Panel on income tax for hiking TDS threshold limits

The committee appointed to examine simplification of income tax laws on Monday recommended raising the threshold limits for deduction of tax at source as also slashing the rate of withholding tax. www.taxxcel.com

“Considering the importance of the long overdue revision of these puny limits, the Committee has recommended suitable hikes in such threshold limits,” the Justice (retired) R.V.Easwar Committee said in its draft report released here. 

The committee appointed to examine simplification of income tax laws recommended raising the threshold limits for deduction of tax at source.

It recommended “enhancement and rationalisation of the threshold limits and reduction of the rates of TDS (tax deducted at source)” and that “TDS rates for individuals and HUFs (Hindu undivided family) to be reduced to 5 percent as against the present 10 percent”. 

The panel said nearly 65 percent of the personal income-tax collected in India was through TDS, whose provisions need to be made less “tedious”, as they have remained over the years and, more tax friendly. 

It said TDS is applicable on “such tiny annual limits” like Rs.2,500 on payment of interest on securities and on interest on NSS accounts, Rs.5,000 for payment of interest on private deposits and commission or brokerage, and Rs.10,000 for payment of bank interest. 

The committee proposed raising the threshold for TDS to Rs.15,000 from Rs.2,500 annually and reducing the tax rate to 5 percent for interest on securities. 

For other interest earnings it recommended raising the limit to Rs.15,000 from the present Rs.10,000 for bank deposits, and Rs.5,000 for others. 

For payments to contractors, the panel has proposed raising the TDS limit from the current Rs.30,000 for single transaction and Rs.75,000 annually, to a Rs.1 lakh limit per annum. 

It has also recommended deferring implementation of Income Computation and Disclosure Standards (ICDS) to provide more time to taxpayers to deal with changes in law such as to the Companies Act, 2013, and the proposed Goods and Services Tax (GST) Act. 

The TDS threshold limit on rent income has been proposed to be raised from Rs.1.8 lakh annually to Rs.2.4 lakh. 

The threshold for fees for professional or technical services is recommended to be raised to Rs.50,000 from Rs.30,000, but it said the TDS rate here may retained at 10 percent. 

It suggested an increase in turnover limit for tax audit applicability from Rs. 1 crore to Rs.2 crore for business and Rs.1 crore for professionals. 

Commenting on the report, global accounting firm KPMG India’s partner (Tax) Vikas Vasal said the panel’s recommendations seek to address many of the ground level issues being faced by taxpayers. 

“Some of the procedural reforms on tax deduction at source and e-governance initiatives in the report, if implemented, will help improve the business sentiment in the country,” he said. 

“Some of the reforms are to be undertaken through the Budget process, while others can be implemented through necessary clarifications in the form of circulars etc.,” Vasal added. 

The committee has invited comments from the public till January 23, following which it will finalise the report’s first part by January 31.

I-T emphasis on creating awareness on TDS

Income tax department is emphasising on creating greater awareness on tax deducted at source (TDS) compliance.

“The department will create awareness for proper TDS compliance by all deductors,” Principal Commissioner of Income Tax D N Mishra said at a seminar on income tax TDS yesterday.www.taxxcel.com

Rakesh Goyal, CIT (TDS) explained the TDS provisions and assured necessary help to tax deductors as well as taxpayers in proper adherence to law.

The event was organised issued by Calcutta Citizens Initiative, All India Federation of Tax Practitioners and Rajasthan Bengal Maitri Parishad.

Speaking on the occasion tax advocate Narayan Jain said monetary limits of TDS should be revised upwards but rate should be scaled down in view of present exemption limit and lower rates of income tax.

He also said that multiplicity of provisions relating to Interest and Commission income need to be consolidated into for simplification.

All about TDS – Tax Deducted at Source

TDS or Tax Deducted at Source, is a means of indirect tax collection by Indian authorities according to the Income Tax Act, 1961. TDS is managed by the Central Board of Direct taxes (CBDT), which comes under the Indian Revenue Services (IRS).

TDS is collected as a means to keep a stable revenue source for the government throughout the year, while desisting people from avoiding taxes.

How is TDS Deducted?

Income and expenditure such as salary, lotteries, interests from banks, payment of commissions, rent payment, payments to freelancers, etc. fall under the ambit of TDS. When making payments under these segments, a percentage of the overall payment is withheld by the source that is making the payments. This source, which can be a person or an organization, is known as the Deductor. The person whose payment is getting deducted is called the Deductee. For instance, a deductor is the employer paying salary to an employee (the deductee).

Advantages of TDS:

TDS is based on the principle of ‘pay as and when you earn’. TDS is a win-win scenario for both the taxpayers and the government. Tax is deducted when making payments through cash, credit or cheque, which is then deposited with the central agencies.

  • Responsibility sharing for deductor and tax collection agencies.
  • Prevents tax evasion.
  • Widens the tax collection base.
  • Steady source of revenue for the government.
  • Easier for a deductee as tax gets automatically collected and deposited to the credit of the central government.

Types and Rates of TDS:

TDS is calculated on the basis of a threshold limit, which is the maximum level of income after which TDS will be deducted from future income/payments. TDS is deducted as a percentage of overall payment, and may range from 1% to 30% of actual payable amount.

Major sections of the Income Tax Act that outline TDS deductions are:

IT Section TDS Rate Threshold limit*
Section 192 According to income slab According to income slab
Section 193 10% of income from interests on securities. NIL
Section 194 10% of income from deemed dividends NIL
Section 194A 10% of income from interests other than those on securities Rs.5,000
Section 194B 30% of lottery or game-related winnings Rs.10,000
Section 194BB 30% of income from horse racing Rs.5,000
Section 194C 1% of earning from contracts or sub contracts for individuals and HUF (Hindu Unified Families) 2% for corporates Rs.30,000
Section 194D 10% of income from insurance commissions Rs.20,000
Section 194EE 20% of payment in NSS deposits Rs.2,500
Section 194F 20% of payment made for repurchase of UTI or MF units NIL
Section 194G 10% of commission earned from selling lottery tickets Rs.1,000
Section 194H 10% of commission or brokerage earnings Rs.5,000
Section 194I 2% of rent of plant and machinery 10% of rent of land, building, fitting, or furniture Rs.1.8 lakhs
Section 194J 10% of fees for technical or professional services NIL
Section 194L 10% of compensation payment made to a resident when acquisitioning some immovable property Rs.1 lakh

*Threshold limit denotes the amount of income/profit up to which TDS will not be deducted. TDS will be calculated on value of income up and over threshold limit only.

TDS on income from salaries are deducted on an estimation made at the start of the financial year. The employer is responsible for deducting taxes every month in equal instalments. In case the deductee has switched jobs during the fiscal year, the employer will deduct taxes on the basis of all accrued income in the fiscal year. Deductees should be very careful when mentioning their overall income as tax avoidance will be penalised by relevant authorities.

When TDS is not Deducted?

TDs is not collected on payments made to the Reserve Bank of India, the Government of India etc. TDS will not be collected when interest is credited or paid to:

  • Central or State Financial Corporations.
  • Banking companies.
  • Interest paid under Direct Taxes or refund from the IT department.
  • UTI, LIC and other insurance or co-operative societies.
  • Interests earned from recurring deposit or savings account in cooperative societies or banks.
  • Interest in Indira Vikas Party, KVP, or NSC.
  • Interest earned in NRE account.
  • All institutions notified under no-TDS.

Apart from these, there are other avenues also where TDS may not be applicable, such as interest on compensation from MVCT (Motor Vehicles Claims Tribunal). Therefore, taxpayers are advised to check if their interest income is liable for TDS with a particular institution or not.

TDS Certificate:

As TDS is collected on an ongoing basis, it can be difficult to keep track of deductions by an individual. As per Section 203 of the ITA, the deductor has to furnish a certificate of TDS payment to the deductee/payee. This certificate is also offered by banks making deductions on pension payments etc. The certificate is typically issued at the deductor’s own letterhead. Individuals are advised to request for TDS certificate wherever applicable, and if not already provided.

Refund of Excess TDS Deductions

If a person has been subjected to excess TDS deductions, the deductor can make claims for refund of the excess amount. The difference between the tax deducted and the actual payments made by the deductor, whichever is higher, is accepted as the excess payment, and this amount will be refunded after adjusting against any tax liabilities under Direct Tax Acts.

Quick Takeaways

  • TDS denotes the tax deductions at source of an individual’s income/payments. The deductor (employer/contractor etc) is the person who is making payments to the deductee (employee, stock broker etc.).
  • TDS helps in reducing tax filing burdens for a deductee and ensures stable revenue for the government.
  • In most cases, TDS is collected after a certain threshold limit of earnings has been crossed. The highest TDS of 30% is applicable on winnings from horse races, and lotteries and other games.
  • TDS certificate is issued wherever TDS has been collected, typically by the deductor or a bank.
  • TDS is exempted on some payments made to government, RBI, cooperative societies etc.
  • Refunds can be requested if there are discrepancies in the collected amount and the actual payable amount.
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TDS threshold to be increased; Know what are the benefits

The high-level committee under a former Delhi High Court judge to suggest simplification of Income Tax laws has submitted its report on TDS (tax deduction at source) reforms as one of the core recommendations for Union Budget 2016.

The report, accessed by Times of India, says, “TDS rates for interest income and commission need to be rationalized, the committee suggested that these should be halved to 5 percent”.

-The committee has proposed to raise TDS limit on bank deposit interest from Rs 10,000 to Rs 15,000.

– It has proposed to raise TDS limit on interest on securities from Rs 2,500 to Rs 15,000.

-It has proposed to raise TDS limit on payment in respect of NSS from Rs 2,500 to Rs 15,000.

-The proposal will especially benefit senior citizens whose main area of invest include Bank FDs and other small saving securities and schemes.

-It will also benefit consultants, brokers, house owners, small depositors, freelancers who pay TDS on their income.