Updated on November 26, 2024 12:53:57 PM
Section 194EE of the Income Tax Act, 1961 governs the deduction of Tax Deducted at Source (TDS) on payments made under the National Savings Scheme (NSS), which includes interest income or withdrawals from various National Savings instruments like the National Savings Certificate (NSC). According to this section, a TDS of 10% is applicable on any payment exceeding ₹2,500 made to an individual under the scheme during the financial year. This threshold ensures that small payments, which may not be significant enough to attract TDS, are not taxed at source. However, once the aggregate amount paid to an individual surpasses this limit, the responsible institution, such as the post office or another authorized agency, is required to deduct TDS before disbursing the payment.
Read this Article to get in depth knowledge about the applicability, TDS rates, limit to deduct and consequences of non compliance u/s 194EE, TDS on Payments made under the National savings scheme
This section is applicable to “Any person responsible for paying any sum (both principal and interest) in respect of deposits under the National Savings Scheme, is required to deduct tax at source (TDS) @ 10%, at the time of payment.
As per section 194EE, Tax is required to be deducted in all cases whether the recipient is a “Resident or a Non-resident”.
There is no requirement to deduct tax u/s 194EE, TDS on payment under National savings scheme, if the sum paid or aggregate of sum paid to the payee during the financial year is less than ₹2,500.
TDS rate u/s 194EE, TDS on Payment under National savings scheme is given below:
TDS u/s 194EE | Rate |
---|---|
(If PAN is furnished by the payee) | 10% |
(If PAN is not furnished by the payee) | 20% |
Note: The rate of TDS will be further increased by Surcharge and Health and Education Cess, in case payment is made to a Non-resident Indian.
Time of Deduction: The TDS u/s 194EE, TDS on Payment under National savings scheme shall be deducted at the time of payment only.
Time to Deposit:
TDS on Payment under National savings scheme which is deducted u/s 194EE and is required to be deposited to the central government. Time to deposit of TDS on Payment under National savings scheme is given below:
When TDS is deducted | When to deposit TDS |
---|---|
April - February | On or before 7th of next month |
March | On or before 30th April |
For example, TDS on Payment under the National savings scheme is deducted on 15th December and needs to be deposited on or before 7th January. Tax is deducted on 21st March ; needs to be deposited on or before 30th April.
If TDS is deducted by the government department: The Government Department shall deposit the tax on the same day on which tax has been deducted.
TDS u/s 194EE is not required to be deducted in the following cases:
Following are the penalties and consequences of non compliance with section 194EE:-
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In summary, Section 194EE ensures that taxes are efficiently collected on interest payments and other amounts under the National Savings Scheme, with a clear mechanism for individuals to claim exemptions or credit for the TDS deducted. It simplifies the process of tax collection on small savings, benefiting both the taxpayer and the government by reducing the risk of tax evasion.
TDS is deducted when the total payment made to an individual under the National Savings Scheme exceeds ₹2,500 in a financial year. This tax is deducted at the time of payment only.
NSC may be more appealing for those looking for shorter-term returns and tax savings, while KVP might suit investors with a longer investment horizon looking for a safe, straightforward investment that doubles in value over time.
The choice depends on your investment horizon and tax preferences.
NSC (National Savings Certificate) may be better than PPF (Public Provident Fund) for those seeking a higher interest rate (currently around 7.7%) and shorter lock-in periods (5 years), while PPF offers tax-free returns and a longer 15-year tenure, making it ideal for long-term retirement savings and tax planning.