TDS Compliances for Proprietorship Firms: A Simplified Guide :

Tax Deducted at Source (TDS) is a mechanism where a certain percentage of tax is deducted at the source of payment and deposited with the government. While not directly applicable to the proprietorship itself, it’s your responsibility as the proprietor to comply with TDS regulations when making specific payments. Here’s a breakdown of the key considerations:

When to Deduct TDS:

• You need to deduct TDS if you make certain payments exceeding specific thresholds to:
  • Residents (individuals and Hindu Undivided Families): Rent, professional fees, interest on securities, dividends, etc.
  • Non-residents: Any income earned in India.
• Refer to the Income Tax Act and relevant sections for detailed thresholds and applicable rates.

Responsibilities:

• Deducting TDS at the correct rate: Apply the appropriate rate based on the payment type and recipient’s status.
• Filing TDS returns: Submit quarterly TDS returns (Form 26Q) electronically within the specified timeframe.
• Depositing TDS with the government: Pay the deducted TDS to the government within the prescribed due date.
• Issuing TDS certificates: Provide Form 16 to the deductee reflecting the TDS amount deducted and deposited.

Consequences of Non-compliance:

• Penalties for:
  • Late filing of TDS returns
  • Failure to deduct TDS
  • Failure to deposit TDS
  • Delay in depositing TDS
  • Issuing incorrect TDS certificates
• These penalties can be significant, leading to financial losses and reputational damage.

Penalties for Late Filing of TDS Returns:

• Default Interest: 1% per month (or part thereof) on the outstanding TDS liability from the due date (7th of the following month) till the date of filing. This can accumulate quickly and become a substantial burden.
• Fine: Rs. 200 per day for each day of delay in filing the TDS return. This is capped at Rs. 2,000 for quarterly returns and Rs. 10,000 for annual returns.
• Additional penalty: Additional penalty at the discretion of the assessing officer can range from Rs. 10,000 to Rs. 1 lakh, depending on the severity of the non-compliance.

Penalties for Failure to Deduct TDS:

• Fine: 100% of the TDS that should have been deducted. This can significantly impact your finances.
• Prosecution: In severe cases, prosecution under the Income Tax Act is possible.

Penalties for Delay in Depositing TDS:

• Default Interest: Similar to late filing, 1% per month (or part thereof) on the outstanding TDS liability from the due date (7th of the following month) till the date of deposit.
• Fine: Rs. 1% per month (or part thereof) on the outstanding TDS liability from the due date (7th of the following month) till the date of deposit. This cannot exceed the amount of TDS to be deposited.