TDS UNDER INCOME TAX ACT AND GST ACT
The Indian Income Tax Act provides for chargeability of tax on the total income of a person on an annual basis. The quantum of tax determined as per the statutory provisions is payable as:
a) Advance Tax
b) Self-Assessment Tax
c) Tax Deducted at Source (TDS)
d) Tax Collected at Source (TCS)
Tax Deducted at Source (TDS) as it is known for its short name is a very useful resource of colleting the tax by the Central Govt. Both Income Tax and GST Act have the provisions of deducting TDS on certain payments by the recipient of goods or services. The Concept was introduced to check tax evasion and to collect tax wherein the person (deductor) is made responsible for deducting and depositing tax to the Govt. on behalf of the other persons (deductee) on making payments of specific natures. The person on whose payment the tax is deducted can get the credit of the same by filing his income tax or GST return. The sole purpose of the deducting tax at source on specific payments is to bring each and every person in the tax net.
Why TDS is important under Income Tax Act
Tax Deducted at Source (TDS) serves as an important mechanism to curb tax evasion. The deductor is required to file quarterly TDS returns, which contain complete details of the payments made to the deductee. Based on this information, the Government can ascertain the probable income of the deductee. Consequently, if the deductee fails to file their income tax return, the Government may issue a notice under Section 280 of the New Income Tax Act, 2025 directing the Assessee to file their return.
Apart from the tax deducted at source (TDS) on specific payments, certain transactions required tax to be collected at source (TCS) by the seller. For instance, when a car is purchased for more than ?10 lakh, the seller must collect TCS. Even when a person travels abroad, makes payments above a specified limit for a package tour or airfare, or remits more than ?7 lakh overseas, the seller or service provider is required to collect TCS on the amount utilized.
Similarly there are TDS and TCS provisions under section 51 and section 52 respectively of Good and Services Tax Act, 2017 wherein certain category of recipient are required to deduct TDS or collect TCS on specific invoices and deposit the same with Govt. on behalf of that person. At present generally the department or establishment of Central or State Govt. or Local Authority or Govt. Agencies are required to deduct tax on payment made to the supplier.
PROVISIONS OF TDS UNDER NEW INCOME TAX ACT, 2025
We are all aware that the Income Tax Act, 1961 will be discontinued from 01.04.2026, and the new Income Tax Act, 2025 will take effect on that date. Starting from the financial year 2026–27, the provisions of the new Act will apply. Therefore, my focus will be on explaining and familiarizing you with the provisions of the New Income Tax Act.
The New Income Tax Act, 2025 contains only 11 sections—Section 392 to Section 402—covered under Chapter XIX: Collection and Recovery of Tax, compared to 72 sections (including sub-sections) under the Income Tax Act, 1961. These provisions have been organized in a highly structured and streamlined manner in the new Act to enhance clarity and ease of understanding. In addition, the New Act presents TDS provisions in a tabular format, making them simpler and more user-friendly.
PERSONS RESPONSIBLE FOR DEDUCTING TDS
TDS on payment of Salary
Any person responsible for paying any income chargeable under the head “Salaries” shall deduct income-tax on the amount payable and this deduction shall be made at the time of such payment at the average rate of income-tax computed on the basis of the rates in force for the tax year in which the payment is made, on the estimated income of the Assessee under this head for such year. [Section 392(1)]
The person responsible for making payment under sub-section (1), shall take into account the following particulars furnished by the Assessee, at his option, in such form and verified in such manner as may be prescribed, for the purpose of making deduction under the said sub-section and such particulars shall have an effect of increasing or decreasing the tax to be deducted:—
TDS on payment other than salary
Any person, not being an individual or a Hindu undivided family, who is responsible for paying to payment specified under Section 393 to a resident shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force.
Section 393 is a comprehensive, consolidated section introduced in the new Income Tax Act, 2025. It replaces and rationalizes almost all existing TDS provisions from Sections 194A to 194T of the 1961 Act into a single, structured clause.
All the provisions previously covered under Sections 193 (interest on securities) to 194T (payment of remuneration, commission, bonus, incentives, etc. to partners in a partnership firm) have now been consolidated into a single Section 393 of the new Act. All other provisions—such as TDS rates and monetary exemption limits below which TDS is not deducted—remain unchanged, as there has been no revision to these rates or limits.
TDS ON PURCHASE OF PROPERTY
Buying a property other than agricultural land in India valued at more than ?50 lakh attracts TDS under Section 393. When a buyer purchases a property exceeding this threshold, they must deduct TDS at 1% of the total transaction value.
Prior to the amendment introduced through the Finance Bill 2024, effective from 01.10.2024, TDS was not required if a property had multiple sellers and the individual share of each seller was below ?50 lakh. However, after the amendment, TDS becomes applicable whenever the overall property value exceeds ?50 lakh, even if there are multiple sellers and each seller’s individual share is less than ?50 lakh. The same provisions have been retained in the new Act.
TDS PROVISIONS APPLICABLE TO NRI
Section 195 which deals with the TDS deduction on payment made to Non Resident Persons have so been merged in above quoted section 393 of the New Act. of the chapter XVII deals with the provisions of Tax Deducted at Source on specific payments made to Non-Resident Person (NRI). The provisions are more or less same.
Moreover most of the payments made to the NRI are subject to tax deducted at source. Even interest payable to the NRI on Non-Resident Ordinary (NRO) Account is subject to the tax deduction at source. These provisions have been retained in the New Act.
RATES OF TDS AND OTHER ISSUES
As we earlier mentioned that section 393 is in tabular form and all the provisions regarding TDS have been drafted in those tables. Each table has four column where namely:
Column A - Sr. No.
Column B - Nature of Income or Sum on which the TDS is to be deducted.
Column C - Specify the payer means who is responsible for deducting TDS.
Column D - Rates at which the TDS is to be deducted and the Threshold limits after which the TDS/ is to be deducted.
The deductor shall deduct the TDS at the rates specified in column D subject to the threshold limits and other provisions wherever applicable.
The tables showing the TDS provisions have five column in which one extra column has been inserted for payer (who is responsible for making payment)
However, in case of payment to non-resident persons, the withholding tax rates specified under the Double Taxation Avoidance Agreements shall also be considered. In the case of foreign cos. rates of tax deduction cannot exceeds DTAA. In a recent judgement the Honourable Supreme Court made it clear that Indian Cos. like MPHSIS, WIPRO etc. cannot be forced to deduct TDS more than the 10% if the India has a treaty with that country. The Court rejects the Income Tax Department’s argument that international tax treaties override the domestic tax rules. This ruling uphold the earlier ruling by Karnataka High Court and Delhi High Court.
TDS at Higher Rates
A deductee must provide their PAN to the deductor to ensure proper deduction and deposit of TDS. If the deductee fails to furnish their PAN, the deductor is required to deduct TDS at the higher rate of 20%. Similarly, if the deductee’s PAN is not linked with Aadhaar, the deductor is again obligated to apply the higher rate of TDS.
In a recent development, the Government has clarified that for TDS deducted between 01.04.2024 and 31.08.2025, no penalty will be imposed on the deductor for not applying the higher rate, provided the deductee completes the Aadhaar–PAN linkage by 30.09.2025.
TDS AT LOWER RATES – Section 395
Is it possible to deduct tax at the rates lower than the specified rates mentioned in column D or E as the case may be. The answer is yes and section 395 of the Act provides for the same.
Where the tax is required to be deducted on any income or sum under any provisions of this Chapter, then subject to the rules made under this Act,-
(a) the payee may make an application before the Assessing Officer for deduction of income-tax at a lower rate or no deduction of income-tax, as the case may be; and
(b) the Assessing Officer on being satisfied that the total income of the payee justifies deduction of income-tax at a lower rate or no deduction of income-tax, as the case may be, shall issue to him a certificate as appropriate; and
(c) when a certificate is issued under clause (b), the person responsible for paying the income or sum shall deduct the tax at the rate specified in such certificate, or deduct no income-tax, as the case may be, till its validity
Likewise the where the person responsible for making payment to the NRI may make an application to the Assessing Officer that the whole of the sum payable to the recipient shall not be chargeable to tax and if the assessing officer is satisfied he may grant relief and the responsible person shall deduct tax on the amount mentioned in the certificate issued by the assessing officer.
TIME OF DEPOSIT OF TAX AND CREDIT TO THE ASSESSEE
The Tax deducted by the deductor must be deposited within the period of seven days from the end of the month in which the TDS is deducted by him. In the case of the TDS deducted for the month of March, the deductor has a leverage of depositing the tax within the period of 30 days from the end of the month.
Every person responsible for deducting tax is required to file quarterly statements of TDS for the quarter ending on 30th June, 30th September, 31st December, and 31st March in each Financial Year. This statement is to be prepared in
a) Form No.26 Q for TDS other than salaries.
b) Form No.27 EQ for Tax collection at source.
c) Form 27Q in respect of a deductee who is non-resident not being a company or a foreign company or resident but not ordinarily resident.
d) Form 27 EQ for tax collection at source.
e) 24Q (deduction of tax u/s 392 for salaries)
These quarterly returns must be filed on or before the due dates prescribed under the Income Tax. The Assessee who’s TDS is deducted gets the input tax credit as and when the TDS returns have been filed by the deductor and processed by the Income Tax Department. The Assessee can adjust the TDS so deducted from his tax liability.
A deductor may file a correction statement if, at a later stage, any errors are discovered in the originally filed quarterly statement. Such statements can be revised multiple times; however, under the recent amendment introduced by the Finance Act (2), 2024, the government has clarified that no correction statement may be filed after six years from the end of the financial year in which the original statement was submitted by the deductor.
Section 397(3) (f) every person referred to in clause (b) or (e) may correct any discrepancy or update the information furnished, in the statement delivered under the said clauses, by delivering a correction statement in such form and verified in such manner as may be prescribed, to the prescribed authority under the said clauses, within two years from the end of the tax year in which such statement is required to be delivered under the said clauses or under section 200 of the Income-tax Act, 1961;
Clarification from CBDT
To alert taxpayers about the transition, the Central Board of Direct Taxes (CBDT) has issued a statement. Correction statements for FY 2018-19 (Q4), FY 2019-20 to FY 2022-23 (all quarters), and FY 2023-24 (Q1 to Q3) will be accepted only until 31st March 2026. After this date, such statements will be time-barred and will not be entertained from 1st April 2026 onwards. This clarification underscores the importance of timely compliance and serves as a final opportunity for taxpayers to regularize pending corrections.
PERSONS EXEMPTED FROM DEDUCTING TDS
An Individual or HUF whose Gross Total Turnover during the preceding financial year does not exceeds Rupees One Crore has been made exempted by the Act from deduction of TDS as these provisions do not apply to him.
CONSEQUENCES OF NOT DEDUCTING TDS
Failure to deduct TDS and deposit the same with the Govt. can lead to the serious consequences. Apart from the Interest payment by the deductor, he may be prosecuted under section 273B. Let’s find out the detailed consequences
The deductor is under obligation to deduct TDS within the stipulated time i.e, at the time of making payment or at the time of amount credit to the account of the deductee and deposit it to the Govt. within the period of seven days from the end of the month in which the TDS is deducted failing which there are the provisions of interest u/s 201(A) of the Act which is as under:
When a person who is required to deduct TDS fails to do so, they become an Assessee in default. In addition to interest under Section 398, they may also be liable for a penalty under Section 412 of the
Income Tax Act, which can be up to the amount of tax in arrears. However, this penalty cannot be imposed if,-
(a) Unless the Assessee has been given a reasonable opportunity of being heard;
(b) Where the Assessee proves to the satisfaction of the Assessing Officer that the default was for good and sufficient reasons.
This is to note that the Assessee cannot be ceased to be liable to pay the penalty merely by the reason that before levying the penalty he has deposited the tax.
The Honorable Supreme Court in the M/s US Technologies International Pvt. Ltd. vs. The Commissioner of Income Tax, clarified that Section 271C penalizes the failure to deduct tax, not the delay in remitting the deducted tax. Provisions of section 201(IA) & section 276B of the Income Tax Act will be applicable.
If TDS is not deducted, or after deduction, not paid to the Central Government by the due date of filing the income tax return, 30% of such expenditure is disallowed from the business’s taxable income.
For Payments to Non-Residents (Section 40(a)(i)): If TDS is not deducted, or after deduction, not paid to the Central Government by the due date of filing the income tax return, 100% of such expenditure is disallowed.
In severe cases of wilful failure to deposit TDS/TCS with the government after deduction/collection, the deductor can face rigorous imprisonment ranging from 3 months to 7 years, along with a fine.
The provisions of section 477 i.e. provisions of prosecution shall not apply if the payment of the tax collected at source has been made to the Central Government on or before the time prescribed for filing the statement under section 397(3)(b) in respect of such payment.
TDS UNDR GST
Just as the Income Tax Act includes TDS provisions, the Goods and Service Tax (GST) law also provides for the deduction of Tax Deducted at Source (TDS) by specified recipients of goods or services from specified suppliers and the Tax Collection at Source (TCS) by the E- Commerce Operator for providing their platform for making sales by the supplier. The objective of deducting TDS or collecting TCS under GST is similar to that under the Income Tax Act—preventing tax evasion.
Under GST, the provisions for TDS and TCS are governed by two sections: Section 51 of the GST Act, 2017 deals with TDS, while Section 52 pertains to TCS.
TDS UNDER GOODS AND SERVICE TAX (GST)
Person Responsible for Deducting TDS under GST
According to section 51 of the Goods and Service Tax Act 2017, the following categories are required to deduct Tax namely:
Exemption from deducting TDS
No deduction shall be made if the location of the supplier and the place of supply is in a State or Union territory which is different from the State or as the case may be, Union territory of registration of the recipient.
Value of Goods on which the Tax is to be deducted
For the purpose of deduction of tax specified above, the value of supply shall be taken as the amount excluding the central tax, State tax, Union territory tax, integrated tax and cess indicated in the invoice. [Explanation to Section 52(1)]
Time for Depositing TDS by the Deductor
The amount of tax so deducted by the responsible person (deductor) shall be paid to the Govt. within the period of 10 days from the end of the month in which the deduction is made. After making payment the deductor shall file a statement of TDS and will issue a Certificate to that effect. The amount so deposited by the deductor shall be reflected in the electronic cash ledger of the deductee and the deductee shall adjust his output tax liabilities with that amount reflected in the cash ledger.
Consequences of not deducting TDS or Not depositing TDS to the Govt.
There are serious consequences under the Income Tax Act if a deductor fails to deduct TDS or fails to deposit the deducted TDS amount with the government. Similarly, under the Goods and Services Tax Act, the consequences are equally severe if the deductor does not deduct or fails to remit the TDS amount to the government. Following consequences exists under section 51 of the Goods and Service Tax namely:-
TAX COLLECTED AT SOURCE (TCS) SECTION 52 OF THE ACT
TCS is another form of tax collection by the Govt. wherein the specific persons are under obligation to collect tax on behalf of the Govt. from the certain categories of the suppliers. The TCS Provisions are defined under section 52 of the Goods and Services Tax Act, 2017.
TCS is mainly collected by E-Commerce Operator on the payment made to the suppliers for making sales through their platform.
Electronic Commerce and Electronic Operator as these two word generally known by their short names E-Commerce and E=Commerce Operator are defined in clause 44 and 45 of Section 2 of the Act as
Electronic Commerce – Section 2(44)
Electronic Commerce means the supply of goods or services or both, including digital products over digital or electronic network.
Electronic Commerce – Section 2(45)
Electronic commerce operator" means any person who owns, operates or manages digital or electronic facility or platform for electronic commerce.
Section 9(5) of the Act clarifies that The Government may, on the recommendations of the Council, by notification, specify categories of services the tax on intra-State supplies of which shall be paid by the electronic commerce operator if such services are supplied through it, and all the provisions of this Act shall apply to such electronic commerce operator as if he is the supplier liable for paying the tax in relation to the supply of such services:
Provided that where an electronic commerce operator does not have a physical presence in the taxable territory, any person representing such electronic commerce operator for any purpose in the taxable territory shall be liable to pay tax:
Provided further that where an electronic commerce operator does not have a physical presence in the taxable territory and also he does not have a representative in the said territory, such electronic commerce operator shall appoint a person in the taxable territory for the purpose of paying tax and such person shall be liable to pay tax.
TCS COLLECTION BY ELECTRONIC-COMMERCE OPERATOR
every electronic commerce operator (hereafter in this section referred to as the “operator”), not being an agent, shall collect an amount calculated at such rate not exceeding one per cent., as may be notified by the Government on the recommendations of the Council, of the net value of taxable supplies made through it by other suppliers where the consideration with respect to such supplies is to be collected by the operator.
NET VALUE OF TAXABLE SUPPLY
Section 52(1) refers to the net value of taxable supplies, which means that if a supplier provides exempt goods through an e-commerce platform, the platform is not required to collect TCS on such exempt supplies.
Further, the net value of taxable supplies is calculated as the total value of supplies made minus the value of goods returned by customers.
Time for Depositing Tax Collected at Source
An e-commerce operator that collects TCS must deposit the amount with the Government within 10 days from the end of the month in which the tax was collected.
Registration Requirement
Every e-commerce operator is required to obtain compulsory registration certificate under Section 24(x) of the Act, regardless of turnover. This means the basic exemption limit of ?40 lakh does not apply to e-commerce operators for registration purposes.
Credit of Tax by the Supplier
Every supply who makes supply through E commerce operator and a tax is collected by the E-commerce operator on the supply made through his platform shall get the input tax credit of the tax so collected once the tax is reflected in his electronic cash ledger.
Consequences of Non-Collecting of TCS
a) supplies of goods or services or both effected through such operator during any period; or
(b) stock of goods held by the suppliers making supplies through such operator in the godowns or warehouses, by whatever name called, managed by such operator and declared as additional places of business by such suppliers, as may be specified in the notice.
3. Every E commerce Operator who has been served with the notice is required to furnish the required information within the period of 15 days failing which the adverse order under section 73 or section 74 can be passed
4. Penalty proceedings under section 122 can be started against the E-commerce operator who fails to comply with the provisions of section 52.
Advocate Narender Ahuja
Email: Ahujankassociate@gmail.com
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