Filing income tax returns can be a complex process, and sometimes mistakes happen. These mistakes can lead to discrepancies in your tax records, potentially increasing your tax liability or reducing your tax refund. Fortunately, Section 154 of the Income Tax Act of 1961 provides a mechanism for rectifying these errors. What is Section 154? Section 154 empowers taxpayers to address inaccuracies in their official income tax records. This includes errors made by the assessing officer during the processing of your tax return. The provision applies to orders issued under specific sections of the Income Tax Act, such as those related to intimation notices before scrutiny (Section 143(1)), errors in tax deducted at source (TDS) statements (Section 200A(1)), and tax collected at source (TCS) statements (Section 206CB(1)). Features of Section 154 Time Limit for Rectification: Generally, you can request rectification within four years from the end of the relevant fiscal year. However, if an order is revised or set aside, the four-year window starts from the date of the new order. Initiating Rectification: The process can be triggered by the taxpayer submitting an application highlighting the error, or by the income tax department identifying the mistake during their standard procedures. Appeals or orders passed by the Commissioner can also be rectified based on discrepancies brought to their attention. Responding to Rectification Requests: The income tax department has a responsibility to respond to your rectification request within six months of receiving your application. Impact on Refunds and Tax Liability: If the rectification leads to increased exemptions or reduced tax liabilities, the department will issue you a tax refund. Conversely, if the amendment reduces the approved refund amount, you'll be required to repay the excess amount. Authority to Rectify: The Commissioner has the authority to rectify orders based on applications from taxpayers or on their own initiative. What Errors Can Be Rectified Under Section 154? This provision allows you to request rectification for errors that are evident from the existing tax return records. Here are some common examples: Factual Errors: These could be mistakes in personal details, income figures, or deductions claimed. Calculation Mistakes: Errors in mathematical calculations within your Income Tax Return (ITR) can be rectified. Clerical Errors: Typos or other minor mistakes made while filing your return can be corrected. Overlooked Legal Provisions: If mandatory legal provisions were not considered during tax assessment, you can request rectification to account for them. Rectification vs. Revised Return: Understanding the Difference It's important to distinguish between rectification under Section 154 and filing a revised return. A revised return allows you to make adjustments to your initial ITR if you omitted income or included incorrect information. You can file a revised return any time before the assessment year ends. On the other hand, rectification deals with correcting discrepancies already present in your tax records. The department has six months to respond to your rectification request, and successful rectification can be applied for up to four years from the end of the relevant fiscal year. How to Apply for Rectification Under Section 154 Gather Documentation: Compile documents that support your rectification claim. This may include income proofs, receipts, or clarification letters. Prepare the Application: Draft a clear and concise application outlining the specific error and the supporting evidence. Several online resources and tax professionals can assist you with this process. Submit the Application: You can typically file a rectification application online through the income tax department's portal. Ensure you understand the specific application procedures on the official website.
The Goods and Services Tax (GST) regime in India introduced a plethora of forms for taxpayers to navigate. One crucial form, GSTR 2B, simplifies the process of claiming Input Tax Credits (ITC) for registered businesses. This article delves into the intricacies of GSTR 2B, exploring its features, functionalities, and benefits for a smoother GST compliance journey. Understanding GSTR 2B: A Boon for Taxpayers GSTR 2B is an auto-generated monthly statement that reflects the ITC eligibility of purchases made by a taxpayer from their suppliers. Unlike its dynamic counterpart, GSTR 2A, which updates based on supplier filings, GSTR 2B remains static for the month it's generated. This static nature offers a clear picture of available ITC for claiming on your tax return. Convenience at Your Fingertips GSTR 2B offers a plethora of features to enhance taxpayer convenience. The portal allows every taxpayer to: View and Download: Access the statement on the GST portal and save it in PDF or Excel format for offline reference. Advanced Search, Sort, and Filter: Easily navigate the data using advanced search options and sort/filter functionalities. Detailed Information: View or download individual invoices, debit notes, and credit notes for a comprehensive understanding of transactions. Supplier-wise Details: Analyse ITC details segregated by suppliers for each month. Regular Updates: Receive monthly notifications via SMS and email informing you about the statement's generation. A Clear Picture of ITC Availability GSTR 2B offers a transparent view of ITC availability for each purchase reflected in your supplier's GSTR 1, GSTR 5, and GSTR 6 filings. It categorizes ITC into two sections: Available ITC: This section reflects the ITC you can claim on your tax return. The details automatically populate your GSTR 3B, reducing manual entries and streamlining the filing process. Unavailable ITC: This section highlights instances where ITC claims might be ineligible. This could be due to reasons like invoice errors or IGST being wrongly charged for intra-state supplies. Import Information at Your Disposal GSTR 2B incorporates import data furnished by Special Economic Zones (SEZs) and Customs authorities. This consolidated view eliminates the need to refer to separate sources for import-related ITC information. Additional Insights Compared to Current GSTR 2A While GSTR 2A offers a dynamic view of ITC eligibility based on supplier filings, GSTR 2B provides a more comprehensive picture. Take a look at their individual differences - Feature GSTR 2B GSTR 2A Source of Information GSTR 1, GSTR 5, GSTR 6, and ICES ICES, GSTR 7, GSTR 6, GSTR 5, GSTR 1, GSTR 8 Nature of Statement Static, remains constant for the period Dynamic, subject to change with supplier filings ITC Segregation Available and Unavailable ITC No ITC classification ITC Claim Timing Next month after supplier's GSTR 1 filing Same month as the transaction Invoice Details Includes return filing status, ITC eligibility etc. Reflects details as per supplier's documents SEZ Unit ITC Details Available Not available Data Availability After 12th of every month Real-time, as suppliers furnish documents Benefits of Embracing GSTR 2B Simplified GSTR 3B Filing: GSTR 2B pre-populates relevant data in your GSTR 3B, saving time and minimizing errors. Effortless GST Reconciliation: GSTR 2B facilitates reconciliation between the statement and your accounts book, ensuring credit reversal and preventing duplicate claims. Enhanced Accuracy: The automated nature of GSTR 2B reduces the risk of manual errors, leading to more accurate ITC claims. In Conclusion In conclusion, GSTR 2B is a valuable tool for registered taxpayers. By leveraging its features and understanding the data it provides, you can streamline ITC claim processes, ensure accurate tax filing, and minimize reconciliation efforts.
The Income Tax Act of India offers various deductions to reduce a taxpayer's taxable income. Section 80DD is one such provision that provides significant tax relief to individuals and Hindu Undivided Families (HUFs) caring for disabled dependents. This section aims to ease the financial burden associated with medical treatment, training, and rehabilitation of persons with disabilities. Who Can Claim Deduction Under Section 80DD? Resident Individuals: Indian residents who have a disabled dependent, such as a spouse, child, sibling, or parent, can claim deductions under Section 80DD. HUFs: A Hindu Undivided Family can also claim this deduction if a member of the family suffers from a disability. Note: Non-Resident Indians (NRIs) are not eligible for this benefit. What Disabilities Qualify for Deduction Under Section 80DD? The disabilities covered under Section 80DD are aligned with those defined in the Persons with Disabilities Act, 1995: Locomotor disability Hearing impairment Mental retardation Mental illness Cerebral palsy Blindness and low vision Leprosy (cured) Multiple disabilities Key Points to Remember About Section 80DD Deductions Minimum Disability Level: The dependent's disability must be certified as at least 40% severe by a government-authorized medical professional for the deduction to be applicable. Claimable Expenses: The deduction covers expenses incurred for medical treatment, training, and rehabilitation of the disabled dependent. Additionally, premiums paid for special insurance schemes designed for persons with disabilities are also eligible for deduction. No Claim for Already Deducted Expenses: If the disabled dependent has already claimed a deduction for their medical expenses under Section 80U of the Income Tax Act, then the caretaker cannot claim it again under Section 80DD. Benefits of Claiming Deduction Under Section 80DD Simplified Claim Process: Unlike other deductions that require receipts and documents for every expense, Section 80DD offers a flat deduction amount. This simplifies the claim process for taxpayers. Reduced Tax Burden: The deduction offered under Section 80DD significantly reduces the taxable income of the caretaker, thereby lowering their tax liability. Limitations of Section 80DD Deduction Amount Based on Disability Severity: The maximum deduction amount a taxpayer can claim depends on the severity of the dependent's disability. For a disability of at least 40% but less than 80%, the maximum deduction is ₹75,000. For a severe disability of at least 80%, the maximum deduction increases to ₹1,25,000. Medical Certificate Requirement: A medical certificate from a government-approved doctor certifying the disability level of the dependent is mandatory to claim the deduction. Understanding the Difference Between Section 80DD and Section 80U Both Section 80DD and Section 80U offer tax benefits related to disabilities. However, they cater to different scenarios: Section 80U: This section provides tax deductions directly to a taxpayer who has a disability certified as per the Persons with Disabilities Act. Section 80DD: This section offers tax relief to individuals or HUFs caring for a disabled dependent. In essence, while Section 80U empowers a disabled individual to claim deductions for their own medical expenses, Section 80DD supports those who financially care for a disabled family member. In Conclusion Section 80DD is a valuable provision in the Income Tax Act that recognizes the financial challenges faced by families caring for disabled dependents. By offering a tax deduction, the government aims to lessen the financial burden and encourage proper care for persons with disabilities. If you are an Indian resident caring for a disabled family member who meets the eligibility criteria, claiming a deduction under Section 80DD can significantly reduce your tax liability. Remember to consult a tax advisor for personalized guidance on claiming this deduction and maximizing your tax benefits.
The soaring costs of higher education can be a significant hurdle for many aspiring students. Fortunately, the Indian government offers a helping hand through Section 80E of the Income Tax Act, 1961. This provision allows taxpayers to claim deductions for the interest portion of their education loans, providing much-needed financial relief. Who Can Claim This Deduction? Section 80E caters specifically to individuals who have taken out education loans to finance their own higher education or that of their spouse, children, or legal wards. The key aspect here is "higher education," which refers to pursuing professional or vocational courses after completing secondary school. Loans obtained for schooling up to the 12th standard are not covered under this section. What Can Be Deducted? Taxpayers can only claim deductions on the interest portion of the education loan, not the principal amount. Additionally, there is no maximum limit on the deductible amount. This means you can potentially reduce your taxable income by the entire interest amount paid during the financial year. Eligibility Criteria To claim the deduction under Section 80E, you must meet the following eligibility criteria: The Loan Source: The loan must be obtained from a recognized financial institution such as a bank, credit union, or a government-approved charitable trust. Borrowing money from friends or relatives does not qualify for this tax benefit. The Loan Purpose: The loan must be specifically used to finance higher education expenses. Individual Taxpayer: Only individual taxpayers can claim this deduction. Business entities like companies and Hindu Undivided Families (HUFs) are not eligible. Repayment Period: The deduction can be claimed for a maximum of eight years starting from the year you initiate loan repayments. However, this benefit ends once the entire interest amount has been paid off. Documents Required for Claiming Deduction To claim the deduction while filing your income tax return, you will need a certificate issued by the financial institution or charitable institute that provided the loan. This certificate should clearly show the breakdown of the principal and interest amount repaid during the financial year. Benefits of Early Repayment vs. Extended Repayment Some taxpayers might choose to stretch the loan repayment over the entire 8-year period to maximize the tax benefit. This allows them to invest any surplus income instead of using it for loan payments. However, this strategy comes with the burden of ongoing interest payments and potential debt accumulation. On the other hand, early repayment eliminates the ongoing interest burden and frees you from debt. This can also improve your credit score, making it easier to secure future loans. Ultimately, the decision of stretching the repayment or paying off early depends on your financial situation and risk tolerance. Remember Section 80E offers a valuable tax deduction for the interest paid on education loans. This deduction is available only to individual taxpayers who have availed loans from recognized institutions. The deduction applies solely to the interest portion of the loan, not the principal amount. The deductible amount has no maximum limit. You can claim the deduction for a maximum of 8 years or until the interest is fully repaid. Carefully consider the pros and cons of early repayment vs. extended repayment to make an informed decision. Beyond Tax Benefits: The Power of Education While Section 80E offers a valuable tax break, the true benefit lies in the power of education itself. A higher education degree opens doors to better career prospects, increased earning potential, and personal growth. By leveraging this tax benefit, you can pursue your educational goals without facing the full financial burden upfront.
Does your pay check vanish like a magician's trick before you even get a chance to use it? Are you constantly juggling essential expenses with the desire for a comfortable lifestyle and saving for the future? If you're nodding your head, you're surely not the only one. Many find themselves stuck in a spending cycle, unsure of how to manage their money. Understanding the Building Blocks The core of the 50/30/20 rule lies in dividing your after-tax income into three distinct categories: · Needs (50%): These are essential expenses you can't avoid, such as rent or mortgage payments, utilities, groceries, transportation costs, minimum debt payments, and healthcare. · Wants (30%): These are non-essential items that enhance your lifestyle but aren't crucial for survival. Examples include dining out, entertainment, subscriptions, hobbies, and clothing beyond the basics. · Savings/Debt Repayment (20%): This is the money you set aside for your future and financial security. It includes emergency savings, retirement savings, and additional debt payments beyond the minimum. Perks of the 50/30/20 Rule Clarity and Focus: Budgeting can feel overwhelming, especially when you're starting out. The rule of 50/30/20 gives a simple, straightforward framework. You know exactly how much you should be allocating towards each category, eliminating guesswork and simplifying your financial management. This empowers you to make informed decisions about your spending and avoid impulsive purchases. Prioritization: The 50/30/20 rule inherently prioritizes your essentials. By allocating the largest portion of your income to essential expenses, you ensure your basic living costs are covered before indulging in non-essentials. This fosters financial discipline and ensures your essential needs are never compromised. Financial Stability: The 20% dedicated to savings and debt repayment is the cornerstone of building financial security. Emergency savings provide a safety net for unexpected situations, preventing you from falling into debt. Additionally, consistent savings go a long way in achieving your long-term goals, such as a comfortable retirement or a dream vacation. Mindful Spending: The 50/30/20 rule encourages you to be more mindful of your spending habits. By tracking your expenses in each category, you gain valuable insights into where your money goes. This awareness allows you to identify areas where you can potentially cut back and redirect funds towards your financial priorities. Implementing the 50/30/20 Rule Calculate Your Take-Home Pay: The first step is to determine your net monthly income, which is your actual income after all the deductions are taken out. Look at your pay stub or bank statements to arrive at this figure. Allocate Needs (50%): Identify all your essential expenses such as rent/mortgage, utilities, groceries, transportation costs, minimum debt payments, and healthcare costs. Estimate how much you spend on each category monthly. Aim to allocate roughly half of your take-home pay towards these needs. Categorize Wants (30%): List all your non-essential spending habits. This includes dining out, entertainment, subscriptions, hobbies, and clothing beyond the basics. Be honest with yourself and include everything, even seemingly small expenses like daily coffee runs. Estimate your total monthly spending on these wants and ensure it falls within 30% of your income. Prioritize Savings/Debt Repayment (20%): Dedicate 20% of your income towards savings and debt repayment. Here's how you can further break it down: Emergency Savings - Aim to save 3-6 months of living expenses to cover unexpected costs. Debt Repayment - If you have high-interest debt like credit cards, prioritize paying it off aggressively. Retirement Savings - Even if retirement seems far off, starting early is crucial. Contribute to your retirement plan (if available) or set up an individual retirement account (IRA).
Fixed deposits (FDs) are a popular investment option in India, offering a reliable stream of income with minimal risk. However, the interest earned on FDs is subject to taxation under the Income Tax Act of 1961. This article explains Tax Deducted at Source (TDS) on FD interest, its implications, and how to manage it effectively. What is TDS on FD? TDS is a mechanism where a portion of the tax is deducted at the source of income, in this case, the interest earned on your FD. This deduction happens automatically by the financial institution (bank or NBFC) offering the FD. The deducted amount is deposited with the government on your behalf. Who is Liable to Pay TDS on FD Interest? Taxable Interest: TDS applies only to the portion of interest income exceeding a specific limit. Currently, this exemption threshold is INR 40,000 per financial year for individuals under 60 and INR 50,000 for senior citizens (60 and above). PAN Status: If you haven't provided your Permanent Account Number (PAN) to the FD provider, TDS will be deducted at a higher rate of 20% irrespective of the interest amount. TDS Rates on FD Interest Resident Indians with PAN: For resident Indians who have provided their PAN details, a lower TDS rate of 7.5% is applicable if their annual FD interest income surpasses the exemption limit for their age group. Resident Indians without PAN: If you haven't submitted your PAN, a higher TDS rate of 20% applies. Non-Resident Indians (NRIs): NRIs are subject to a TDS rate of 30% on FD interest, along with applicable surcharge and cess. Exemptions from TDS on FD You can avoid TDS deduction on FD interest if you fall under any of the following categories: Total Income Below Tax Slab: Individuals whose total taxable income falls below the basic exemption limit (currently Rs. 2.5 lakh annually) are exempt from TDS deduction on FD interest. Form 15G/15H Submission: You can submit Form 15G (for individuals below 60 years) or Form 15H (for senior citizens) to your FD provider. These forms declare that your estimated tax liability for the year is nil. Consequently, no TDS should be deducted on your FD interest. How to Calculate TDS on FD Let's illustrate the calculation with an example: · Imagine Sarah has two FDs worth Rs. 3 lakh each, offering a 10% interest rate for a 4-year term, from a bank and an NBFC. This translates to a total annual interest income of Rs. 60,000 (Rs. 3 lakh x 10% x 1 year). · Since the interest earned (Rs. 60,000) surpasses the exemption limit for her age group (assuming she's below 60), TDS will be deducted. · With the current TDS rate of 7.5%, the deducted amount would be Rs. 4,500 (Rs. 60,000 x 7.5%). Minimizing TDS Burden Here are some strategies to manage TDS on FD interest: Estimate your total income: If your overall income falls below the taxable limit, consider filing Form 15G/15H to prevent unnecessary TDS deduction. Plan your FDs: Distribute your FD investments across different institutions to ensure the interest earned from each stays below the exemption threshold. Claim TDS refund: If TDS has been deducted even though you're exempt, you can claim a refund while filing your Income Tax Return (ITR). Conclusion Understanding TDS on FD interest is crucial for effective tax management. By being aware of the exemption criteria, TDS rates, and claiming deductions when eligible, you can minimize your tax burden and maximize your returns on FD investments. Remember to file your ITR on time to claim any applicable TDS refunds.
The Goods and Services Tax (GST) in India typically involves the supplier collecting and depositing tax with the government. However, under specific circumstances, the responsibility for GST payment falls on the recipient of the goods or services through the Reverse Charge Mechanism (RCM). When Does Reverse Charge Apply? There are three main scenarios where reverse charge comes into play: Purchases from Unregistered Vendors: When a registered business procures goods or services from an unregistered vendor, the recipient becomes liable to pay GST under RCM. This ensures that GST gets collected even when the seller is not registered under GST. An exemption applies to purchases less than ₹5,000 per day from unregistered vendors. Services by E-commerce Operators: E-commerce platforms that facilitate services like those provided by plumbers, electricians, or tutors may be subject to RCM. In such cases, the e-commerce operator, instead of the individual service providers, is responsible for collecting and depositing GST. This applies even if the service provider is unregistered under GST. CBEC-specified Supplies: The Central Board of Excise and Customs (CBEC) publishes a list of specific goods and services where the recipient is liable for GST payment under RCM. This list includes items like insurance provided by agents, manpower supply services, and transportation of goods. Who Needs to Pay GST under RCM? The recipient of the goods or services is responsible for paying GST under RCM if the transaction falls under any of the scenarios mentioned above. Here are some key points to remember for RCM transactions: Registration Requirement: Even if a business's turnover doesn't meet the GST registration threshold, they must register if they are liable to pay tax under RCM. Tax Deposit Timeline: The GST collected under RCM needs to be deposited with the government by the 20th of each month. Intra-state Applicability: RCM typically applies to intra-state transactions (within the same state). Tax on Advance Payments: Advance payments made for supplies subject to RCM also attract GST, payable by the party making the advance. Important Considerations for RCM Claiming Input Tax Credit (ITC): The recipient paying GST under RCM can claim ITC on the tax paid only if the goods or services are used for business purposes. Composition Tax Scheme: Composition dealers paying tax under RCM need to pay tax at the regular rates, not the concessional composition rates. They are also not eligible to claim ITC for taxes paid under RCM. GST Compensation Cess: The GST compensation cess also applies to the tax payable or paid under RCM. Current Landscape of RCM under GST The RCM concept is not entirely new, however, under GST, RCM applies to a wider range of goods and services. The recipient pays the full amount of tax on the entire supply under GST. The RCM provision aims to improve compliance and tax collection, especially in sectors with a large presence of unorganized markets, like goods transportation. It ensures that GST gets collected even when dealing with unregistered vendors. Examples of Goods and Services under RCM Goods: Bidi wrappers, cashew nuts, tobacco leaves, lottery (supplied by government), silk yarn, priority sector lending certificates, raw cotton, used vehicles (confiscated by government). Services: Services by directors to the company, services by recovery agents for banks or financial institutions, goods transportation services, services by insurance agents, legal services by advocates or firms to businesses. Self-Invoicing under RCM When a registered business purchases from an unregistered vendor under RCM, the unregistered supplier cannot issue a GST invoice. In such cases, the recipient needs to create a self-invoice to claim ITC on the GST paid.
Section 44AD of the Income Tax Act: A Boon for Small Businesses The Income Tax Act offers a helping hand to small businesses in the form of Section 44AD. This provision introduces a presumptive taxation scheme, simplifying the tax filing process and reducing the burden on small taxpayers. Let's delve into the nitty-gritty of Section 44AD and understand its benefits and applicability. Relief for Small Taxpayers Section 44AD aims to ease the compliance burden for small businesses by offering a presumptive taxation scheme. This means that instead of maintaining detailed accounting records and undergoing audits, eligible taxpayers can compute their taxable income based on a pre-determined percentage of their gross receipts. This not only saves time and resources but also makes tax filing less cumbersome. Who Qualifies? Several categories of taxpayers can benefit from Section 44AD, including: Resident individual taxpayers Partnership firms Hindu Undivided Families (HUFs) However, to avail of this scheme, certain conditions must be met: Turnover Limit: The annual turnover of the business or individual should not exceed Rs. 2 crores (increased to Rs. 3 crores in Budget 2023 with a specific condition). Business Nature: The business should not be involved in leasing, plying, or renting goods carriages. These businesses fall under Section 44AE and have separate tax provisions. Profession Exclusion: Individuals practicing professions covered under Section 44AA, such as doctors, lawyers, and architects, cannot claim deductions under Section 44AD. Budget 2023 Update: Increased Turnover Limit Budget 2023 introduced a welcome change for small businesses. The government increased the turnover limit for availing of the presumptive taxation scheme under Section 44AD from Rs. 2 crore to Rs. 3 crore. However, this increased limit comes with a condition: at least 95% of the receipts must be received through digital channels like bank transfers or online payments. This move encourages businesses to adopt digital payment methods and promotes financial inclusion. Calculating Taxable Income under Section 44AD For eligible taxpayers, the taxable income under Section 44AD is computed as a percentage of their gross receipts from the business: Standard Rate: 8% of the total turnover for the previous year. Digital Transactions Incentive: If more than 95% of the receipts are received through digital modes, the taxable income is considered as 6% of the gross receipts. Tax Implications Disallowance of Deductions: When filing under Section 44AD, deductions under Sections 30 to 38 of the Income Tax Act (covering various expenses and depreciation) are not allowed. Disallowance Not Applicable: Disallowances under Sections 40, 40A, or 43B are not applicable for taxpayers choosing Section 44AD. Special Deduction for Partnerships: Partnership firms availing of Section 44AD can claim a deduction for interest or salary paid to partners within the limit specified under Section 40(b). Advance Tax and Depreciation Advance Tax: Taxpayers under Section 44AD are generally not liable to pay advance tax on the income presumed from their business. However, if a portion of the income comes from commissions exceeding the taxable limit of Rs. 10,000, advance tax payment might be necessary. Depreciation on Assets: While deductions for general expenses are not allowed under Section 44AD, depreciation on assets used in the business can still be claimed as per Section 32 of the Income Tax Act. The written down value of the asset will be calculated accordingly. Benefits of Opting for Section 44AD Simplified Tax Filing: No need to maintain detailed accounting records or undergo audits. Reduced Compliance Burden: Saves time and resources associated with traditional tax filing methods. Potentially Lower Tax Liability: The presumed income based on a percentage of turnover might be lower than the actual profit, leading to a reduced tax burden.
Understanding TDS on Payments to Non-Resident Indians (NRIs) under Section 195 The Indian Income Tax Act, 1961, mandates Tax Deducted at Source (TDS) on specific payments made to non-residents. This provision, covered under Section 195, ensures that taxes are collected at the source of income for NRIs. What is Section 195? Section 195 outlines the rules for deducting TDS on income generated by NRIs through business transactions in India. This mechanism helps prevent double taxation and regulates tax deductions on various NRI income sources. Who is Responsible for Deducting TDS on NRI Payments? A wide range of entities are liable to deduct TDS under Section 195, like: Individuals Hindu Undivided Families (HUFs) Non-Resident Indians (NRIs) Partnership Firms Individuals with exempt income in India Foreign Companies Juristic Individuals It's important to remember that NRIs with taxable income under Section 195 are considered the payee. The applicable TDS rate depends on the nature of the income or payment made to the NRI. How to Deduct TDS under Section 195 Obtain a Tax Deduction Account Number (TAN): Before deducting TDS, entities (payers) must acquire a TAN. This can be easily obtained online or offline by submitting Form 49B. Both the payer's and the NRI's PAN details are required for successful form submission. Deduct TDS at Source: The regulation mandates that TDS be deducted at the source when making payments to NRIs. It's crucial to mention TDS details in the sale deed for relevant transactions between NRI sellers and prospective buyers. Deposit Deducted TDS: The deducted TDS must be deposited through a challan or TDS payment form by the 7th of the next month following the deduction. Government-authorized banks or the Income Tax Department of India accept TDS deposits. File Quarterly TDS Returns: After depositing TDS, entities must electronically file quarterly returns using Form 27Q. The return filing timelines are: First Quarter (April 1st - June 30th): July 15th of the same year. Second Quarter (July 1st - September 30th): October 15th. Third Quarter (October 1st - December 31st): January 15th of the following year. Fourth Quarter (January 1st - March 31st): May 15th. Issue TDS Certificate (Form 16A): Once TDS is filed, the payer can provide a TDS certificate, also known as Form 16A (Certificate of Deduction of Tax), to the NRI seller. Issuing Form 16A is mandatory within 15 days of the due date. TDS Rates under Section 195 There's no threshold limit for TDS deductions under Section 195. Regardless of the amount, TDS must be deducted on NRI payments. Type of Income TDS Rate Payments from Investments 20% Long-Term Capital Gains (LTCG) Income 10% (except for Section 115E) LTCG under Section 115E 10% Other Sources of LTCG 20% Short-Term Capital Gains (STCG) under Section 111A 15% Interest on Foreign Currency Loans 20% Income from Technical Services (Government or Indian Concern) 10% Royalty Income (Indian Concern or Government) 10% Royalty Income (Other Sources) 10% Other Income Sources 30% Importance of Timely TDS Deduction and Payment Interest on Late Deposit: If the deducted TDS isn't deposited by the due date, a 1.5% interest penalty is levied from the deduction date until the deposit is made. Penalty for Non-Deposit of TDS: When TDS is deducted but not deposited, the Income Tax Act (ITA) Section 221 imposes a penalty equivalent to the deducted TDS amount. Partial Deduction or Deposit: If only a portion of the TDS is deducted or deposited, the payer is liable for a penalty under Section 271C. This penalty is calculated as the difference between the original deductible amount and the deducted/deposited amount.