TDS decoded for startups: Salary, Rent, Fees and more; check what is your tax liability

Updated: October 17, 2018 3:21 PM

Understand all about TDS for your startup. As a startup, you make certain payments wherein tax at a prescribed rate needs to be deducted by you. Similarly, you receive income which is tax deducted by the payer. Who is obligated to deduct TDS, and how much?

tds full form, tds tax deducted at source, tds meaning, tds payment, tds return due date, tds last date, tds rules, tax deducted at source in hindi, income tax departmentTDS on Startups: There is a list of 31 items from which tax is deducted at source.

By Tanvi Loond Chopra

Running a startup requires persistence, patience and above all, proficiency. Other than proficiency in your core business, quotidian needs obligate knowledge of certain subjects which form part of running your company. Tax Deducted at Source or TDS is one such subject.

You make certain payments wherein tax at a prescribed rate needs to be deducted by you. Similarly, you receive income which is tax deducted by the payer. The obligation to deduct tax at source is upon the person responsible for paying the income/ amount which is subject to TDS. Here’s how you can understand TDS for your Startup.

Payments subject to TDS

There is a list of 31 items from which tax is deducted at source. We have enlisted some items relevant to your Startup.

Salary

If you are paying a salary to an employee in excess of Rs 2,50,000 per annum, such payment is subject to TDS under Section 192. To calculate the monthly deduction of tax at source, the total estimated tax liability of the employee is divided by number of months of his employment during that financial year.

For example, Simran pays Raj a salary of Rs 5,00,000 per annum and his estimated tax liability considering all his deductions is Rs 10,500. The monthly TDS to be depositing by Simran would be Rs 875 calculated as follows:

Total estimated tax liability of the employee ÷ Months of employment during the financial year

  • ie Rs 10,500 ÷ 12 = Rs 875

Rent

If you have entered into a lease, sub-lease, tenancy or any other agreement for use of land or building or both, such payment of rent shall be subject to TDS under Section 194I. Applicable TDS rates on rent:

  • Any person, other than individual or HUF e.g. company or firm: 10% if rent is in excess of Rs 1.8 lakh per annum
  • Any individual or HUF under the scope of section 44 AB(a) or (b) (Tax Audit): 10% if rent is in excess of Rs 1.8 lakh per annum
  • Any individual or HUF not covered under section 44AB (a) or (b): 5% if rent is in excess of Rs 50,000 per month
  • In case PAN is not quoted by the payee: 20%

For example, Simran paid Rs 60,000 per month to a co-working space. The monthly TDS to be deposited by Simran will be 5% of Rs 60,000 = Rs 3,000 per month.

Professional fees

If you have are liable to pay a person for professional or technical services, royalty or any other fee / commission not in the nature of salary, such payment shall be subject to TDS under Section 194 J. However, no deduction shall be made if the aggregate fee during the year does not exceed Rs 30,000. This threshold limit does not apply in case Director’s fees. Applicable TDS rates on professional fees

  • In case of payments to operators of call centers: 2%
  • In case PAN is not quoted by the payee: 20%
  • Others: 10%

For example, Raj employed Simran at a fee of Rs 1,00,000 for website development. Such payment shall be subject to TDS under section 194 J

Commission and Brokerage

If you have paid any commission (other than insurance commission) or brokerage (other than transactions related to securities) for services rendered, such payment shall be subject to TDS under section 194H. However, no deduction shall be made if the aggregate commission during the year does not exceed Rs 15,000. Applicable TDS rates on commission and brokerage:

  • In case PAN is not quoted by the payee: 20%
  • Others: 5%

For example, Raj sells his products through his website and he paid an annual commission of Rs 20,000 to a payment gateway. Such payment shall be subject to TDS under section 194H.

Contract

If you have paid a resident contractor for carrying out any work such as advertising, broadcasting, telecasting, carriage of goods or passengers by any mode of transport other than railways, catering and manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, such payment shall be subject to TDS under section 194C.

However, no deduction shall be made if the contract amount does not exceed Rs 30,000 for one time or Rs 1,00,000 in the aggregate during a financial year. Applicable TDS rates on contracts:

  • Payment to an individual or HUF: 1%
  • Payment to any other entity: 2%
  • In case PAN is not quoted by the payee: 20%

For example, Simran paid Rs 1,20,000 in courier charges during the year. Since carriage of documents, letters etc. is in the nature of carriage of goods, such payment would be subject to TDS under section 194 C.

The author is Founder & CEO, Insta C.A.

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