TDS on Specified Agreement: An Overview
Tax Deducted at Source (TDS) is a mechanism through which the government collects tax revenue by deducting a certain percentage of the payment made by an individual or entity. TDS on Specified Agreement is one such provision that is applicable to certain transactions specified under the Income Tax Act.
What is a Specified Agreement?
A Specified Agreement is an agreement for the following transactions:
1. Works Contract
2. Rent
3. Professional/Technical Services
4. Commission/Brokerage
5. Non-Compete Fees
6. Interest
7. Royalty
8. Transfer of an Immovable Property (other than agricultural land)
Who is liable to deduct TDS?
The payer, who is making the payment for the specified agreement, is liable to deduct TDS. The payer can be an individual, a company, a partnership firm, or any other entity.
What is the TDS rate applicable on Specified Agreement?
The TDS rate applicable on Specified Agreement varies depending on the type of agreement. Here is the TDS rate chart for Specified Agreement:
1. Works Contract: 2% for individual/HUF and 2% for others
2. Rent: 2% for individual/HUF and 10% for others
3. Professional/Technical Services: 10%
4. Commission/Brokerage: 5%
5. Non-Compete Fees: 10%
6. Interest: 10%
7. Royalty: 10%
8. Transfer of an Immovable Property (other than agricultural land): 1% for individual/HUF and 1% for others
How to calculate TDS on Specified Agreement?
TDS is calculated on the amount paid or credited for the specified agreement, whichever is earlier. For example, if a company enters into a professional services agreement with an individual, and the payment of INR 1 lakh is made on 1st January 2022, then TDS will be calculated on INR 1 lakh.
The TDS amount will be calculated as per the applicable TDS rate for professional services, which is 10%. Therefore, the TDS amount will be INR 10,000.
What is the due date for depositing TDS on Specified Agreement?
The TDS deducted on Specified Agreement needs to be deposited to the government by the 7th of the following month. For example, if TDS is deducted on 10th January, then it needs to be deposited by 7th February.
What is the penalty for non-compliance with TDS on Specified Agreement?
Non-compliance with TDS on Specified Agreement attracts penalty under Section 271C of the Income Tax Act. The payer can be penalized up to the amount of TDS not deducted or not deposited.
Conclusion
TDS on Specified Agreement is an important provision under the Income Tax Act that needs to be complied with by the payer to avoid penalties. Payers should be aware of the TDS rates applicable on the specified agreements and should ensure timely deposit of TDS to the government.