To encourage the shift towards a cashless economy and hence boost digital payments, Nirmala Sitharaman in her maiden budget presented on July 5 announced a levy of 2% TDS (tax deducted at source) on withdrawals of more than Rs.1 crore in a year from a bank account.
Concept of TDS
TDS came into picture with a view to collect tax at the very source of income. So, a person (deductor) who pays a specified nature of income to the other person (deductee) shall deduct tax at source and pay back the same to the central government. And the person who receives the sum after deduction of TDS needs to file the ITR specifying the TDS deducted and deposited with the governmen during a specific period.
Below are listed some of the common situations where you are required to pay TDS to the government:
1. TDS on salary: TDS or tax deduction at source is a mandate from the salary of the salaried taxpayer under section 192 of the income tax Act. And it is deducted on the basis of average income tax rate of the taxpayer for that financial year.
2. TDS of 10% applies on interest income: On interest income other than interest on securities such as interest earned on banks savings account, FD interest etc, TDS of 10% is deducted if the interest earnings exceed the threshold value.
3. Immovable property: The buyer of the immovable asset is required to deduct TDS @ 1% on the consideration amount i.e. payable for the transfer of the property other than the agriculture land but for the same the consideration value should exceed Rs. 50 lakh.
4. On insurance commission: For individuals and HUFs, a TDS of 5% is levied on insurance commission.
5. On brokerage or commission: TDS rate of 10% is charged.
6. On payments made to a resident contractor or sub-contractor: In case of individuals and HUFs, a TDS rate of 1% is charged, while for taxpayers other than individuals and HUFs, 2% TDS is levied.
7. TDS of 10% is charged in lieu of professional fees, technical fees or director's remuneration.
8. For the rentals paid for plant and machinery, a TDS of 2% is levied
9. On the commission earned by way of sale of lottery tickets, a TDS of 10% is charged.
10. On compensation paid towards acquisition of some immovable property, a TDS of 10% is payable.