Tax Deducted at Source (TDS) refers to the process that the Indian Government enforces to collect taxes from the revenue stream or income source. The payer, while making payments to the acceptor, subtracts a specific proportion of tax, which then goes to the government. These tools help governments with systematized tax administration and reduce the opportunities for tax avoidance.
TDS: Meaning and Concept
TDS provides governmental authorities the ability to levy tax at the point of income generation. This involves a basic notion: Instead of total tax accountability lying on the shoulders of a business or people when they submit their annual reports or returns, a fraction of the tax is deducted in advance by the payer and directly paid to the government. The deduction of TDS must be made on the rates stipulated by the tax department.
TDS is operative on a vast spectrum of income segments such as rent, salaries, brokerage, immovable property transfer, bonds, shares, and interest on fixed deposits. TDS is beneficial in checking deliberate tax underpayment and knowing its necessity for both payers and income receivers within India. TDS deduction occurs no matter what method of payment is – cheque, credit, hard cash, or bank notes- and links to the PAN of the subtractor and the deducted.
Situations Needing TDS Deduction
Any individual making payments specified under the Income Tax Act 1961 is required to deduct TDS while making such specified remittances. However, there is no TDS deduction in case the person remitting the payment is an individual or HUF whose transactions from business or occupation do not cross beyond Rs. 1 crore or Rs—50 lakhs, respectively.
For rent payments exceeding Rs 50,000 per month by an individual or HUF taxpayer, you have to pay TDS @5% irrespective of whether the individual or HUF is not accountable for a tax audit. Further, such HUF or individuals responsible for deducting TDS at 5% do not need a TAN application.
Your employer deducts TDS from the applicable income tax slab brackets. Banks subtract TDS @ 10%. When banks do not possess your PAN details, they may deduct 20%.
If you submit tax-saving investment proofs to your employer and your overall taxable income is less than the taxable limit, no TDS deduction occurs from your earnings.
Banks will subtract 10% as TDS from the accrued interest on fixed deposits. However, if your yearly income is less than the fully exempted limit, submission of Forms 15 G and 15 H can help in the evasion of such deduction. If your annual interest on FD is lower than Rs 40,000, you can enjoy a TDS exemption. Interest that surpasses Rs. 40,000 entails a TDS of 10%, or 20%, if you do not possess a PAN card.
You can demand the surplus TDS deducted by the banks, firm executives, or any separate entity during the annual filing of your tax returns.
Different Kinds of TDS
TDS is a mechanism that guarantees advance tax collection on different kinds of income. For instance, when you make money from fixed deposit interest, the bank deducts a percentage as TDS before crediting the rest of the sum to you.
TDS pertains to several different income sources consisting of:
- Salary
- Brokerage
- Bank Interests
- Commission payments
- Deemed Dividends
- Compensation or payment for taking possession of real estate
- Contractor payments
- Insurance commission
- Interest on securities
- Rent payments
- Interest different from interest on securities
- Winnings from games, such as lottery prizes
Due Date for Submission of TDS
TDS needs to be deposited to the government within the due time frame of the 7th of the following month. For example, TDS subtracted in April must be submitted to the government by May 7. Nonetheless, the TDS deduction in March can be deposited as late as 30th April. In the case of a TDS deduction on the acquisition of property, the due date for payment is 30 days from the month closure in which the TDS deduction was made.
Here is a look at the month-wise due date for the TDS submission implemented by the government.
| Month | Closing Date |
| April | On or earlier than 7 May |
| May | On or earlier than 7 June |
| June | On or earlier than 7 July |
| July | On or earlier than 7 August |
| August | On or earlier than 7 September |
| September | On or earlier than 7 October |
| October | On or earlier than 7 November |
| November | On or earlier than 7 December |
| December | On or earlier than 7 January |
| January | On or earlier than 7 February |
| February | On or earlier than 7 March |
| March | On or earlier than 30th April |
Frequency of Filing
TDS returns are filed quarterly, with precise due dates or time frames for every quarter
- Quarter 1 (April to June): July 31 st
- Quarter 2 (July to September): October 31st
- Quarter 3(October to December: January 31 st
- Quarter 4 (January to March): May 31st
Knowing the TDS Rates
The Indian tax system has approximately 20 – 25 sections that regulate the various kinds of payments on which TDS is levied.
Here are some of the general kinds of payments on which TDS is withdrawn at source, together with the appropriate section and appropriate TDS rates.
| Section | Nature of Payment | Rate (%) | |
| Sec 192 | Income from Salary | No fixed rate (Calculation of the average rate will be according to the existing slab rate in operation) | |
| Sec 194 | Dividend u/s 2(22) | 10 | |
| Sec 194 A | Income accruing from interest (other than that on securities) | 10 | |
| Sec 194 C | Payment or credit to a resident contractor or sub-contractor | 1 (for HUF and individuals) 2 (for others) |
|
| Sec 194 D | Insurance Commission | 5% in favour of individuals and HUF
10 (for others) |
|
| Sec 194 G | The commission received from the lottery ticket sale | 10 | |
| Sec 194H | Commission or Brokerage | 5 | |
| Sec 194-I | Rental Income obtained | 2 (deriving out of plant, equipment or machinery) 10 (deriving out of furniture or fixtures, land plus building)) |
|
| Sec 194-IA | Transfer or conveyance of any immovable property, excluding rural land | 1 | |
| Sec 194 J | Royalty, technical or Expert services fees or wages to a director | 10 | |
| Sec 194LA | Acquisition of any fixed, immovable property | 10 | |
Filing of TDS Returns
Establishments or individuals that deduct TDS need to submit tax forms as quarterly returns describing the deducted amount and its submission. These TDS returns consist of:
- TAN (Tax Deduction and Collection Account Number)
- The Whole Amount of TDS deducted
- Payment category
- PAN of the individual whose TDS was deducted (deductee)
Non-compliance with these conditions can evoke penalties and interest costs on unpaid amounts.
Regulations Involving Tax Deducted at Source
The primary rules connected with TDS are as follows:
- Among the cardinal rules, it is imperative that TDS be deducted at the period when the payment date is due or when the actual amount accrues, whichever is timely.
- Any hold-ups in TDS deduction will invoke a liability of 1% interest every month till the time the tax is cleared/deducted.
- All individuals, be it an employer or apart from that, are required to credit the TDS to the account of the government on the 7th day of the following month.
- In case of delay or default in TDS payment, 1.5% monthly interest will be imposed until the tax is submitted.
Knowing About a TDS Certificate
The deductee is given an official document known as a TDS certificate, which endorses the tax amount deducted from the source.
Section 203 of the Income Tax Act, 1961, directs two kinds of primary TDS certificates—Form 16 and Form 16A.
- For the wage earners, company owners play a pivotal part in the release of TDS certificates, namely Form 16. Form 16 is an all-inclusive document that covers pieces of information related to income tax calculation, the precise TDS deduction, and details on TDS payments. Employers need to make available Form 16 to their workers before May 31 of the coming financial year
- Individuals who belong to the non-salaried category obtain Form 16 A from deductors. This TDS certificate carries essential information connected with tax computation, particulars of TDS deductions undertaken by the deductor, and payment details linked with TDS
How to Claim A TDS Refund
Many people view a surplus TDS refund as separate from income tax repayment or refund. According to the Indian Tax System, one can claim only one kind of return while filing one yearly income tax return.
For submission of a TDS refund, it is obligatory to cite the details of your bank account, such as the IFSC code and the account number. If you neglect these steps, you will generate an invalid file. Suppose someone deducts considerably more tax than was needed; then you will receive an income tax refund. This refund can be demanded when you submit the yearly income tax return.
Final Thoughts
TDS is a vital legal obligation for all those who earn a salary or income. This mechanism ensures minimum tax evasion as it is charged at the source itself. Understanding TDS is vital for preserving fiscal discipline and ensuring tax compliance. Stay up to date with your tax deductions and ask for the credit while submitting your tax returns to meet your tax obligations responsibly and avoid penalties.
