What is Tax Deducted at Source (TDS) ?

Concept: A person (deductor) who is liable to make payment to any other person (deductee) shall deduct tax at source and remit the same into the account of the Central Government. The deductee from whose income, tax has been deducted at source would get credit of the amount so deducted on the basis of Form 26AS or TDS certificate issued by the deductor.

Is Cooperative Society required to deduct TDS ?

Section 194C specifies

Tax is deductible under Section 194C only if payment is made in pursuance of a work or labour contract between a specified person and a resident contractor. Following are “specified person” for this purpose

  • the Central Government or any State Government; or
  • any local authority; or
  • any corporation established by or under Central, State or Provincial Act, or
  • any company; or
  • any cooperative society; or
  • any authority constituted in India
  • any society registered under the Societies Registration Act, 1860
  • any trust
  • any University
  • any foreign Government or a foreign enterprise
  • any firm
  • any individual of HUF or association of person / body of individuals

Section 194J specifies

Any person (other than an Individual or HUF) responsible for paying the fees for technical or professional services or royalty or non compete fees to a resident is required to deduct tax at source. Professional services includes: legal, medical, engineering, architectural, accountancy, technical, interior decoration, advertising, any other profession notified for the purpose of section 44AA. Technical services includes any managerial, technical or consultancy services.

As seen from both the above sections, Cooperative Society is liable to deduct TDS.

Responsibility of the Cooperative Societies while deducting TDS

Cooperative Societies who deducts TDS is responsible for the below:

  • Obtain Tax Deduction Account Number (TAN) and mention it in all the documents pertaining to TDS.
  • Collect Permanent Account Number (PAN) of the deductee.
  • Deduct the TDS at the applicable rate.
  • Deposit the TDS amount with the Government within the specified due date.
  • File TDS returns within the specified due date.
  • Issue the TDS certificate to the payee within the specified due date.

When should TDS be Deducted

If the Cooperative Society is making any sort of payment specified under the Income Tax Act, then TDS will be deducted at the time of making these payments.

Relevant TDS Sections for Cooperative Societies

  1. 194C: Payments to Contractors
  2. 194J: Fees for Professional or Technical Services
  3. 192: Salaries

194C: Payments to Contractors

TDS under Section 194C is applicable to:

  • Single Payment: Rs. 30000 & Above
  • Aggregate Payment during the Year: Rs. 1,00,000 & Above

TDS Rates

  • Individual and HUF: 1 %
  • Corporate, Firm & Others: 2%

Type of Payments done by Cooperative Societies on which 194C is applicable:

  • Housing Keeping Services
  • Facility Management Services
  • Security Services
  • Gardening Services
  • Maintenance Services e.g. Lift AMC, Fire System AMC, STP, Civil Work etc

Example

  • Base Amount: Rs. 10000
  • Gross Amount: Rs. 11800 (Including GST)
  • Contractor Payments to Individual / HUF: TDS Rate 1 %
  • TDS Amount: Rs. 100 (10000 * 1%)
  • Net Amount Payable to Contractor: Rs. 11700 (11800 – 100)

194J: Fees for Professional or Technical Services

TDS under Section 194J is applicable to:

  • Aggregate Payment during the Year: Rs 30000 & Above
  • TDS Rates: 10%

Type of Payment of Cooperative Societies on which 194J is applicable

  1. Payment to Chartered Accountants
  2. Payment to Lawyers
  3. Payment to Architects etc.

Example

  • Base Amount: Rs. 10000
  • Gross Amount: Rs. 11800 (Including GST)
  • TDS Rate 10 %
  • TDS Amount: Rs. 1000 (10000 * 10%)
  • Net Amount Payable: Rs. 10800 (11800 – 1000)

Identification of Entity

TDS has to be deducted as per status of the contractor / professional. The fourth character represents the status of the PAN holder.

  • C stands for Company
  • P for Person, H for HUF (Hindu Undivided Family),
  • F for Firm,
  • A for Association of Persons (AOP),
  • T for AOP (Trust), B for Body of Individuals (BOI),
  • L for Local Authority,
  • J for Artificial Juridical Person and
  • G for Government.

Monthly TDS Payment

  1. Due date: 7th of every month for the TDS deduction made during the previous month
  2. Payment Options
    • Physical Challan (in designated Banks). TDS Challan 281 to be filled along with Cheque

Quarterly TDS Return

Form 26Q: TDS on payments other than salary

QuarterPeriodLast Date of Filing
1st Quarter1-Apr to 30-Jun31-Jul
2nd Quarter1-Jul to 30-Sep31-Oct
3rd Quarter1-Oct to 31-Dec31-Jan
4th Quarter1-Jan to 31-Mar31-May

Penalty for Non Payment of TDS

Default Under
Section
Nature of DefaultInterest on
Such Default
Period of Interest Payment
201ANon-Deduction of TDS, either in whole or part1% per monthFrom the date on which the tax was to be deducted to the actual date of deduction
201ANon-payment of TDS
(after deduction)
1.5% per monthFrom the date of deduction to date of actual payment

Penalty for not filing TDS Return

  1. Penalty under Section 234E: Under this section of the Income Tax Act, the deductor will be charged Rs 200 per day from the due date until TDS Returns was filled. The penalty amount, however, cannot be more than the TDS amount.
  2. Penalty under Section 271H: A penalty which may range between a minimum of Rs. 10,000 and a maximum of Rs. 1,00,000 shall be applicable in case of wrong details have been submitted, such as incorrect PAN, incorrect tax amount etc.

Lower Tax Deduction Certificate

Incase any Contractor or Professional submits Lower Tax Deduction Certificate, then TDS has to be deducted at lower rates as approved by the Assessing Officer. Lower Tax Deduction Certificate contains the following:

  • Certificate No: (alphanumeric) e.g. 1AC0422XYA
  • Date of issue
  • TAN of the Cooperative Society
  • Name and address of the Cooperative Society
  • Name of the Contractor Agency / Professional / Deductee
  • PAN of the Deductee
  • TDS Section e.g. 194C / 194J
  • Limit of aggregate payment Amount
  • Certificate Rate
  • Certificate Valid From Date
  • Certificate Valid Till Date
  • Cancellation Date, if any

Others:

  1. As per Section 206AA of the Income Tax Act​, if you do not furnish your Permanent Account Number to the deductor, then the deductor shall deduct TDS at the higher of the rate prescribed in the relevant provisions of the Act or at 20%.
  2. The deductor provides the deductee with Form 16A, and it contains all the details regarding the computation of tax, the deduction of TDS, and payments. Form 16A has to be issued within 15 days from the due date of filing return.
  3. TDS is not applicable on contract of sale of goods.
  4. There is no Surcharge and Health and Education Cess applicable