All you need to know about Section 194EE of Income Tax Act, 1961

Introduction

Tax Deducted at Source (TDS) is a method of collecting tax at the time of payment. Section 194EE of the Income Tax Act, 1961 governs TDS on payments made for deposit under the National Saving Scheme (NSS). In this article, we will discuss about TDS for deposits to NSS in detail.

What is the National Savings Scheme (NSS)?

It is a government-sponsored savings scheme that aims to mobilize savings among the masses. The scheme offers various investment options, such as Post Office Savings Account, Public Provident Fund (PPF), National Savings Certificate (NSC), and Kisan Vikas Patra (KVP), among others.

What is Section 194EE of the Income Tax Act, 1961?

The section 194EE deals with TDS for deposits to NSS. According to the section, section, any payment made to an individual who is a resident of India for the purpose of investment in NSS is subject to TDS. The rate of TDS is 10%, and it is deducted at the time of payment.

Suggested Read: TDS Rate Chart for the 2023-24

Applicability of Section 194EE of Income Tax Act, 1961

The TDS under Section 194EE applies to all deposits made under the National Saving Scheme, including NSC, PPF, KVP, etc. The interest earned on these deposits is taxable under the head “Income from Other Sources.” The TDS on such interest is required to be deducted at the time of payment or credit of interest, whichever is earlier.

Rate of TDS for deposits to NSS

The rate of TDS for deposits to NSS is 10%. This means that if an individual invests INR 1,00,000 in NSS, the TDS deducted will be INR 10,000. The remaining amount of INR 90,000 will be credited to the NSS account.

How to file TDS for deposits to NSS?

To file TDS for deposits to NSS, the following steps need to be taken:

• Deduct the TDS: The person making the payment needs to deduct TDS on the payments made on deposits under the National Saving Scheme (NSS).
• Deposit TDS with the government: The TDS deducted needs to be deposited with the government within seven days from the end of the month in which the deduction was made. The deposit can be made either online or offline through authorized banks.
• Issue TDS certificate: The person making the payment is also required to issue a TDS certificate in Form 16A to the recipient within 15 days from the due date of depositing the TDS with the government.
• File TDS return: The person making the payment is required to file a TDS return in Form 26Q with the Income Tax Department on a quarterly basis. The due date for filing the return is the 31st of the month following the end of the quarter.

Exemptions under Section 194EE of the Income Tax Act, 1961

Tax is not required to be deducted in the following circumstances:

1. Payment up to Rs. 2,500: When the payment amount or the total payment amount in a financial year is less than Rs. 2,500, the tax deduction is not applicable as per Section 194EE.
2. Payment to legal heirs: In the case of payments made to the heirs of a deceased assessee (depositor), no tax will be deducted at the source.
3. Submission of Form No. 15G or 15H: If the recipient provides a declaration under Section 197A to the payer, stating that they are not liable to pay taxes in some instances, then a tax deduction is not required.

Penalties for non-compliance

Non-compliance with the provisions of Section 194EE can attract penal consequences. If the TDS is not deducted, or the deducted TDS is not remitted to the government, the person responsible for deducting TDS can be held liable to pay interest at the rate of 1% per month or part of the month. Additionally, a penalty can be imposed under Section 271C of the Income Tax Act, which can be a minimum of INR 10,000 and a maximum of INR 1 lakh.

Conclusion

In conclusion, Section 194EE of the Income Tax Act governs TDS on payments made for deposits to NSS. The TDS for Deposits to NSS (National Saving Scheme), including NSC, PPF, KVP, etc., if non complied with, may attract hefty penalties.