TDS or Tax Deducted at Source which means an authorized deduct or deducts tax while making certain payments. Example: Rent, Commission, Salary, Interest, etc. In this blog, we will explain the details of 27 sections under TDS with different provisions of deduction and a threshold limit of exemption.
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What is Tax Deducted at Source in Income?
TDS or Tax deduction forms an integral portion of the direct taxation mechanism applicable to heads of Income to deduct taxes for certain payments. TDA at its source reduces the burden of taxpayers from paying off lump sums of taxes at the end of every budget year. In this way, the TDS process enables a balanced outflow of revenue between the government and taxpayers.
For Instance: If ABC group company pays an amount of INR 30,000 as a salary to Y, the ABC groups shall deduct a tax of INR 2,000 and make a net payment of INR 28,000 to Y. Then, the tax deducted by ABC Groups Ltd will be directly credited to the Government.
According to the Income Tax Act of 1961, policies and regulations related to Tax Deducted at Source are managed by CBDT (Central Board of Direct Taxes). The person who is liable to pay tax is known as Deductee, and the person who deducts the tax is known as Deductor. The deducted amount in the TDS Mechanism shall be sent to the Central Government. The deductee can check the deducted TDS amount in Form 26 As or the TDS certificate issued by the deductor.
What are the types of TDS?
Even when you are making payments as an individual taxpayer, you need to deduct TDS on certain payments.
The following type of payments attracts Tax Deducted at Source:
- Salary Transfer
- Professional Fee
- Consultation Fee
- Rent Payments
- Commission
- Interest on Securities & Deposits
- Dividend on company shares and Mutual Funds
- Lottery & similar winnings
- Payment of Royalty
- Salary Transfer
- Professional Fee
- Consultation Fee
- Rent Payments
- Commission & Brokerage Payments
- Interest on Securities & Deposits
- Dividend on company shares and Mutual Funds
- Lottery, Lucky Draw, and similar winnings
- Payment of Royalty
- Director’s Remuneration
- Transfer of Property
- Other Interest Payments
When and who is liable to deduct TDS?
If you receive payment specified under the Income Tax Act, TDS will be deducted. If you are an individual or a Hindu Undivided Family and your books do not require an audit, then no TDS will be deducted. However, if you pay rent and the amount exceeds INR 50,000, a TDS at 5% will be deducted, even if your books do not require an audit. Your employee will deduct TDS from your salary as per the applicable Income Tax Slab Rates.
The bank with whom you hold an account will deduct TDS at 10%. If you submit your investment proof to your employer and your total taxable income is below the taxable threshold, then you will not need to pay any tax, and no TDS will be deducted. If your total taxable income is below the taxable limit, you can submit Form 15G and Form 15H to the bank, and they will not deduct Tax Deducted at Source on your interest income. If the bank has deducted TDS, and you are eligible to claim a refund, you can file a return and claim it.
How to pay your TDS?
To ensure compliance with the concept of Tax Deducted at Source, the deducting organization or individual is responsible for remitting the deducted income to the government.
Here is a step-by-step guide on how to deposit TDS:
- Log in to NSDL’s website for e-payment.
- Select Challan No. ITNS 281 under the section TCS (Tax Collected at Source)/TDS (Tax Deducted at Source) and enter the required details such as TAN, assessment year, PIN code and mode of payment.
- Choose between TDS on regular assessment and TDS deducted or payable and click on submit.
- After confirming the TAN and taxpayer’s name, you will be redirected to the payment page.
- Make your payment here.
- Upon successful payment, you will receive a counterfoil with CIN, payment confirmation, and bank details as proof of payment.
- You must file a TDS return after this.
What are TDS Returns?
TDS return is the process of returning the excess amount deducted as TDS to the taxpayer. While TDS is a form of Income Tax, individuals may still have an income tax liability at the end of each year, even after paying TDS. This is because TDS is deducted from the source of income to avoid payment delays.
If the total Tax Deducted at Source paid in a year exceeds the individual’s tax liability, the excess amount will be returned by the government. To receive this return, the taxpayer must obtain a TDS certificate from their deduct, which is necessary while filing a TDS return.
TDS Rate Chart (FY 2023-24)
| Section | Nature of Payment | Threshold (Rs.) | Individual / HUF (Hindu Undivided Family) TDS Rates (%) | Others TDS Rate(%) |
|---|---|---|---|---|
| 192 | Salaries | Rs. 2,50,000 | Slab Rates | Slab Rates |
| 192A | Premature EPF (Employees Provident Fund) withdrawal* | Rs. 50,000 | 10% | 10% |
| 193 | TDS on interest on securities*** | Rs. 10,000 | 10% | 10% |
| 194 | Payment of dividend | Rs. 5,000 | 10% | 10% |
| 194A | Interest issued by banks or post offices on deposits | Rs. 40,000 Rs. 50,000 (For senior citizens) | 10% | 10% |
| 194A | Interest by others apart from on securities | Rs. 5,000 | 10% | 10% |
| 194B | Amounts that someone has won through lotteries, puzzles, or games | Aggregate of Rs. 10,000** | 30% | 30% |
| 194BB | Amounts that someone has won from horse races | Rs. 10,000 | 30% | 30% |
| 194C | Payments to a contractor or sub-contractor Single Payment | Rs. 30,000 | 1% | 2% |
| 194C | Payments to contractor/sub-contractor – Aggregate Payments | Rs. 1,00,000 | 1% | 2% |
| 194D | Payment of insurance commission to domestic companies | Rs. 15,000 | NA | 10% |
| 194D | Payment of insurance commission to companies other than domestic ones | Rs. 15,000 | 5% | NA |
| 194DA | Maturity of Life Insurance Policy | Rs. 1,00,000 | 5% | 5% |
| 194EE | Payment of an amount standing to a credit of an individual under NSS (National Savings Scheme) | Rs. 2500 | 10% | 10% |
| 194F | Payment of repurchase of the unit by UTI (Unit Trust of India) or any mutual fund | No Limit | 20% | 20% |
| 194G | Payment of repurchase of the unit by UTI (Unit Trust of India) or any mutual fund | Rs. 15,000 | 5% | 5% |
| 194H | Commission or brokerage | Rs. 15,000 | 5% | 5% |
| 194I | Rent of land, building, or furniture | Rs. 2,40,000 | 10% | 10% |
| 194I | Rent of plant and machinery | Rs. 2,40,000 | 2% | 2% |
| 194IA | Payment for transfer of immovable property other than agricultural land | Rs. 50,00,000 | 1% | 1% |
| 194IB | Rent payment that is made by an individual or HUF not covered under payment 194I | Rs. 50,000 (per month) | 5% | NA |
| 194IC | At a rate higher than the Specified rate as per the act 20% Rate in force | No Limit | 10% | 10% |
| 194J | Fees paid for professional services | Rs. 30,000 | 10% | 10% |
| 194J | Amount paid for technical services | Rs. 30,000 | 2% | 2% |
| 194J | Amounts paid as royalty for sale/distribution/exhibition of cinematographic films | Rs. 30,000 | 2% | 2% |
| 194K | Payment of income for units of a mutual fund, for example- dividends | Rs. 5,000 | 10% | 10% |
| 194LA | Payment made for compensation for acquiring certain immovable property | Rs. 2,50,000 | 10% | 10% |
| 194LB | Payment of interest on infrastructure bonds to Non-Resident Indians | NA | 5% | 5% |
| 194LBA (1) | Certain income distributed by a business trust among its unit holders | NA | 10% | 10% |
| 194LD | Payment of interest on rupee-denominated bonds, municipal debt security, and government securities | NA | 5% | 5% |
| 194M | At a rate higher of the Specified rate as per the act 20% Rate in force | Rs. 50,00,000 | 5% | 5% |
| 194N | In case cash withdrawal over a certain amount takes place from the bank, and ITR (Income Tax Returns) is filed | Rs. 1,00,00,000 | 2% | 2% |
| 194N | In case cash withdrawal takes place from a bank and one does not file ITR | Rs. 20,00,000 | 2% | 2% |
| 194O | Amount paid for the sale of products/services by e-commerce service providers via their digital platform | Rs. 5,00,000 | 1% | 1% |
| 194Q | Payments made for the purchase of goods | Rs. 50,00,000 | 0.10% | 0.10% |
| 194S | TDS on the payment of any crypto or other virtual asset | NA | 1% | 1% |
| 206AA | TDS for non-availability of PAN | NA | Rate higher of 5% Twice the mentioned rate in provision Rate in force | 20% |
| 206AB | TDS on non-filers of Income tax return | NA | Rate higher of 5% Twice the mentioned rate in provision Rate in force |
TDS/TCS Returns for the Assessment Year 2023-24
If you need to file your TDS or TCS returns for the budget year 2022-23, here are the deadlines you need to remember. These are the dates by which you must file your TDS/TCS returns for the assessment year 2023-24.
| Quarter | Period | Due Date for filing |
|---|---|---|
| Quarter 1 | 1st April to 30th June | 31st July 2022 |
| Quarter 2 | 1st July to 30th September | 31st October 2022 |
| Quarter 3 | 1st October to 31st December | 31st January 2023 |
| Quarter 4 | 1st January to 31st March | 31st May 2023 |
How to upload TDS Statement?
To upload your Tax Deducted at Source statements on the official website of the Income Tax Department, follow these simple steps:
- Visit Income Tax Department Website and click on ‘Registered User?’ Option on the right side of the page.
- Fill in your login details and click on ‘Login’.
- Your user ID will be your TAN (Tax Deduction and Collection Account Number).
- Locate the ‘TDS’ drop-down menu after logging in and select ‘Upload TDS’.
- Fill in the required details on the form that appears and click on ‘Validate’.
- Finally, validate your returns using either a Digital Signature Certificate (DSC) or Electronic Verification Code (EVC).
What is TDS Certificate?
TDS certificate is a document that serves as proof of Tax Deducted at Source from a person’s income by an entity, and has been deposited in Government’s account.This certificate is issued by the entity that has made the TDS deduction, to the person from whose income the TDS is deducted, also known as the Assesses.
The certificate indicates that the TDS amount has been deposited in the Government’s account. Knowing about TDS certificates and their types can help in resolving any issues related to TDS deductions from various sources of income.
It is important to understand the several types of TDS certificates and which ones you should request.
| Form | Certificate for type of Payment | Frequency & Due Date |
|---|---|---|
| Form 16 | Salary payment | Yearly, 31st May |
| Form 16 A | Non-salary payments | Quarterly, 15 days (about 2 weeks) from the due date of filing the return |
| Form 16 B | Sale of property | Every transaction, 15 days (about 2 weeks) from the due date of filing the return |
| Form 16 C | Rent | Every transaction, 15 days (about 2 weeks) from the due date of filing the return |
What is the penalty for failing to pay TDS?
If you fail to submit or submit late Tax Deducted at Source returns/statements, you will be subjected to various penalties by the Income Tax Department, as outlined below:
- Failure to submit returns:
- Section 272A (2) of the Income Tax Act imposes a penalty of INR 100 per day for each day that returns remain unsubmitted, with a maximum penalty equal to the TDS amount.
- Failure to file returns on time:
- Section 234E of the Income Tax Act imposes a penalty of INR 200 per day for each day that returns remain unfiled, with a maximum penalty equal to the TDS amount.
- Defaults in TDS statement filing:
- Section 271H of the Income Tax Act imposes a penalty ranging from INR 10,000 to INR 1 lakh if the deduct or defaults in filing a TDS return within the due date.
- Incorrect details:
- Under Section 271H of the Income Tax Act, a penalty ranging from INR 10,000 to INR 1 lakh will be charged if the deduct or submits incorrect information, such as PAN (Permanent Account Number), challan particulars, TDS amount, etc.
- Non-payment of TDS:
- Section 201A of the Income Tax Act imposes interest along with the penalty if TDS is not paid within the due date. In case a part or the whole of the tax amount is not deducted at the source, interest will be charged at 1.5% per month from the date on which the tax was deductible to the date on which it is deducted.
When can Taxpayer claim a refund?
Taxpayers can claim a refund or reduction of applicable Tax Deducted at Source under certain circumstances.
- If the total income is not within the income tax payable slab, a refund or reduction can be claimed.
- If the TDS paid is more than the tax payable liability, a refund can be claimed.
- If the taxpayer has a loss of income in the current month or a previous year’s loss carried forward in the present year, a reduction can be claimed.
- If the taxpayer is eligible for tax exemption, a refund or reduction can be claimed. Form 15G/15H can be submitted to avoid TDS deduction.
- Form 13 can be submitted to claim a refund or non-reduction of TDS.
Conclusion
Tax Deducted at Source is a crucial aspect of the Indian taxation system. It ensures a smooth collection of taxes and reduces the burden of tax collection for the government. Tax Deducted at Source also helps to track financial transactions, minimizes tax evasion, and ensures tax compliance.
Overall, Tax Deducted at Source plays a significant role in the Indian tax regime and contributes to the growth and development of the nation’s economy. It is important for taxpayers to understand what TDS is and why it is deducted to file their returns and maximize their benefits.
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FAQs
1. What is Tax Deducted at Source?
Tax Deducted at Source or TDS is a mechanism where a person responsible for making payments such as salary, interest, commission, etc., deducts a certain percentage of tax before making the payment. This deducted amount is then remitted to the government on behalf of the recipient.
2. Who is liable to deduct TDS?
Various entities like employers, banks, or any person making specified payments mentioned under the Income Tax Act are liable to deduct TDS. The responsibility varies based on the nature and amount of the payment.
3. How to check if TDS has been deducted from income?
You can check your Form 26AS, available on the income tax portal, to view details of TDS deducted. It provides a consolidated statement reflecting TDS, advance tax, and self-assessment tax payments.
4. What happens if TDS is not deducted or not deposited to the government?
Failure to deduct TDS or non-depositing of the deducted amount can attract penalties and interest. The deductor may face legal consequences for non-compliance with TDS regulations.
5. Can I claim a refund if excess TDS is deducted from my income?
Yes, if the TDS deducted is more than your actual tax liability, you can claim a refund while filing your income tax return. The excess TDS can be refunded to you by the Income Tax Department after assessment.
6. How is TDS calculated?
Determining the monthly TDS amount by dividing your anticipated income tax liability by the duration of your employment in months.
For example, if your projected total taxable income for the ongoing fiscal year is INR 5,00,000 and your employment spans 12 months, the monthly TDS can be calculated as;
(INR 5,00,000×30%)/ 12= INR 12,500.