What is TDS? How can TDS Adjustments be done?

TDS and TDS Adjustments

Tax Deducted at Source (TDS) is a means of collecting Income Tax in India, under the Indian Income Tax Act of 1961. It is managed by the Central Board for Direct Taxes (CBDT) and is part of the Department of Revenue managed by Indian Revenue Service (IRS). It has a great importance while conducting tax audits. Entities (both corporate and non-corporate deductors) making payments (specified under Income Tax Act) to third parties (deductees) are required to deduct tax at source (Tax Deducted at Source -TDS) from these payments and deposit the same at any of the designated branches of banks authorised to collect taxes on behalf of Government of India. They should also furnish TDS returns containing details of deductee(s) and challan details relating to deposit of tax to the Income Tax Department.

TDS Adjustments

Deduction of excess TDS is one thing and deposit of excess TDS is another thing. Once you deposit the excess TDS after being deducted in excess, the only way is to revise the return, if already submitted. Otherwise,  the same as to be adjusted to the next quarters’ liability but it is doubtful that it can be carried forward to next year. Hence the excess TDS paid for Quarter-1 can be adjusted in the next quarter. And also it can be adjusted in the next financial year as per the new FVU available. The last date for such submissions varies, but most organizations would expect you to submit them by March 10, 2018. However, employers start asking for them in January itself as they would like to start deducting tax at source on the basis of tax calculations based on actual investments from January. This will also enable the employee to finalize tax adjustments, if any, in the balance months of the current financial year (2017-18). If taxes have been deducted in excess or less, accordingly, they will get deducted in the last 3 months of the FY. Do not wait until March as then their won’t be any scope for finalizing and one could see a huge tax burden in that month and less of take-home pay.

The documents need not be attached or sent to the Income Tax Department at the time of tax filing. Instead, it’s the employer who has to receive them from employees and deduct tax accordingly. At times it is found that after taking into account the tax saving investments/expenditures, the tax already deducted by one’s employer is in excess and cannot be adjusted in subsequent months. In such cases, the excess TDS will reflect in Form 16 and the refund will have to be claimed by you from the IT Department by filing the appropriate income tax return.
Tax saving investment/expenditure proofs include:

  • Investments – Under Section 80C
  • Tuition fees
  • First-time home buyers
  • House Rent Allowance Exemption
  • Housing loan repayment
  • Loss from housing property – interest on housing loan
  • New Pension Scheme (NPS)
  • Mediclaim premium

The documents, if not submitted within time, may make you end up with excess TDS which would have to be claimed as refund. Also, as a precaution, try to retain the original copies for personal income-tax assessment.

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