Close

Buy a Life Insurance Plan in a few clicks

Now you can buy life insurance plan online.

Kotak e-Invest

Insurance and Investment in one plan.

Kotak e-Term

Protect your family's financial future.

Kotak Guaranteed Fortune Builder

A plan that offers guaranteed income for your future goals.

Kotak T.U.L.I.P

A plan that works like a term plan, and Earns like ULIP Plan.

Kotak Assured Savings Plan

A plan that offer guaranteed returns and financial protection for your family.

Kotak Assured Pension

A plan that offers immediate or deferred stream of income

Kotak Lifetime Income Plan

Retirement years are the golden years of life.

Kotak Guaranteed Savings Plan

A plan that offers long term savings and life cover.

Close

Get a Call

Enter your contact details below and we will get in touch with you at the earliest.

  • Select your Query

Thank you

Our representative will get in touch with you at the earliest.

Threshold Limit for TDS Under the Income Tax Act

TDS or Tax Deducted at Source aids in reducing revenue evasion. It facilitates the real-time collection of taxes as income is received.

  • 9,830 Views | Updated on: Mar 08, 2024

The threshold limit for TDS (Tax Deducted at Source) under the Income Tax Act in India varies depending on the specific section under which the TDS is deducted. For example, under Section 194C, for contractual payments threshold limit is capped at ₹1,00,000 per financial year or ₹30,000 per payment (whichever is lower). In some cases, the threshold limit is higher for certain types of payees, such as government entities or specified persons (those with turnover below certain limits).

Key Takeaways

  • The primary objective behind Tax Deducted at Source (TDS) is to levy income tax at the point of income generation.
  • TDS is applicable only when the income exceeds a specified threshold limit. This minimum value varies based on the nature of the transaction.
  • Different sections of the Income Tax Act prescribe TDS rates for various types of payments, varying for Indian citizens and Non-Resident Indians (NRIs).
  • Not complying with TDS deductions and deposits can lead to financial penalties and tax disadvantages, such as increased tax liability.

The Government of India established TDS, or Tax Deducted at Source, to levy tax on income at the point of generation to reduce revenue evasion and collect tax in real-time as and when the income is received. This tax at source is only deducted on a specific transaction amount. If the income exceeds a threshold limit (minimum value), the tax is deducted, while there is no TDS deduction when the amount does not exceed the threshold.

Threshold Limit in TDS

The threshold limit refers to the amount of payment on which no TDS is payable. TDS provisions only apply if the transaction exceeds the permissible limit. For example, if professional fees do not exceed ₹30,000/-, no TDS is needed to be deducted under Section 194J. So, in this case, the threshold limit is ₹30,000, and TDS must be deducted if the income surpasses that amount. This table shows the threshold limit under different sections:

Section

Type of Payment

TDS Rates - Indian Citizens

TDS Rates - NRIs

TDS Exemption Limit

192

Salary

As per tax slabs - Applicable on a gross salary after all deductions except the basic exemption

20%

Nil

194

Various payments (rent, professional fees, interest, etc.)

Varies depending on the type of payment

Varies depending on the type of payment and DTAA

Varies depending on the type of payment - Usually between ₹10,000 and ₹50,000

- Rent under 194-IB

20% or 5% with Form 16C

20% or 30% depending on DTAA

₹2,40,000 per year

- Professional fees under 194J

10% or 5% with Form 16C

20% or 30% depending on DTAA

₹30,000 per transaction

- Interest on securities under 194IA

10% or 5% with Form 16C

20% or 30% depending on DTAA

₹5,000 per financial year from same source

194BB

Payment to contractors/sub-contractors

1%

Depends on DTAA

₹20,000 per payment

194EE

Investment in specified infrastructure bonds

Nil

Nil

N/A

194F

Payment for purchase of immovable property

1% on sale value or stamp duty, whichever higher

20% or 30% depending on DTAA

N/A

194G

Payment of commission or brokerage

5% or 2% with Form 16C

20% or 30% depending on DTAA

₹2,000 per transaction

194LBB

Payments to specified business or profession

10%

20% or 30% depending on DTAA

₹1 lakh per transaction

194LBC

Payments on purchase of goods of specified nature

1%

20% or 30% depending on DTAA

₹1 crore per transaction

Need for Tax Deducted at Source (TDS)

TDS, or Tax Deducted at Source, is implemented by the Indian government to collect income tax at the source of income itself. The payer then deposits this deducted amount to the government’s account.

Any individual or entity making specified payments exceeding the threshold limit is responsible for deducting TDS. It includes employers, banks, government agencies, companies making rent payments, etc., but why does the Government need it? The government implements TDS (Tax Deducted at Source) for several important reasons:

  • Timely Revenue Collection
  • TDS ensures a steady flow of tax revenue throughout the year instead of a lump sum at the end of the financial year. It helps the government manage its finances more effectively and plan for public expenditures.

  • Reduces Tax Evasion
  • By collecting tax at the source, the government minimizes the chances of taxpayers underreporting their income or avoiding taxes altogether. It promotes a fairer and more equitable tax system.

  • Improves Compliance
  • Mandatory TDS deduction encourages taxpayers to keep proper records and comply with tax regulations. It also simplifies tax administration and reduces enforcement costs for the government.

  • Promotes Transparency
  • TDS encourages transparency in financial transactions, as deductions are reflected in official records accessible to both the deductee and the government.

  • Reduces Burden on Taxpayers
  • By paying taxes in smaller installments through TDS, taxpayers avoid a significant tax burden at the end of the year and can manage their finances more effectively.

  • Promotes Financial Inclusion
  • TDS deductions create a digital footprint of financial transactions, which can encourage individuals to participate more actively in the formal financial system.

Consequences of Failing to Deduct or Submit the TDS

Failing to deduct or deposit TDS can lead to serious consequences for the deductor, including:

Disallowance of Expense

As per Income Tax Act sections 40(a)(i) and 40(a)(ia), if TDS is not deducted or deposited correctly, the expense (except salary) may be disallowed as a deduction, increasing your taxable income and potentially your tax liability. It applies to both resident and non-resident recipients.

However, if you rectify the mistake by deducting or depositing the tax in a subsequent year, the deduction may be allowed that year.

Interest Charges

Under Section 201, failing to deduct or deposit TDS makes you an “assessee-in-default,” liable to pay simple interest on the tax amount:

  • 1% per month from the due date of deduction to the date of deduction.
  • 1.5% per month from the due date of deduction to the date of actual payment.

Penalty

Section 271C allows the authorities to impose a penalty equal to the amount of tax not deducted or deposited.

To Sum it Up

Knowing the threshold limits for TDS under the Income Tax Act is crucial for all taxpayers. It helps in efficient tax planning and ensures adherence to legal requirements. As tax regulations may change, consulting tax professionals or referring to official government notifications for the latest information is advisable. Individuals and businesses can contribute to a transparent and robust tax system by staying informed and compliant.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

Kotak Guaranteed Fortune Builder

Download Brochure

Pay 10,000/month for 10 years, Get 1,65,805/Year* for next 15 years.

  • Guaranteed@ Income Benefit for upto 25 years
  • Flexibility to choose income period
  • Premium break for females on child birth or any listed specific illnesses
  • Life cover for the premium payment period
  • Enhance your life cover with rider offerings

ARN. No. KLI/23-24/E-BB/1201

T&C

Download Brochure

Features

  • Increasing Life Cover*
  • Guaranteed^ Maturity Benefits
  • Enhanced Protection Through Riders
  • Tax Benefits
  • Dual Benefits: Guaranteed^Maturity + Death benefits

Ref. No. KLI/22-23/E-BB/999

T&C

- A Consumer Education Initiative series by Kotak Life

Kotak Guaranteed Fortune Builder Kotak Guaranteed Fortune Builder

Kotak Guaranteed Fortune Builder

Guaranteed Income for bright financial future

Invest Now
Kotak Assured Savings Plan Kotak Assured Savings Plan

Kotak Assured Savings Plan

Guaranteed Lumpsum returns for achieving life goals

Invest Now
Kotak Guaranteed Savings Plan Kotak Guaranteed Savings Plan

Kotak Guaranteed Savings Plan

Achieve your long-term goals and get life cover

Invest Now