TDS, or Tax Deducted at Source, is a tax that all organisations are required by the law to levy—along with and in addition to—their salaried employees’ regular income tax. The organisation functions as the ‘tax deductor’, and the employees as ‘tax deductees’ in this arrangement. Since they are legally mandated to apply TDS, companies that fail to do so are subject to certain penalties. It is therefore critical for businesses to put TDS-facilitation systems in place, which includes acquiring the requisite IDs and implementing a deduction mechanism. This article will lay out the documents and the measures that companies need to apply for, and institute, in order to get this system up and running. Paperwork and processes The paperwork The following pieces of identification are needed to conduct the entire process.
- A TAN (Tax Deduction and Collection Number) card. TANs are alphanumeric (combination of alphabets and numerals) codes that allow the Income Tax Department to track an organisation’s financial activities, including the deduction and remittance of various taxes. In some ways, they are the organisational equivalent of the PAN (Permanent Account Number) card.
- Form 49B, which is the TAN registration form.
- Form 16. Also known as the TDS Certificate, this form is a record of the TDS levied that financial year, and must be issued to company employees.
- Register for a TAN card. To do this, the company has to fill out and file Form 49B at an authorised TAN Facilitation Centre, for a fee of Rs. 62.
- To begin the TDS deduction process, calculate your employee’s estimated annual salary.
- Determine which of the following income brackets they fall into. The government has exempted individuals with the following salary profiles:
- An annual salary amounting to less than 2 lakhs, perquisites included.
- An annual salary amounting to less than 3 lakhs, perquisites included, where the tax deductee is a Resident of India and over the age of 60.
- An annual salary amounting to less than 5 lakhs, perquisites included, where the tax deductee is a Resident of India and over the age of 80.
- Deduct TDS from salaries of employees who don’t qualify for the exemptions, using the requisite formula.
- Remit the amount every month to the Department of Treasury.
In addition to salaries, TDS is applicable to the following types of income. This list is a sampling of a much longer one:
- Payments to contractors and sub-contractors
- NSS (National Security Scheme) deposits
- Fees for professional and technical services
Non-payment of penalties Should the employer fail to deduct and remit TDS, they and not the employee are held responsible. In such situations, the employer is no longer allowed to claim the cost of processing their employee’s salary as an expense, increasing their own income tax liability. Setting up TDS systems is a critical, but straightforward matter. Accounting software—or a good accountant—can help ensure that it is deducted regularly.