Tax Deducted at Source (TDS) Interview Questions & Answers

Question 1. What Is Tax Deducted At Source?

Answer :

For quick and efficient collection of taxes, the Income-tax Law has incorporated a system of deduction of tax at the point of generation of income. This system is called as “Tax Deducted at Source”, commonly known as TDS. Under this system tax is deducted at the origin of the income. Tax is deducted by the payer and is remitted to the Government by the payer on behalf of the payee. 

The provisions of deduction of tax at source are applicable to several payments such as salary, interest, commission, brokerage, professional fees, royalty, contract payments, etc. In respect of payments to which the TDS provisions apply, the payer has to deduct tax at source on the payments made by him and he has to deposit the tax deducted by him to the credit of the Government.

Question 2. Can The Payee Request The Payer Not To Deduct Tax At Source And To Pay The Amount Without Deduction Of Tax At Source?

Answer :

A payee can approach to the payer for non-deduction of tax at source but for that they have to furnish a declaration in Form No. 15G/15H, as the case may be, to the payer to the effect that the tax on his estimated total income of the previous year after including the income on which tax is to be deducted will be nil.

Form No. 15G is for the individual or a person (other than company or firm) and Form No. 15H is for the senior citizens.

Question 3. What Are The Consequences A Deductor Would Face If He Fails To Deduct Tds Or After Deducting The Same Fails To Deposit It To The Government’s Account?

Answer :

A deductor would face the following consequences if he fails to deduct TDS or after deducting the same fails to deposit it to the credit of Central Government’s account:-

a) Disallowance of expenditure

• As per section 40(a)(i) of the Income-tax Act, any sum (other than salary) payable outside India or to a non-resident, which is chargeable to tax in India in the hands of the recipient, shall not be allowed to be deducted if it is paid without deduction of tax at source or if tax is deducted but is not deposited with the Central Government till the due date of filing of return.
• However, if tax is deducted or deposited in subsequent year, as the case may be, the expenditure shall be allowed as deduction in that year.
• Similarly, as per section 40(a)(ia), any sum payable to a resident, which is subject to deduction of tax at source, would attract 30% disallowance if it is paid without deduction of tax at source or if tax is deducted but is not deposited with the Central Government till the due date of filing of return.
• However, where in respect of any such sum, tax is deducted or deposited in subsequent year, as the case may be, the expenditure so disallowed shall be allowed as deduction in that year.
• As per Section 58(1A) (as amended with effect from the assessment year 2018-19), the provisions of section 40(a)(ia) and 40(a)(iia) shall also apply in computing the income chargeable under the head “Income from other sources”.

b) Levy of interest

As per section 201 of the Income-tax Act, if a deductor fails to deduct tax at source or after the deducting the same fails to deposit it to the Government’s account then he shall be deemed to be an assessee-in-default and liable to pay simple interest as follows:-

1. at one per cent for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted; and
2. at one and one-half per cent for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid.

c) Levy of Penalty

Penalty of an amount equal to tax not deducted or paid could be imposed under section 271C.

Question 4. Under What Circumstances A Deductor Would Not Be Deemed As An Assessee-in-default Even After He Fails To Deduct Tds Or After Deducting The Same Fails To Deposit It To The Government’s Account?

Answer :

A deductor who fails to deduct the whole or any part of the tax on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee-in-default in respect of such tax if such resident:

1. has furnished his return of income under section 139;
2. has taken into account such sum for computing income in such return of income; and
3. has paid the tax due on the income declared by him in such return of income,

and the deductor furnishes a certificate to this effect in Form No.26A from a chartered accountant.

Question 5. What To Do If Tax Is Deducted But The Ultimate Tax Liability Of The Payee Is Nil Or Lower Than The Amount Of Tds?

Answer :

In such a case, the payee can claim the refund of entire/excess amount of TDS (as the case may be) by filing the return of income.

Question 6. If The Payer Does Not Deduct Tax At Source, Will The Payee Face Any Adverse Consequences By Means Of Action Taken By The Income-tax Department?

Answer :

It is the duty and responsibility of the payer to deduct tax at source. If the payer fails to deduct tax at source, then the payee will not have to face any adverse consequences. However, in such a case, the payee will have to discharge his tax liability. Thus, failure of the payer to deduct tax at source will not relieve the payee from payment of tax on his income.

Question 7. What Are The Duties Of The Person Deducting Tax At Source?

Answer :

Following are the basic duties of the person who is liable to deduct tax at source:

• He shall obtain Tax Deduction Account Number and quote the same in all the documents pertaining to TDS.
• He shall deduct the tax at source at the applicable rate.
• He shall pay the tax deducted by him at source to the credit of the Government (by the due date specified in this regard*).
• He shall file the periodic TDS statements, i.e., TDS return (by the due date specified in this regard*).
• He shall issue the TDS certificate to the payee in respect of tax deducted by him (by the due date specified in this regard*).
• Refer tax calendar for the due dates.

Question 8. What To Do If The Tds Credit Is Not Reflected In Form 26as?

Answer :

Non-reflection of TDS credit in Form 26AS can be due to several reasons like non-filing of TDS statement by the payer, quoting incorrect PAN of the deductee in the TDS statement filed by the payer. Thus, in case of non-reflection of TDS credit in Form 26AS, the payee has to contact the payer for ascertaining the correct reasons for non-reflection of the TDS credit in Form 26AS.

Question 9. At What Rate The Payer Will Deduct Tax If I Do Not Furnish My Permanent Account Number To Him?

Answer :

As per section 206AA, if you do not furnish your Permanent Account Number to the payer (i.e., deductor), then the deductor shall deduct tax at the higher of the following rates :

• At the rate specified in the relevant provision of the Act.
• At the rate or rates in force, i.e., the rate prescribed in the Finance Act. 
• At the rate of 20%.

Question 10. However, The Provisions Of Section 206aa Shall Not Apply In The Following Cases?

Answer :

In respect of payment of interest on long-term bonds to a non-resident under section 194LC.

• Where deductee being a non-resident or a foreign company, shall in respect of payments in the nature of interest, royalty, fees for technical services and payments on transfer of any capital asset, furnish the following details and documents to the deductor, namely:
• name, e-mail id, contact number;
• address in the country or specified territory outside India of which the deductee is a resident;
• a certificate of his being resident in any country or specified territory outside India from the Government of that country or specified territory if the law of that country or specified territory provides for issuance of such certificate;
• Tax Identification Number of the deductee in the country or specified territory of his residence and in case no such number is available, then a unique number on the basis of which the deductee is identified by the Government of that country or the specified territory of which he claims to be a resident.

Question 11. I Do Not Have Pan. Can I Furnish Form 15g/15h For Non-deduction Of Tds From Interest?

Answer :

As per section 206AA, a declaration in Form No. 15G or Form No. 15H is not a valid declaration, if it does not contain PAN of the person making the declaration.

If the declaration is without the PAN, then tax is to be deducted at higher of following rates : 

• At the rate specified in the relevant provision of the Act.
• At the rate or rates in force, i.e., the rate prescribed in the Finance Act. 
• At the rate of 20%.

Question 12. Would I Face Any Adverse Consequences If Instead Of Depositing Tds In The Government's Account I Use It For My Personal Needs?

Answer :

Yes, failure to remit tax deducted by me in the government’s account within stipulated time-limit would attract interest, penalty and rigorous imprisonment of upto seven years.

Question 13. I Have Not Received Tds Certificate From The Deductor. Can I Claim Tds In My Return Of Income?

Answer :

Yes, the tax credit in your case will be reflected in your Form 26AS and, hence, you can check Form 26AS and claim the credit of the tax accordingly. However, the claim of TDS to be made in your return of income should be strictly as per the TDS credit being reflected in Form 26AS. If there is any discrepancy in the tax actually deducted and the tax credit being reflected in Form 26AS then you should intimate the same to the deductor and should reconcile the difference. The credit granted by the Income-tax Department will be as per Form 26AS. 

Question 14. If I Buy Any Land/building Then Is There Any Requirement To Deduct Tax From The Sale Proceeds To Be Paid By Me To The Seller?

Answer :

Yes, Finance Act, 2013 has introduced section 194-IA which provides for deduction of tax at source in case of payment of sale consideration of immovable property (other than rural agricultural land) to a resident. Section 194-IA is not applicable if the seller is a non-resident. Tax is to be deducted @ 1%. No tax is to be deducted if the consideration is below Rs. 50,00,000. If the sale consideration exceeds Rs. 50,00,000, then tax is to be deducted on the entire amount and not only on the amount exceeding Rs. 50,00,000.

If the seller is a non-resident then tax is be deducted under section 195 and not under section 194-IA. Thus, in case of purchase of property from non-resident TDS provisions of section 195 will apply and not of section 194-IA

Question 15. What Is The Difference Between Pan And Tan?

Answer :

PAN stands for Permanent Account Number and TAN stands for Tax Deduction Account Number. TAN is to be obtained by the person responsible to deduct tax, i.e., the deductor. In all the documents relating to TDS and all the correspondence with the Income-tax Department relating to TDS one has to quote his TAN. 

PAN cannot be used for TAN, hence, the deductor has to obtain TAN, even if he holds PAN.

However, in case of TDS on purchase of land and building (as per section 194-IA) as discussed in previous FAQ, the deductor is not required to obtain TAN and can use PAN for remitting the TDS.

Question 16. How Can I Know The Quantum Of Tax Deducted From My Income By The Payer?

Answer :

To know the quantum of the tax deducted by the payer, you can ask the payer to furnish you a TDS certificate in respect of tax deducted by him.