TDS Deductor and TDS Deductor Identification of Liability.

The provisions authorizing deduction of tax at source are contained in Chapter XVIIB of Income Tax Act, 1961. Deduction of tax at source is necessary from any payment falling within the ambit of these deductible categories. TDS provisions are mutually exclusive, meaning that “Payment of any sum shall be liable for deduction only under one section”.

In order to identify the liability of the tax deductor to deduct tax at source, the person responsible for making payment of any such kind of income has to ascertain vis-à-vis the payment being made.

• whether the nature and character of payment attracts TDS liability?
• whether he is the specified person responsible for deduction of tax at source?
• whether the recipient of income is the specified person ?
• the mode, manner and quantum of payment conform to the respective TDS provision.
  

1. The tax deductor must ascertain the facts in respect of all the above four criteria.
2. The tax deductor must also find out whether there is any general (Sec. 196) or specific (prescribed in respective TDS provision itself) exemption from liability to deduct tax at source.
3. Next, the tax deductor must find out whether the Assessing Officer has issued any certificate to the tax deductor in specific cases authorizing either no deduction of tax or deduction at (specified) lower rate. Such direction of the Assessing Officer is binding on tax deductor. (Sec 197A).
4. Further, the tax deductor should take into account the specific cases as provided in the Act, duly verified declaration in prescribed form (in duplicate) furnished by the recipient of income requesting not to deduct tax at source. Where such declaration is received by tax deductor & found to be in order, he should not deduct tax from such payments and also furnish a copy of the declaration on or before the 7th of the following month, to the concerned Chief Commissioner or Commissioner, to whom the Assessing Officer having jurisdiction to assess the tax deductor is subordinate.
5. To sum up, it can be said that, where the nature of payment falls within the ambit of deductible category and all the four criteria as above are fulfilled and further, if there is no such exemption available as enumerated above, the tax deductor must proceed to deduct tax at source at the time of payment or credit as the case may be and comply with all other statutory TDS obligations.
6. No deduction of tax shall be made from any payment to any person for or on behalf of the new pension system trust (10(44).
7. If payee does not furnishes PAN, then the payer has to deduct tax at source at higher of the following:
   

• at the rate specified in the relevant provision of the Act or
• at the rate or rates in force or
• at the rate of twenty percent
  

Posted in: TDS Verification