct Income tax at the rates in force. The person who receives the payment after the deduction of tax is called the deductee. The deductor is required to give the TDS deducted certificate issued by the government to the deductee as a fulfillment of tax liability, and must annually file TDS return in the relevant format within the Indian income department.

TDS is deducted as income tax when making specific payments within India. If an income is paid outside India, the withholding tax (WHT) will be applicable. TDS and WHT are with same calculation but subjective to different groups of people.

TDS in Collections & Disbursements (Commissions Postings) – Section 194D

As per the Indian Income tax section 194D, the entity is required to deduct income tax while the service is related to insurance commission, and rewards received by agents or brokers.

TDS in IS-Utilities (Interest on Security Deposits) Section 193

Tax Deducted at Source for Security Deposits is an India-specific enhancement to the Standard SAP Security Deposit functionality. As per the Indian Income tax section 193, the company is required to deduct Income tax whenever pays to an Indian resident any income. This tax aims for securities of central and state government on debenture, and securities issued by companies or authority.

Prerequisites

To use this enhancement, it is required to activate the generic solution for WHT accumulation. This is achieved by applying:

TDS in IS-Utilities – Section 194Q

The Finance Act 2021 has introduced a new section 194Q which is effective from 1st of July 2021. As per this section, TDS will be deducted by a buyer, whose total sales, gross receipts or turnover of purchasing goods exceeded 10 crores rupees in the year prior to a current year, when a purchase of goods is carried out. The tax shall be deducted based on the following provisions.

  1. The buyer is responsible for making payment of a sum to the resident seller.
  2. Such payment is to be done for purchasing goods with total or aggregate value exceeded 50 lakhs Rupees in any previous year.

For example, when the buyer has Turnover during 2020-2021 exceed 10 crores and purchase of goods happens during year 2021-2022 exceeds 50 lakhs Rupees, the TDS will be deducted.

Tax is required be deducted on the credit of actual payments or advance payments made to the seller, whichever is earlier. The rate of TDS differs under different conditions:

  • TDS rate is 0.1% If the seller provides PAN number.
  • TDS rate is 5% If the seller doesn’t provide PAN number, as per section 206AB.

In addition to section 194Q, another Section – 206AB is introduced and will be effective from 1st of July 2021. It aims to penalize those who are liable but didn’t file income tax returns (ITRs). The section 206AB specifies a higher rate of TDS deduction for non-filers of ITRs for previous 2 years and where the aggregate value of TDS is INR 50,000 and more.

Notes

The related information can be found in the listed notes below.

  1. 3065925 – IN: – Section 206AB and section 206CCA and TDS/TCS effective from July 1st, 2021
  2. 3062073 – IN: New section 194Q introduced in Budget 2021-22 Tax Deducted at Source (TDS)

It is to be noted that FICA deals with sales transactions. TDS under Section 194Q is not expected to be supported in FICA as it is deductible by the person responsible for paying any sum to any residents for purchase of goods.

 

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