TDS (Tax Deducted at Source) rates play a significant role in India’s tax system, ensuring a smooth and efficient collection of income tax. These rates vary based on the taxpayer’s residency status, income category, and the nature of payments. Let’s delve into the key aspects of TDS rates to gain a better understanding.
1. Distinctions Based on Residency and Income Type
TDS rates differ for residents and non-residents, as well as for individuals and companies. For instance, interest from securities is subject to a 10% TDS rate for residents, while it’s 20% for non-residents¹. Similarly, the TDS rate on insurance commission is 5% for resident individuals but 10% for resident companies¹.
2. Variability by Income Source
Different sources and categories of income are subject to distinct TDS rates. For salary income, the TDS rate is determined by normal slab rates and the employee’s basic exemption limit¹. On the other hand, lottery winnings, online games, and horse race winnings attract a flat 30% TDS rate, irrespective of the income amount¹. Additionally, professional fees are subject to 10% TDS if they exceed Rs. 30,000 for a single transaction or Rs. 1,00,000 for aggregate transactions in a financial year¹.
3. Yearly Updates and New Provisions
TDS rates undergo annual revisions through the Finance Act. The Budget 2023 introduced new provisions, including TDS on income from online gaming at 30% (under section 194BA)¹, TDS on transfer of virtual digital assets at 1% (under section 194S)², and TDS on perks or benefits at 10% (under section 194R)².
4. Surcharge and Cess Considerations
TDS rates are impacted by surcharge and cess, depending on the deductee’s status and income. For instance, a non-resident individual earning between Rs. 50 lakh and Rs. 1 crore bears a 10% surcharge and a 4% cess on the TDS amount³. A domestic company earning more than Rs. 10 crore is liable for a 12% surcharge and a 4% cess on the TDS amount³.
5. Exemptions and Deductions
Certain forms or certificates can reduce or exempt TDS rates. A resident individual can submit Form No.15G/15H to avoid TDS on interest income if their total income is below the taxable limit¹. Non-residents can submit Form No.13 to acquire a lower or nil deduction certificate from the Assessing Officer if eligible for tax treaty benefits or lower tax liability⁴.
6. Applicability to Non-residents and Foreign Companies
TDS rates are also applicable to payments made to non-residents and foreign companies, usually at higher rates than those for residents and domestic companies. For example, the TDS rate on interest from securities is 20% for non-residents and 10% for residents¹. Additionally, the TDS rate on royalty or fees for technical services is 10% for domestic companies but 25% for foreign companies⁴.
7. Impact of Exemptions and Tax Treaties
Certain sections of the Income Tax Act provide exemptions and deductions from TDS rates. For instance, no TDS applies to interest from savings bank accounts, tax-free bonds, and public provident funds⁵. Furthermore, payments to specific entities, such as the Reserve Bank of India or the Government of India, are exempt from TDS⁴.
8. Influence of Tax Treaties
India’s tax treaties with other countries have a bearing on TDS rates, aiming to avoid double taxation and offer relief to taxpayers. For instance, the TDS rate on interest from securities paid to a resident of the USA is 15%, as per the Indo-US tax treaty⁶. Similarly, the TDS rate on royalty or fees for technical services paid to a resident of the UK is 10%, according to the Indo-UK tax treaty⁶.
Understanding TDS Rates for Different Incomes in FY 2023-24
Tax Deducted at Source (TDS) is an important mechanism to collect income tax at the source itself. It helps the government ensure timely tax collection and prevent tax evasion. TDS rates vary based on the nature of income and the status of the taxpayer. Let’s explore some of the common TDS rates applicable for FY 2023-24:
- TDS on Salary:TDS rate for salary income is based on the individual’s income tax slab rates and the basic exemption limit. Employers deduct tax monthly and issue Form 16 at year-end, which helps employees while filing income tax returns.
- TDS on Interest Income: TDS rates on interest income depend on the type and source of interest:
- Interest from bank deposits, post office deposits, etc., exceeding Rs. 40,000 (for others) and Rs. 50,000 (for senior citizens) is subject to 10% TDS.
- Interest from securities (debentures, bonds, government securities) exceeding Rs. 5,000 (Rs. 10,000 for certain securities) attracts 10% TDS.
- Interest from other sources, like loans, exceeding Rs. 5,000 is subject to 10% TDS.
- TDS on Lottery Winnings and Gambling: Income from lottery winnings, games, horse races, etc., attracts a higher TDS rate of 30% regardless of the income amount.
- TDS on Contractor Payments: Payments to contractors or sub-contractors for work or labor may attract 1% (for individuals/HUFs) or 2% (for others) TDS if the payment exceeds certain limits.
- TDS on Insurance Commission: Insurance commission paid to agents is subject to 5% TDS for non-companies and 10% for companies if it exceeds Rs. 15,000.
- TDS on Life Insurance Payouts:Payouts from life insurance policies are subject to 5% TDS if the income exceeds Rs. 1,00,000 in a financial year.
These are just some examples of the common TDS rates applicable in FY 2023-24. The TDS rates may change as per updates in the Finance Act each year. It is essential for taxpayers to stay informed about the prevailing TDS rates to comply with tax regulations properly. Timely deduction and deposit of TDS ensure smooth tax administration and contribute to nation-building.
TDS Rates Chart for FY 2023-24 (AY 2024-25)
TDS (Tax Deducted at Source) is a crucial mechanism in India’s tax collection process, ensuring that taxes are deducted at the source of income. The TDS rate varies based on the nature of income and the status of both the payer and the payee. For the financial year 2023-24 (Assessment Year 2024-25), here is a detailed TDS rates chart for different types of payments:
| Section | Deductee | Nature of Payment | Threshold Limit (Rs) | TDS Rate (%) |
| 192 | Resident or Non-resident | Salary | Basic Exemption Limit of Employee | Normal Slab Rates |
| 192A | Resident or Non-resident | Premature Withdrawal from EPF | 50,000 | 10 |
| 193 | Resident | Interest on Securities | Varies (According to Type of Security) | 10 |
| 194 | Resident | Dividend Income | 5,000 | 10 |
| 194A | Resident | Interest Other Than Interest on Securities (e.g., from banks, post office, co-operative society, etc.) | Senior Citizens – 50,000; Others – 40,000 | 10 |
| 194A | Resident | Interest Other Than Interest on Securities and Interest from Banks, Post Office, Co-operative Society (e.g., from friends and relatives) | 5,000 | 10 |
| 194B | Resident, Non-resident, or Foreign Company | Winnings from Lottery, Card Games, Crossword Puzzles, etc. (except online games) | Aggregate Income – 10,000 (Not Single Transaction) | 30 |
| 194BA | Resident, Non-resident, or Foreign Company | Winnings from Online Games (Including E-sports) | No Limit | 30 |
| 194BB | Resident, Non-resident, or Foreign Company | Winnings from Horse Races | Aggregate Winnings – 10,000 (Not Single Transaction) | 30 |
| 194C | Resident | Payment to Contractor/Sub-contractor (for carrying out any work) | Single Transaction – 30,000; Aggregate Transactions – 1,00,000 | a) 1 b) 2 |
| 194D | Resident | Insurance Commission | 15,000 | a) 10 b) 5 |
| 194DA | Resident | Payment in Respect of Life Insurance Policy (w.e.f. Sep.1,2019 tax is deducted on the amount of income comprised in insurance pay-out) | 1,00,000 | 5 |
| 194E | Non-resident or Foreign Company | Payment to Non-resident Sportsmen/Sports Association | No Limit | 20 |
| 194EE | Resident or Non-resident | Payment in Respect of Deposit under National Savings Scheme (NSS) | 2,500 | 10 |
| 194F | Resident or Non-resident | Payment on Account of Repurchase of Unit by Mutual Fund or Unit Trust of India (UTI) | No Limit | 20 |
| 194G | Resident, Non-resident, or Foreign Company | Commission on Sale of Lottery Tickets | 15,000 | 5 |
| 194H | Resident | Commission or Brokerage | 15,000 | 5 |
| 194-I | Resident | Rent For: a) Plant & Machinery b) Land or Building or Furniture or Fitting | a) No Limit; b) No Limit | a) 2; b) 10 |
It is important to be aware that these rates are subject to change according to updates in the Income Tax Act and rules. Additionally, if the deductee fails to provide their PAN number, the tax will be deducted at a higher rate, either 20% or the applicable rate as mentioned in the above table. Furthermore, these rates may be increased by applicable surcharge and cess.
Common Exemptions from TDS for FY 2023-24
TDS (Tax Deducted at Source) is an essential part of the tax collection process. However, there are certain situations where taxpayers can enjoy exemptions from TDS. Let’s take a look at some common exemptions applicable for FY 2023-24:
- Salary: No TDS will be deducted from an employee’s salary if their income is below the basic exemption limit of Rs. 2,50,000 for FY 2023-24.
- Interest: If interest income from bank deposits, post office deposits, or co-operative society deposits is below Rs. 40,000 (for others) or Rs. 50,000 (for senior citizens) in a financial year, no TDS will be deducted. Similarly, for securities like debentures, bonds, or government securities, if the interest income is below Rs. 5,000 or Rs. 10,000, depending on the type of security, no TDS will be deducted. Also, for interest income from other sources, such as loans from friends or relatives, if it is below Rs. 5,000, no TDS will be deducted.
- Lottery Winnings: If income from lottery winnings, crossword puzzles, card games, online games, horse races, or other games is exempt under section 10(23FBB) of the Income Tax Act, no TDS will be deducted.
- Contractor Payments: No TDS will be deducted from payments to contractors or sub-contractors if the payment for a single transaction is below Rs. 30,000 or the aggregate transactions in a financial year are below Rs. 1,00,000. Additionally, if the contractor owns ten or fewer goods carriages and furnishes a declaration with PAN, no TDS will be deducted.
- Insurance Commission: If the insurance commission paid to an agent is below Rs. 15,000 in a financial year, no TDS will be deducted. Also, if the agent is a resident individual who has furnished Form No.15G/15H for non-deduction of TDS, no TDS will be deducted.
- Life Insurance Policy: No TDS will be deducted from income received from life insurance policy payouts if the amount is below Rs. 1,00,000 in a financial year.
These exemptions provide relief to taxpayers in specific situations and help simplify the tax process. It is essential to be aware of these exemptions to ensure accurate tax compliance and avoid unnecessary TDS deductions
TDS Calculation: Understanding the Process with Examples
TDS (Tax Deducted at Source) is an essential mechanism for collecting income tax from taxpayers. Let’s explore how TDS is calculated and understand the process using some examples.
1. TDS Calculation for Salary Income:
- Mr. A, an employee of XYZ Ltd, has a salary income of Rs. 6,00,000 for FY 2023-24. He is below 60 years of age and has no other income.
Steps for TDS Calculation on Salary Income:
- His income is subject to TDS under section 192 of the Income Tax Act.
- The employer must deduct TDS every month based on the estimated income tax liability for the year.
- The income tax liability is calculated using the normal slab rates and the basic exemption limit of Rs. 2,50,000 for FY 2023-24.
- Mr. A’s income tax liability is Rs. 32,500 (5% of Rs. 2,50,000 + 20% of Rs. 1,00,000).
- The average TDS rate is 5.42% (Rs. 32,500 / Rs. 6,00,000 * 100).
- The monthly TDS amount is Rs. 2,710 (Rs. 6,00,000 / 12 * 5.42%).
- The employer deducts Rs. 2,710 from Mr. A’s salary every month and deposits it with the government.
Steps for TDS Calculation on Interest Income:
- Mr. A also earned interest income of Rs. 50,000 from bank deposits during the year.
TDS Calculation for Interest Income:
- The interest income is subject to TDS under section 194A of the Income Tax Act.
- The bank must deduct TDS on interest if it exceeds Rs. 40,000 in a financial year for others and Rs. 50,000 for senior citizens.
- The TDS rate on interest is 10%.
- As Mr. A’s interest income is Rs. 50,000, which exceeds the threshold limit, TDS is applicable.
- The TDS amount is Rs. 5,000 (Rs. 50,000 * 10%).
- The bank deducts Rs. 5,000 from Mr. A’s interest income and deposits it with the government.
2. TDS Calculation for Professional Income:
- Ms. B, a freelance graphic designer, received payments of Rs. 1,20,000 from ABC Ltd., Rs. 80,000 from PQR Ltd., and Rs. 40,000 from MNO Ltd. during FY 2023-24. She is a resident individual and has no other income.
TDS Calculation for Professional Income:
- The professional income is subject to TDS under section 194J of the Income Tax Act.
- The clients must deduct TDS on professional fees if the payment exceeds Rs. 30,000 for a single transaction or Rs. 1,00,000 for aggregate transactions in a financial year.
- The TDS rate on professional fees is 10%.
TDS Calculation for Each Client:
- For ABC Ltd., the payment exceeds both the single transaction and aggregate transaction limits. They must deduct TDS on professional fees.
- The TDS amount is Rs. 12,000 (Rs. 1,20,000 * 10%).
- ABC Ltd. deducts Rs. 12,000 from Ms. B’s professional fees and deposits it with the government.
- For PQR Ltd., the payment exceeds only the single transaction limit but not the aggregate transaction limit. They must deduct TDS on professional fees.
- The TDS amount is Rs. 8,000 (Rs. 80,000 * 10%).
- PQR Ltd. deducts Rs. 8,000 from Ms. B’s professional fees and deposits it with the government.
- For MNO Ltd., the payment does not exceed either the single transaction or aggregate transaction limit. They don’t have to deduct TDS on professional fees.
- The TDS amount is zero.
- MNO Ltd. pays the full amount of Rs. 40,000 to Ms. B without any deduction.
TDS calculation involves various factors such as income sources, tax rates, and threshold limits
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