TDS on Payments Under National Savings Scheme
Introduction
Tax Deducted at Source (TDS) must be deducted on payments under the National Savings Scheme (NSS) under Section 194EE. The applicable TDS rate is 10% on the total amount (principal + interest).
Applicability
- Deductor– Any person making payments under NSS.
- Deductee– Both residents and non-residents receiving NSS payouts.
Rate of TDS
- Flat 10% (plus surcharge & cess for non-residents).
- Higher TDS rates apply underSection 206AAif PAN is not provided
Time of Deduction
- TDS is deducted at the time of payment.
Exemptions from TDS
- Payments belowRs. 2,500 – No TDS if the total payout in a financial year is less than Rs. 2,500.
- Payments to legal heirs– No TDS on NSS payouts to heirs of the deceased.
- Payment for withdrawal on or after 04-04-2025– No TDS on NSS withdrawals (principal for which deduction u/s 80CCA was allowed and interest thereon) made by an individual on or after 4th April 2025. [Notification No. 27/2025, dated 04-04-2025]
- Payments to Government & Specified Entities– No TDS on payments to Government, RBI, mutual funds, or tax-exempt corporations (Section 196).
Compliance Requirements
- Lower/Nil Deduction Certificate:Not available under Section 194EE.
- TDS Deposit:Deducted tax must be deposited via Challan ITNS 281 within 7 days of the end of the month (except for March, due by 30th April). Government offices depositing TDS without a challan must deposit the TDS on the same day on which the tax was deducted.
- TDS Returns:The deductor must file Form 26Q quarterly.
- TDS Certificate:Form 16A must be issued within 15 days of filing TDS returns.
Consequences of Non-Compliance
- Failure to deduct/deposit TDS– Interest under Section 201, penalty under Section 271C, and prosecution under Section 276B.
- Failure to file TDS returns– Late fee of Rs. 200 per day under Section 234E and penalty under Section 271H.
- Failure to issue TDS certificates– Penalty under Section 272A.