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What Is the Threshold Limit for TDS Under Income Tax Act?

A brief on the Threshold Limit for TDS Under Income Tax Act and why did the Government of India introduce it. Mention what a threshold limit is. And then talk about the different TDS threshold limits under the Income Tax Act.

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What Is the Threshold Limit for TDS Under Income Tax Act? : Introduction

There are two types of tax payments in India- direct tax and indirect tax. Direct taxes are non-transferable taxes paid directly to the government by the payer, such as a tax on all assets. However, indirect tax taxes transferable taxes whose liabilities are transferred to others like GST (Goods and Services Tax), TDS (Tax Deducted at Source), etc.

What Is the Threshold Limit for TDS Under Income Tax Act?: What Is TDS?

TDS is the acronym for Tax Deducted at Source. It is a part of the Income-tax or Indirect tax. TDS is the money paid at the time when making specified payments, such as salaries, rent, commission, professional fees, interests, etc., which are subject to income tax reduction. The source making the payments withholds a percentage of the total transaction value when making payments under these categories. 

The organisation that deducts the TDS is called the deductor, and the person whose payment is being deducted is called the deductee.

When Is TDS Payment Made?

TDS payments are figured out according to your income. The TDS rates are set in the Income Tax Act, and the deductor deducts the specific amount based upon those rates. You do not have to pay any tax if you submit investment proofs (for claiming deductions) to your employer and your taxable income is less than the taxable limit. As a result, there should be no TDS withheld from your earnings. 

By the 7th of the next month, the tax deducted at the source must be deposited to the government. The government uses TDS to collect taxes to decrease tax evasion by collecting money (partially or totally) when it is delivered rather than at a later date.

What Is The Income Tax Act 1961?

In 1961, the Income Tax Act of India was established. This Act governs the income tax laws and the different deductions that apply to it. However, the statute has been revised multiple times since 1961 to account for inflation and other socio-economic factors.

Income tax is a tax that you pay to the government in India based on your earnings (and profit, in the case of companies). The government uses the money obtained through income tax for various objectives, including public services, infrastructure development, military spending, and subsidies, among many others. If you earn more than a certain amount of revenue, you must pay income tax every year.

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Why Was The Income Tax Act Introduced?

The legislature formed the Income Tax Act of 1961 to govern and manage income tax in the country. However, in 1962, the income tax guidelines were established to aid in the enforcement and administration of the legislation. The Income Tax Rules are created within the framework of the Income Tax Act and are not permitted to contradict its requirements.

Threshold Limit for TDS Under Income Tax Act

The amount of payment for which no TDS is due is known as “the threshold limit.” TDS provisions will apply only if the payment exceeds the permissible limit. The TDS will not be deducted if the credit to a contractor under TDS Section 194C falls below the TDS threshold limit of INR 1,00,000 in aggregate in a fiscal year and the single transaction threshold limit of INR 30,000.

How Are TDS Payments Calculated?

For example, the TDS rate on salary is deducted by the amount of payment you get from your employer, which determines your tax slab rate. The rate for your TDS deduction on salary ranges from 10% to 30%, depending on the tax slab.

The employer withholds TDS on salary at the employee’s average rate of income tax, and it will be calculated in the following format:

  • Income tax payable (calculated using slab rates) /employee’s expected salary for the fiscal year = the average income tax rate.

Types Of Threshold Limits For TDS Payments Under The Income Tax Act

Following are the threshold limits for TDS payments as stated under the Income Tax Act.

  • Section 192: TDS rate is as per income tax slab rate. The threshold limit is as per the applicable income slab.
  • Section 193: TDS rate is 10% of the interests earned on security investments. The threshold limit is ₹5000 for debenture payment.
  • Section 194: TDS rate is 10% of proceeds from any deemed dividends, where the threshold limit is ₹2500.
  • Section 194A: TDS rate is 10% of proceeds from interests earned on investments other than securities, with a threshold limit of ₹10,000.
  • Section 194B: TDS rate is 30% of prize money on lottery or gaming-related winnings, where the threshold limit is ₹10,000.
  • Section 194BB: TDS rate is 30% of prize money from horse racing. The threshold limit is ₹10,000.
  • Section 194C: TDS rate is 5% of earnings as insurance com Proceeds from any contracts/subcontracts:
  • Individuals or HUF at 1%
  • Non-Individual/corporate at 2% and threshold limit is ₹30,000 that is for each contract, whereas ₹ 100,000 is per annum.
  • Section 194D: TDS rate is 5% of earnings as insurance commissions. The threshold limit is ₹15,000.
  • Section 194EE: TDS rate is 20% of expense in National Saving Scheme (NSS) deposits, where the threshold limit is ₹2,500.
  • Section 194F: TDS rate is 20% of Mutual Funds (MF) investment. The threshold limit is NIL.
  • Section 194G: TDS rate is 5% of the commission money from lottery ticket selling. The threshold limit is ₹15,000.
  • Section 194H: TDS rate is 5% of the brokerage earnings. The threshold limit is ₹15,000.
  • Section 194I: TDS rate is 2% on the rental amount of plant and machinery/ 10% on the rent of land and building, and the threshold limit is ₹1,80,000.
  • Section 194J: TDS rate is 10% on the technical/professional services. The threshold limit is ₹30,000 per annum.
  • Section 194LA: TDS rate is 10% on the transfer of money paid to any resident while acquiring an immovable property and the threshold limit is ₹2,50,000.

How To File For TDS Return?

The Indian government has formulated a wide range of rules and regulations for paying taxes in any form. It is best to familiarise yourself with all the codes and stay well-versed in the requirements to avoid legal hassles. It will also help you avoid uninvited and hefty expenses in the form of penalties. If you are looking for an easy-to-understand set of instructions for filing your TDS return, check out this step-by-step guide

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