CA is asking us to deduct TDS on the payment

Deducting TDS (Tax Deducted at Source) is a straightforward process if you follow these five steps. To ensure compliance, you should follow this procedure:

1. Determine the Correct Section and Rate

Identify the nature of the payment (e.g., Professional Fees, Technical Services, Rent, or Contract work). Each category has a specific section under the Income Tax Act and a corresponding tax rate. Ensure the payment exceeds the "threshold limit" before deducting.

2. Obtain the PAN of the Payee

Always collect the Permanent Account Number (PAN) from the person or entity you are paying.

• Note: If the payee does not provide a PAN, you are generally required to deduct tax at a higher rate (usually 20%).

3. Deduct the Tax The deduction must happen at the earlier of these two events:

• At the time of crediting the amount to the payee's account (booking the invoice).
• At the time of actual payment (cash, cheque, or online transfer).

4. Deposit the Tax to the Government

The deducted amount must be deposited with the Tax Department, typically by the 7th of the following month (e.g., tax deducted in May must be paid by June 7th). You can do this online using Challan ITNS 281.

5. File Quarterly Returns and Issue Certificates

• Filing: Your accountant must file a quarterly TDS Return (e.g., Form 26Q) detailing all deductions made.
• Certificates: Once the return is processed, download and issue Form 16A to the payee. This allows them to claim credit for the tax you deducted when they file their own tax returns.

Tip: Make sure your TAN (Tax Deduction and Collection Account Number) is valid and quoted correctly on all payment challans and returns to avoid penalties.

PS: Does your company already have a TAN, or do you need guidance on how to apply for one first?