TDS on Payment under National savings scheme u/s 194EE

Overview

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

Applicability of section 194EE, TDS on Payment under National saving 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”.

Threshold limit u/s 194EE

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.

Rate of TDS u/s 194EE

TDS rate u/s 194EE, TDS on Payment under National savings scheme is given below:

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.

When to deduct and deposit TDS u/s 194EE ?

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:

For Non-government deductor

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.

Exemptions u/s 194EE

TDS u/s 194EE is not required to be deducted in the following cases:

• Payment doesn't exceed ₹2,500: There is no requirement to deduct tax if the sum paid or aggregate of sum paid to the payee under National savings scheme during the financial year is less than ₹2,500. It's exempt from tax deduction.
• Payment to legal heirs: No tax shall be deducted if payment under National savings scheme is being made to the legal heirs of the assessee. It's exempt from tax deduction.
• Payment is made to Government, RBI, Mutual Fund etc: In light of Section 196, under this provision no tax deduction shall be made by any person from any sum payable to the Government, RBI, Mutual Fund or any Corporation established under the Act which is exempt from tax.

Consequence on Non-compliance u/s 194EE

Following are the penalties and consequences of non compliance with section 194EE:-

• Penalty u/s 271C:
  “Penalty on failure to deduct and deposit TDS”, if person fails to deduct the tax as required u/s 194EE shall be subjected to a penalty u/s 271C.
  The penalty amount cannot exceed the amount of TDS required to be deducted.
• TDS is not deducted:
  If a deductor has not deducted the TDS as required under Section 194EE, it charges interest of @1% per month till the date TDS is deducted.
• TDS is deducted but not deposited:
  If a deductor has deducted the TDS as required under Section 194EE but has not deposited the collected tax to the government, then it charges interest @1.5% from the date when tax is deducted to the date of deposition.

Why Choose Bizfoc for TDS?

At Bizfoc, we specialize in providing you the best accounting services in filing your TDS. Here are the reasons why we are known for our services to our clients on filing TDS:

• Assist in suggesting the right documents for TDS filing.
• Providing valuable insights on sections of TDS computations
• Prescribe forms as per the necessity
• Helps in accurate computations for TDS computations and returns
• Tailored advice and guidelines for TDS filing

In general, we assist the client to solve their queries and doubts regarding the documentation, procedures, and fees for filling out the form. Other than making your filing successful, we help you make a better decision by covering every aspect of what you actually need to get your TDS.

Conclusion

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.

Frequently Asked Questions? (FAQs)