A 2% Tax Deducted at Source (TDS) rate under the Income Tax Act generally applies to commissions/brokerages (Section 194H), specific contractor payments (Section 194C for non-individuals), professional fees for technical services (Section 194J), and certain high-value cash withdrawals (Section 194N). It is also the rate for TDS under GST on payments to suppliers.
Rate of TDS : TDS is to be deducted at the rate of 2 percent on payments made to the supplier of taxable goods and/or services, where the total value of such supply, under an individual contract, exceeds two lakh ifty thousand rupees.
You can apply for exemption on TDS when your total interest income for the financial year will not fall within an overall taxable slab. You can intimate us by submitting form 15G (for other than senior citizen) and 15H (for senior citizen) instructing us not to deduct TDS on your Deposits.
2% TDS is applicable on payments made to contractors or subcontractors for working contracts as per 194J of the Income Tax Act. Works contracts can include services relating to construction, repairs, renovation, and other related activities involving the transfer of tangible goods and the provision of services.
Taxpayers whose tax liability for the financial year is less than the tax deducted at source can make an application to the assessing officer by filing Form 13 for the non/ lower deduction of TDS. Taxpayers whose tax liability for the year is less than the TDS amount are eligible for a nil/lower TDS deduction.
This year's Budget has brightened the financial outlook for lakhs of senior citizens by announcing a significant change in Tax Deducted at Source (TDS) rules. The threshold for TDS on interest income for senior citizens has now been doubled from ₹50,000 to ₹1 lakh per financial year.
To avoid this TDS and eliminate the hassle of filing the income tax return to claim TDS refund, you can simply submit Form 15G or Form 15H (for senior citizens) to the financial institution. Basis this form, no TDS would be deducted from the deposit interest allowing you to save your income from TDS deductions.
What is the formula that is used to calculate TDS? The formula to calculate TDS is Average Income Tax Rate = Income Tax Payable (computed with slab rates) / Estimated income for the financial year.
As per the Budget 2025 update, effective from 1st April 2025, the threshold limit of TDS on Fees for Professional or Technical Services has been increased to Rs. 50,000 from the existing threshold of Rs. 30,000. In case of payment does not exceed the directed Threshold exemption limits, TDS will not be deductible.
Examples of professional fees
Applicability of TDS
Any person making specified payments mentioned under the Income Tax Act is required to deduct TDS at the time of making such payments. Different types of payments are governed by different TDS provisions, and there is threshold limit is fixed for different types of payments.
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Not eligible for the standard deduction
You are an individual who files a return for a period of less than 12 months due to a change in your annual accounting period. You are filing as an estate or trust, common trust fund, or partnership.
The TDS rate when the payee is a resident is 10%, regardless of whether the assessee is an individual, HUF, or any other entity. Previously, it was 25% when the payee is an individual or HUF, 30% for other entities. Interest at the rate of 1% per month needs to be paid if the TDS is not deducted on time.
Section 194J covers doctors, accountants, engineers, interior designers, architects, and also people associated with the advertising field.
Individuals or HUFs must deduct TDS if their rent payment exceeds ₹50,000 per month under Section 194IB, with a 2% TDS rate. The TDS rate varies depending on the type of rented asset: 2% for plant and machinery and 10% for land, buildings, or furniture.
Amendments in TDS Section 194J
As per the latest amendments for payments related to specialised services (not considered skilled professional services), the TDS rate is 2%. For all other types of payments covered under Section 194J, the TDS rate is 10%.
TDS Implications For An NRI Seller
There is a TDS deduction of 30% if the property held by you is less than or equal to 24 months old (from the date of purchase). And if the property held by you is more than 24 months old there is a TDS deduction of 20%.
Non-Applicability of TDS on Professional Services u/s 194J
There are some exceptions under which TDS on professional fees or services charges doesn't apply: Individuals and HUFs (not liable for audit u/s 44AB) making payments for technical/professional services.
TDS is to be deducted at the rate of 2% on payments made to the supplier of taxable goods and/or services, where the total value of such supply, under an individual contract, exceeds Rs. 2,50,000.
While the general TDS rate is 10%, Section 194C specifies different rates for contractors and sub-contractors. Typically, the TDS rate under this section is 1% for individual or Hindu Undivided Family (HUF) contractors and 2% for other entities, such as companies or partnerships.
Example: How to Deduct TDS on GST Bill Example
If the contract value is ₹4,00,000 and GST is 18% (₹72,000), the total invoice becomes ₹4,72,000. TDS = 2% of ₹4,00,000 = ₹8,000. The payment to the supplier will be ₹4,64,000 after TDS deduction.
Understanding TDS Refund on Salary
A TDS refund is applicable when the tax deducted at source (TDS) by your employer exceeds your actual tax liability for the financial year. For example, if your total tax payable is ₹20,000 but your employer deducts ₹25,000, you are eligible for a TDS refund of ₹5,000.