Tax Deducted at Sources (TDS)

Tax Deducted at Sources

what is TDS? How it is calculated in India?

Tax Deducted at Sources or TDS is a means of direct tax collection by Indian authorities as per the Income Tax Act 1961. The Indian Revenue Service (IRS) oversees TDS through the Central Board of Direct Taxes (CBDT), and the government collects it to maintain a stable revenue source throughout the year and prevent tax avoidance by individuals.

What is Tax Deducted at Sources?

Tax authorities deduct Tax Deducted at Source (TDS) from an individual’s income on a periodic or occasional basis. TDS can be applicable for pay that is regular as well as irregular in nature.

The Income Tax Act 1961 regulates TDS in India through the Central Board of Direct Taxes (CBDT) under the Indian Revenue Services (IRS). Moreover, TDS rule directs the payee or employer to deduct a certain amount of Tax before making full payment to the receiver. TDS is applicable for salary, commission, professional fees, interest, rent, etc.

TDS Calculation

The TDS subjects payments such as salaries, interest payments, commissions, and fees to lawyers and freelancers. Income slab rates will determine the percentage of TDS for wages. Similarly, authorities calculate the percentage of Tax for each type of income.

An individual can declare and submit their investment proof to file a return and claim a refund for the TDS because tax authorities collect TDS at the source without considering the calculation of investment eligible for tax deductions.

TDS Deduction

If an individual has paid excess TDS compared to the liable tax amount, the payee can file a claim for a refund. Various factors determine the calculation of  TDS deductions. It varies for individuals from different income categories.

How TDS Calculated?

Income and expenditures such as salary, lotteries, interest from banks, payment of commissions, rent payment, payments to freelancers, etc., fall under the Tax Deducted at Sources (TDS). 

The source withholds a percentage of the overall cost when making payments under these segments. The Deductor, who can be a person or an organization, performs this withholding. The Deductee is the person whose payment undergoes deduction. For instance, a deductor is an employer paying a salary to an employee (the Deductee).

TDS Return

Individuals must file a TDS return to receive TDS refunds and maintain a healthy financial record. You can carry out the TDS return online by visiting Income Tax India.

Accordingly, the individual will need to sign onto the website using the existing credential or registering for the services. By following specific deadlines, an individual must ensure to file the TDS returns within the due time.

Depending on the income category, the individual must fill up the necessary form and provide the required documents for the refund process to begin. Once the individual has registered and submitted the return, they must validate the TDS Return File.

You can validate using the free software provided by the Income Tax Department. Furthermore, if you are wondering about possibly receiving a refund for the excess TDS paid. In that case, you must file the claim through TDS return to receive a refund for the extra amount.

Challan for TDS

Challan ITNS 281 is the Challan form for payment of TDS (Tax Deducted at Source) and TCS (Tax Collected at Source). This Challan No. 281 is applicable for Tax Deducted at Source / Tax Collected at Source (TDS/TCS) from corporates and non-corporates.

Challan TDS 281

To make TDS/TCS deposits, taxpayers use challan no. 281, where they need to mention the correct 10-digit Tax Deduction Account Number (TAN), name, and address of the Deductor on each challan used for depositing Tax.

Verify the TAN details from the Income Tax Department website before depositing TDS/TCS. As a taxpayer, you will require using separate challans to deposit Tax deducted under each section and indicate the correct nature of the payment code in the relevant column in the challan.

eFiling for TDS Return

  • Follow the instruction below for the e-filing of TDS
  • The file should be in a clean text ASCII format with ‘txt’ as the filename extension.
  • We 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 you have prepared the file, validate it using the File validation process; Validation Utility (FVU) provided by NSDL. You can either submit the generated .fvu file at TIN-FC or upload it to the TIN website.

ePayment of TDS

The Income Tax Department provides an online option to Pay Taxes Online. The e-Payment service facilitates payment of direct taxes online. The taxpayer will require having the net-banking services from any of the authorized banks.

Penalty for Late Filing of TDS Return

Filing the TDS Return within the due time is essential to avoid a fine of Rs. 200 per day until you file the return. The penalty continues until the acceptable amount equals the total liable TDS.

Suppose the taxpayer exceeds the one-year time limit to file the TDS return or furnishes incorrect details of PAN, Tax Deducted at Sources amount. In that case, they must pay a minimum penalty of Rs.10,000 to Rs.1 lakh.

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