The Income Tax Act, 1961, provides specific cases where TDS is not required to be deducted, even if the payment would normally attract TDS. Below are key exemptions:
1. Payments Below Threshold Limits
TDS is not applicable if the payment amount is below the specified threshold for that income type:
- Interest (Section 194A):
- ₹50,000(for non-seniors) / ₹1,00,000 (for seniors ≥60) from banks/post offices.
- ₹10,000for other interest payers (e.g., individuals/HUFs).
- Rent (Section 194-I): Below ₹2,40,000/year(₹20,000/month).
- Professional Fees (Section 194J): Below ₹50,000/year.
2. Exempt Incomes
No TDS on payments that are tax-exempt under the Income Tax Act, such as:
- Agricultural income(Section 10(1)).
- Dividends from Indian companies(if covered under Section 10(34)).
- Interest on tax-free bonds(e.g., municipal bonds).
3. Payments to Government/RBI
- No TDS on payments to:
- Central/State Governments.
- Reserve Bank of India (RBI).
4. Non-Taxable Recipients
- Form 15G/15H: If the recipient’s total income is below taxable limits, they can submit:
- Form 15G(for individuals <60 years & HUFs).
- Form 15H(for seniors ≥60 years).
- Exempt entities: Trusts/NGOs with Section 12A/80G registration.
5. Specific Cases Under Court Orders
- Court-directed fixed deposits: No TDS during litigation if funds are held in custodia legis(Circular No. 23/2015).
6. Non-Residents (Section 195 Exceptions)
- No TDS if:
- Income is exempt under DTAA (Double Taxation Avoidance Agreement).
- Payment is for capital gains exempt under Section 115F(e.g., foreign investors in specified funds).
7. Lower/Nil TDS Certificate (Section 197)
- If the Assessing Officer (AO) issues a Nil TDS certificatevia Form 13, the deductor must not deduct TDS.
Key Takeaways
✅ Thresholds matter: Check payment limits before deducting TDS.
✅ Exempt incomes: Verify if the payment is tax-free.
✅ Forms 15G/15H: Use for individuals with income below taxable limits.
✅ Legal exemptions: Court-held funds or government payments are TDS-free.
