The Form 16A is a certificate to endorse the amount of Tax Deducted at Source (TDS) for individuals whose earnings are generated from non-salary incomes. The concept of Tax deducted at source (TDS) and Tax collection at source (TCS) are specifically for targeting the revenue collection at the very source where the income is generated. This refers to revenue generation as and when an income is earned and the indirect but surer way of collecting tax enabling greater reach and wider base for tax collection. This also works out as a convenient way to pay tax for earning the income as well. The income providers are conferred with the responsibility of deducting taxes at the specified rates before the payments are made and the deducted sums are to be deposited to the Central Government as TDS. The tax paid by the deductor is credited to the individuals who receive the income.
Form 16A indicates the amount of Tax deducted and the TDS payments that are deposited with Income Tax Department of India and the nature of payments. Non-salary incomes include fees paid as professional fees, rents, bank interest payments and so on. According to the Income Tax Act, 1961 of the Government of India, TDS has to be deducted on all non-salary payments and if the annual taxable income of the assessee exceeds Rs.30000 during the financial year, unless otherwise exempted.
Form 16A is issued under Income Tax Act, Section 203. The below-mentioned details are available in Form 16A and this needs to be furnished when one is filing the Income Tax Return.
- Name of Deductor – This contains the name and address of the Party that makes the payment and is deducted as a percentage of the income earned as TDS.
- Name of Deductee – This section includes the name and address of the person who received the payment.
- Unique Identification of the Deductor – this includes PAN and TAN numbers of the Deductor and is unique for each one.
- Unique Identification of Deductee – The PAN number to indicate that tax is paid on behalf of the Deductee.
- Total Amount Due to the Deductee – that is the amount of payment received.
- Amount deducted and amount paid to the Income Tax Department – this is calculated based on the income of the deductee.
Form 16 is the certificate using which the employer certifies how much tax was deducted at the source for a salaried employee and the total amount that was deposited as Income Tax. Whereas, Form 16A is to certify the TDS amount for non-salary earnings of an individual.
- For salaried employees, employers provide Form 16 when the gross total income exceeds Rs. 250,000. The TDS will be on the basis of the income tax slab, which is applicable. This deduction by employers will be reflected in Form 16. But, for Non-salary incomes, the payer of income will deduct TDS usually at a rate of 10%, and the detail will be reflected in Form 16A.
If the additional Non-salary income is added to the salary then the tax bracket might go up and a higher rate of deduction is applied. So, it is better to keep these two types of earnings separate in Form 16 and Form 16A.
It might so happen as well that the TDS in Form 16A is not sufficient to cover all applicable tax from non-salaried income. In such a situation, additional tax would be due from the tax payer. In such cases, there will be an additional tax payable in the tax return on top of what is mentioned in Form 16A.
The taxable amount starts for salaried income above Rs. 250000 and TDS will be reflected in Form 16A whereas, TDS will be dome by the payer of non-salary income when income crosses Rs.30000 limit unless otherwise exempted.
- For the Form 16, TDS certificate is to be issued annually whereas TDS certificate in Form 16A is to be issued quarterly.
The Income Tax Department through its Tax Information Network has extended the facility to verify the particulars of form 16A online. This service is in effect from the financial year of 2011-12 onwards.
A TDS Reconciliation and Analysis and Correction Enablement System (TRACES) is maintained by The Income Tax Department and this allows online verification of Form 16A in the following link: http://contents.tdscpc.gov.in/
An individual who wishes to verify the details of deduction by the Deductor can do this by accessing the Form 26AS in the above mentioned website by input of the information like: the TAN number of the Deductor, The PAN number of the receiver of payment, the financial year, total amount deducted and the certificate number. A deductor is the source of income, like a bank or an entity generating the income who will issue the form 16A to individuals who are receiving those incomes.
In case of any discrepancy, the receiver is advised to contact the deductor. Possible reasons of mismatch could be:
- Non filing of TDS Return by the Deductor
- Quoting of wrong PAN number
- Quoting of wrong PAN or TIN number of the Deductor
- Excluding the details of Payment of TDS in the TDS Return
- Mentioning wrong Assessment Year
- Mentioning Wrong Amount
- Mentioning wrong Challan Identification Number
Form 26AS indicates that the tax deducted at source by the deductor that is deposited in favour of Government of India’s Income Tax Department.
Chapter XVII of the Income-tax Act, 1961 mentions the statutory provision for tax deduction at source. This gives the details regarding the rates, the relevant provisions of TDS, and the exceptions where no tax should be deducted. The following types of incomes have the provisions of TDS (as applicable based on the total non-salary earning and excluding exemptions, if any).
- Dividends (Section 194)
- Interest earned on securities (Section 193)
- Interest earned other than interest on securities (Section 194A) -- Interests earned on Bank deposits come in this category
(Note: There is no TDS for the interest earned on savings bank account if the amount is below Rs. 10000. However on taxable amount, the tax is payable by the account holder)
- Payments in respect of deposits under National Savings Scheme etc. (Section 194EE)
- Payments for repurchase of units by Unit trust of India or a Mutual Fund (Section 194F)
- Prizes from winning lottery or crossword puzzles (Section 194B)
- Commission etc. On sale of lottery tickets (Section 194G)
- Prizes from winning horse race (Section 194BB)
- Payment of Insurance Commission (Section 194D)
- Payments to contractors and sub-contractors (Section 194C)
- Payments to non-resident sportsmen or sports associations (Section 194E)
- Commission or brokerage, etc. (Section 194H)
- Rent (Section 194-I)
- Fees for technical or professional services (Section 194J)
- Payment of Compensation on acquisition of specific types of immovable property (Section 194LA)
- Other sums, for example, payment to a foreign company or a non-resident (not being a company), of any interest (not being interest on securities) or any other amount subject to Income tax (non-salary)(Section 195)
- Income payable "net of tax" i.e. where, under an agreement or arrangement the income-tax is borne by the person by whom the income is payable to the receiver. This amount of income-tax would be added to the income of the receiver of income and the income-tax would be deducted on that amount also (Section 195A)
- Income from shares of Indian company or foreign currency bonds, referred to in Section 115 AC. (Section 196C)
- Income in respect of units, as referred in Section 115AB, payable to an Offshore Fund (Section 196B)
- Income of Foreign Institutional Investors from securities referred to in Section 115AD. However, if capital gain arises from transfer of securities referred to in Section 115AD, no tax is deductible on payment to a Foreign Institutional Investor (Section 196D)
- Section 206C prescribes collection of tax at source on specified items.
Professional and Technical Services, Royalty and Non-Compete Fees – Audit fees, Bills for technical service providers or for professional services of CA, CS, CWA and all related consultancies come under this category. This is covered by Section 194J of Income Tax Act. TDS deduction is at a rate of 10%. The income cut off is Rs.30000 beyond which tax will be deducted for the assessee.
- Rents -- This is covered under Section 194 I of the Income Tax Act and covers different types of rents like:
- Rent of Land, Building or Furniture – these incudes rents for Offices, Guest houses and Warehouses. The cut off amount for this is Rs.180,000 per annum beyond which the TDS is deducted at a 10% rate.
- Rent for Plants and Machinery – like rent for generator, machinery has a cut off of Rs.180,000 and a TDS rate of 2%.
- Commission or Brokerage income for sales agents – This is covered under Section 194H of the Income Tax Act. TDS is applicable at the rate of 5% with a cut off amount of Rs.15000 per annum.
- Interest paid by Banks on Fixed Deposits and Recurring Deposits – This is covered under Section 194A. Tax is deducted at 10% beyond the cut off amount of Rs.10000. Note: Interest from savings account is not considered in this case.
- Interest paid by others on loans – This includes interest income from loans that were lent to friends, relatives or related companies. This is covered under Section 194A also and the TDS rate is calculated at 10% with a cut off amount specified at Rs.5000. Loans from banks and financial institutions are not considered in this category.
- Payments to Directors which are not part of salary like sitting fees and so on – This is covered under Section 194 J (1) (b) (a). On any income from these sources, TDS is levied at the rate of 10%.
- Payments to Contractors – All services like payment to maintenance agency, security staff, cab service, courier, advertisement agency, contract blue collared employees, etc are covered in this section under Income Tax Act Section 194C. The Rate is 1% for individuals and HUF (Hindu Undivided Family) and 2% for all other cases. The cut off is Rs.30,000 per annum and if the payment from Deductor exceeds Rs.100,000 annually, then TDS will be cut in the specified rates above. For example:
- Single contractor by Deductor up to Rs.30,000 per annum – No TDS
- Two contracts by Deductor up to Rs.30,000 in a year – No TDS
- Single contract for individual or HUF for Rs.40,000 per annum – TDS to be deducted at the applicable.
- Four contracts by Deductor for Rs.30,000 each – Yes, TDS will be deducted for Rs.120,000.
- Withdrawal of Provident Fund Before 5 Years – In case of withdrawal of PF before 5 years of service, PF Department deducts 10% TDS. The cut off is Rs.50,000 and this is covered under Section 192A.
- Commission on Lottery Sale – This is covered under section 194G and 5% TDS is deducted beyond the cut off of Rs.15,000.
- Compensation payable on Compulsory Acquisition of Immovable Property – Agricultural land is excluded from this specific clause. This is covered under Section 194LA. The cut off amount is Rs.250,000 per annum and the current rate of TDS is 10%. If the recipient of income cannot furnish PAN card to the Deductor, in that case the rate of deduction at source is 20%.
- Payments in Respect of Deposits under National Savings Scheme, 1987 – The interest accrued under this scheme is required to be tax deducted at source at a rate of 20%. This is dealt under Section 194EE of the Income Tax Act. There are certain exceptions to this payment, like:
- If the amount payable for the financial year does not exceed Rs. 2500
- If the payments are made to the heirs of deceased assessee
- If tax on estimated total income of the previous year is zero (including any withdrawal) and a declaration is given by the assessee in Form 15-I and verified in a prescribed format by the person who made the payment