Dummies guide to TDS for startups

To outsiders, the startup world seems like a discotheque with an open bar. But for someone who has launched or worked in a startup will tell you, it’s not one big party at all. There is a lot of hard work that goes into building a startup and nurturing it into a profitable business. A major part of that is taxation. One aspect of taxation that startups often tend to ignore is TDS (tax deducted at source).

What is TDS?

As boring and tedious as it may sound, TDS is something that a startup cannot afford to ignore. As the name suggests, TDS is tax that is deducted from the payments you make. This tax has to be deducted before the payments are made and deposited with the government every month. Details of TDS deducted and deposited have to be submitted in the form of TDS statements every quarter.

It is mandated by law for every company, including startups, to deduct tax at source, deposit it with the government and file the returns. In case the TDS returns are not filed by a startup, there are some stringent penal provisions that are set out for the same. Non-compliance can make some of the expenses non-admissible, which can hurt your profits. However, late filing of TDS or correction of TDS statements can be done subject to some clauses.

What are the TDS rates applicable to startups?

The TDS rates vary for different kinds of payments as well as on the residential status of the recipient of the payment. Particularly for a startup, the company would be deducting tax on salaries of employees and payments made to contractors. It is important to understand that tax is not required to be deducted if the salary of an employee falls below the taxable limit of Rs 2.5 lakh annually.

In case of salaries that exceed the minimum non-taxable threshold, the deductions would be at the normal slab rate for both Indian residents and NRIs.

What are TDS returns and which ones do I need to file?

The quarterly statement of taxes deducted at source that a startup submits to the government is called TDS return. The TDS returns have to be filed in different forms for different kinds of deductions that are prescribed by the government:

Form 24Q: TDS from salaries

Form 26Q: TDS on payments other than salaries

(like payments made to contractors)

Form 27Q: TDS on any sum payable to non-residents

It is the startup’s responsibility to deposit the tax money in the designated banks using the Challan 281. The same can be generated online as well.

Are there specific deadlines to file TDS returns?

A startup is required to submit the quarterly TDS returns before the following dates:

April-May-June Quarter:  July 15

July-August-September Quarter: October 15

October-November-December Quarter: January 15

January-February-March Quarter: May 15

How do I file TDS returns for my startup?

Now that you have a fair idea of what TDS is and the importance of filing the returns, let’s understand how startups can file their TDS returns. The first thing you need to do is apply for a Tax Deduction Account Number (TAN). The TAN will be used at the time of making the deductions payment to the government. Once that’s done, you have to download and use the National Securities Depository Limited’s (NSDL) software Return Preparation Utility (RPU).

Do you have any questions about TDS filing? Are you struggling to decode taxation? Drop us a comment below and we’ll do our best to answer & help.