TDS & TCS FAQs — Rates, Compliance, and Deductor Obligations
8 expert answers on TDS & TCS under Income Tax (Sections 194, 195 & 206C) under Income Tax — eligibility, restrictions, reversals, and recent legal positions.
These questions are drawn from real GST compliance scenarios, litigation, and common queries from practitioners. Answers reflect the law as amended up to Finance Act 2024.
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If a person fails to deduct TDS, or deducts but does not deposit it with the government, the following consequences apply: (1) Section 201 — the person is treated as 'assessee in default' and the TDS amount becomes recoverable; (2) Interest under Section 201(1A) at 1% per month for failure to deduct and 1.5% per month for failure to deposit; (3) Disallowance of the expense under Section 40(a)(ia) — 30% of the payment is disallowed as deduction in the payer's income if TDS is not deducted (applicable to resident payees); (4) Penalty under Section 271C equal to the TDS not deducted.
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TDS credit is reflected in Form 26AS (Annual Information Statement) and the AIS (Annual Information Statement) on the Income Tax Portal. Taxpayers claim credit by filling in the TDS details in the relevant schedules of their ITR. The department matches the declared TDS with amounts reported by deductors in their quarterly TDS returns (Form 24Q/26Q/27Q). Mismatches can trigger demands. Taxpayers should verify Form 26AS before filing.
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Section 194J prescribes: (a) 2% on technical services (including call centre payments); (b) 10% on professional services (CA, lawyer, doctor, etc.), royalty, non-compete fees, and director remuneration (other than salary). The threshold is ₹30,000 per year per payee. Budget 2024 did not change 194J rates, but Budget 2025 announced rationalization of TDS sections effective FY 2025-26.
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Per CBDT Circular No. 23/2017 (as reiterated in subsequent circulars), TDS is required to be deducted only on the amount excluding GST — i.e., TDS is not applicable on the GST component if GST is shown separately in the invoice. Where GST is not separately indicated, TDS applies on the gross invoice amount. This applies to all TDS sections except Section 194-IA (TDS on immovable property) and Section 192 (salary).
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Under Section 206C(1G), TCS at 20% is levied on overseas remittances under the Liberalised Remittance Scheme (LRS) exceeding ₹7 lakh per financial year (reduced rate of 5% applies if remittance is for education financed by a loan from an approved institution, or for medical treatment). TCS at 5% applies on remittances for education or medical treatment from own funds. The collected TCS can be claimed as credit in the remitter's income tax return.
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Yes. Under Section 197, a taxpayer (payee) can apply to the Assessing Officer for a certificate authorizing the payer to deduct TDS at a nil or lower rate, where the taxpayer's estimated total tax liability justifies it. The application is made in Form 13 online on TRACES. A separate certificate must be obtained for each deductor. The certificate is valid for the specified period/financial year and the deductor must honour it.
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Section 194N requires banks, post offices, and cooperative societies to deduct TDS on cash withdrawals exceeding ₹1 crore during a financial year from a single account: (a) 2% TDS for regular ITR filers; (b) 5% TDS if the taxpayer has not filed ITR for the last 3 years on withdrawals between ₹20 lakh and ₹1 crore, and 5% above ₹1 crore. The threshold resets at the start of each financial year. TDS under 194N is creditable against the taxpayer's income tax liability.
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TDS deducted in any month (other than March) must be deposited by the 7th of the following month. For March, the deadline is 30 April. TDS on property purchase (Section 194-IA) and TDS on rent by individual/HUF (Section 194-IB) must be deposited within 30 days of the end of the month in which TDS is deducted. Quarterly TDS returns (Form 26Q, 27Q, 24Q) are due on 31 July, 31 October, 31 January, and 31 May.