TDS or Tax Deducted at Source is a specific amount that is reduced when a certain payment like salary, commission, rent, professional fees, interest, etc. is paid by the person. The person who makes the payment deducted the TDS and the receiver of income receives the balance net amount. The recipient will add the gross amount to his income and the amount of TDS is adjusted against his final tax liability. The recipient takes credit for the amount already deducted and paid on his behalf.
Why is TDS deducted and who deducts the TDS?
- If any person making payments mentioned under the Income Tax Act is liable to deduct TDS at the time of making such payments. But HUF (Hindu Undivided Family) need not deduct TDS as their books are not required to be audited.
- If you are a salaried employee then your employer will deduct TDS as per the Income tax slab. However, If you submit IT Declarations/Savings (for claiming deductions) to your employer and if your total taxable income is below the taxable limit then you need not have to pay any tax.
- In Form 26AS statement it can be seen the amount of tax deducted and deposited in a person’s name/PAN in a particular financial year.
- Suppose you failed to submit IT Declarations/Savings to your employer and they deducted the TDS, you can file a return and claim a refund of it if the total taxable income is below the total tax limit.
- When a rent amount is paid by an individual and if the payment amount exceeds Rs. 50,000 per month then a TDS of 5% will be deducted even if your books are not liable for tax audit. Also, the individuals falling under deductions of 5% TDS are not eligible to apply for TAN (Tax Deduction Account Number).
- Banks deduct TDS at 10% for working accounts and 20% if they do not have your PAN information. For most of the payments TDS rates are set in the Income Tax Act and the payer deduct TDS as per the specified rates.
- Form 15G and Form 15H can be submitted to the bank if your total taxable income is below the tax limit. In such a case the bank will not deduct any TDS on your interest income..
What is a TDS Return?
Under the sections 192 to 195 of the Indian Income Tax Act if any person who makes the payments to the other party based on their services throughout the year and if these payments exceed the specified tax limit you must deduct TDS amount. After deducting the amount you have to deposit the deducted TDS amount quarterly along with the respective TDS Return.
How Does TDS or Tax deducted at source Work?
TDS or Tax deducted at source is applicable to all taxable incomes at a fixed rate, except salary, to which TDS rate depends on the type of income rather than the amount of payment.
In terms of salary, TDS deduction happens at the applicable slab rate and may vary in the middle of the year based on changes to income due to bonus or appraisal.
Most of the employed taxpayers fail to prepare in advance and end up losing a big amount of their salaries in the last quarter of the financial year. So it is advisable to start your tax-saving early to reduce TDS deduction and to avoid last moment rush for tax saving investments.
Following are a few payments when TDS must be deducted by the payer:
- Payment of Salary
- Interest payment on debentures and other securities
- Dividend payments
- Lottery winnings, prize money, etc.
- Commission income
- Consultation & Professional fee
- Rent on building (only when exceeding Rs 50,000 p.m.)
- Payment to NRI on any investments
- Payment to contractors / vendors
When to File TDS Returns?
|TDS Transactions||Due Date||TDS Form||Form Certificate|
|TDS on Salary||Q1 – 31st July||Form 24Q||Form 16|
|Q2 – 31st October|
|Q3 – 31st January|
|Q4 – 31st May|
|TDS on all payments made to non-residents except Salaries||Q1 – 31st July||Form 27Q||Form 16A|
|Q2 – 31st October|
|Q3 – 31st January|
|Q4 – 31st May|
|TDS on sale of property||30 days from the end of the month in which TDS is deducted.||Form 26QB||Form 16B|
|TDS on rent||30 days from the end of the month in which TDS is deducted.||Form 26QC||Form 16C|
How can TDS Benefit you?
Tax paid on income in advance will reduce your tax deduction amount at the end of the financial year which helps you to avoid payment delays and penalties.
TDS is calculated on (Basic + Allowances – Deductions)*12 – (IT Declarations + Standard deductions)
Percentage of TDS will be based on income slabs rates.
e-filing for TDS Return
While e-filing the file should be in a clean text ASCII format with ‘txt’ as filename extension.
You can also download the free software to prepare the return file using the return preparation utility provided by NSDL or any other third party software.
Once the file is prepared, validate the file using file validation utility (FVU) provided by NSDL generated .fvu file can either be submitted at TIN-FC or uploaded at TIN website.
E-payment of TDS: Provides an online option to pay taxes online. Required to have net-banking services from any of the authorized banks.
Penalty for late filing of TDS Return : if an individual fails to file TDS or tax deducted at source return within due time, he/ she will need to pay a fine of Rs. 200 per day until the return is filed. The fee is applicable for every day until the fine amount is equal to the total liable TDS Amount.
If the taxpayer exceeds one- year time limit to file the TDS Return or furnishes incorrect details of PAN,TDS AMOUNT, HE/SHE WILL need to pay a penalty of minimum Rs. 10,000 to Rs.1 Lakh