Tax deduction at source (TDS) is a means of collecting tax on income, dividends, or asset sales, by requiring the payer to deduct tax due before paying the balance to the payee and deposit the tax to the revenue authority.

Income tax must be deducted at source as per the provisions of the Income Tax Act, 1961. Any payment covered under these provisions shall be paid after deducting a prescribed percentage of income tax It has a great importance while conducting tax audits. Assessee is also required to file quarterly return to CBDT. Returns states the TDS deducted & paid to government during the Quarter to which it relates.

• It seeks deduction of tax at source on transfer of certain immovable property other than agricultural land to a resident transferor.
• Any person being a Buyer who is liable to Pay to a resident seller by way of consideration for transfer of any immovable property exceeding 50 Lakhs shall at the time of credit of such sum to the account of the transferor or at the time of payment in whatever manner, has to deduct tax at source at 1% of the sale value.

This TDS on property is required to be deposited in 30 days from the end of the month in which deduction is made.

• It seeks deduction of tax at source on payment of rent exceeding Rs. 50,000 in a month by an individual or HUF to a resident landlord.
• TDS shall be deducted @ 5% at the time of credit of rent for the last month of the previous year or the last month of tenancy, if the property is vacated during the year, as the case may be.

• It seeks deduction of tax at source on payment of contractual payment.

• Tax needs to be deducted 1% (for individual, HUF)/ 2% (for others) of payment where payment is made for carrying out any work (including supply of labor for carrying out any work and advertisements) by a contractor/sub-contractor.

• TDS is to be deducted at the time of credit to the account of contractor or at the time of payment in cash or by cheque or draft or by any other mode whichever is earlier.
• No TDS shall be deducted if the single time payment to contractor does not exceed RS. 35000 or Rs. 1,00,000 in aggregate during the year.

• It seeks deduction of tax at source on payment of fees for professional services, for technical services, Royalty, remuneration/fees/commission paid to director of the company (excluding salary); contractual payment.

• TDS is to be deducted at the time of credit to the account of the service provider or at the time of payment in cash or by cheque or draft or by any other mode whichever is earlier.
• No TDS shall be deducted if the single time payment to contractor does not exceed RS. 30,000 in aggregate during the year.

A deductor is required to issue a TDS certificate called

Form 16    – for salaried employees and

Form 16A – for non-salaried employees within a specified time.

 Deductor has to issue TDS Certificates within two months of the next financial year

Income Tax Act, 1962^[7]

• Disallowance u/s. 40(a) (ia) of Income Tax Act, 1962 (Act)
• Raising of demand u/s. 201(1) of the Act
• Charging of Interest u/s (1A) of the Act
• Levying penalty u/s. 271C of the Act