TDS is a specific amount that is deducted when a certain payment like salary, commission, rent, interest, professional fees, etc. is made.The TDS rates are set on the basis of the age bracket and income of different individuals.
The person who makes the payment deducts tax at the source, while the person who receives a payment/income has the liability to pay tax. It lowers tax evasion because the tax will be collected at the time of making a payment.
TDS or tax deducted at source is a deduction made by someone while making a payment or crediting the account, whichever is early. This could be your employer, customer or even a bank paying you interest on a fixed deposit. Before making a payment to you, the payer deducts and pays tax on your behalf to the Income tax department. You can claim/adjust TDS credit while filing your income tax return against income tax payable. You can view the details of the TDS credit in Form 26AS by logging into your income tax efiling account.
What is TDS?
TDS or Tax Deducted at Source is income tax reduced from the money paid at the time of making specified payments such as rent, commission, professional fees, salary, interest etc. by the persons making such payments. Usually, the person receiving income is liable to pay income tax. But the government with the help of Tax Deducted at Source provisions makes sure that income tax is deducted in advance from the payments being made by you. The recipient of income receives the net amount (after reducing TDS). 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. This will help the government to collect the taxes in advance and to track the transactions in an effective manner.
Example of TDS
- Let’s assume that a start-up company pays Rs.90,000 as rent every month to whoever owns the property.
- The TDS applicable to the amount is 10%, so the company must subtract Rs.9,000 and pay Rs.81,000 to the property owner.
- In this case, the owner of the property will receive Rs.81,000 following TDS. The owner can add the gross amount of Rs.90,000 to his income, thereby allowing him to take credit for the Rs.9,000 that has already been deducted by the company.
Types of TDS
- Salary
- Amount under LIC
- Bank Interest
- Brokerage or Commission
- Commission payments
- Compensation on acquiring immovable property
- Contractor payments
- Deemed Dividend
- Insurance Commission
- Interest apart from interest on securities
- Interest on securities
- Payment of rent
- Remuneration paid to the director of a company, etc
- Transfer of immovable property
- Winnings from games like a crossword puzzle, card, lottery, etc.
When Should TDS be Deducted and by Whom?
Any person making specified payments mentioned under the Income Tax Act is required to deduct TDS at the time of making such specified payment. But no TDS has to be deducted if the person making the payment is an individual or HUF whose sales from business or profession doesn’t exceed Rs.1 crore or Rs.50 lakhs, respectively.
However, in case of rent payments made by individuals and HUF exceeding Rs 50,000 per month, are required to deduct TDS @ 5% even if the individual or HUF is not liable for a tax audit. Also, such Individuals and HUF liable to deduct TDS @ 5% need not apply for TAN. Your employer deducts TDS at the income tax slab rates applicable. Banks deduct TDS @10%. Or they may deduct @ 20% if they do not have your PAN information.
For most payments rates of TDS are set in the income tax act and TDS is deducted by the payer basis of these specified rates. If you submit investment proofs (for claiming deductions) to your employer and your total taxable income is below the taxable limit – you do not have to pay any tax. And therefore no TDS should be deducted from your income.
Similarly, you can submit Form 15G and Form 15H to the bank if your total income is below the taxable limit so that they don’t deduct TDS on your interest income. In case you have not been able to submit proofs to your employer or if your employer or bank has already deducted TDS and your total income is below the taxable limit) – you can file a return and claim a refund of this TDS. The complete list of Specified Payments eligible for TDS deduction along with the rate of TDS.
How to Deposit TDS?
Tax Deducted at Source has to be deposited via Income Tax Portal based on the TAN login. Direct tax payments facility has been migrated from OLTAS ‘e-payment: Pay Taxes Online’ to e-Pay Tax facility of e-Filing portal. You have to click on ‘e-Pay Tax’ option of Income Tax Department on https://www.incometax.gov.in/ to make direct tax payments including TDS.
How and When to file TDS returns?
Form No | Transactions reported in the return | Due date |
Form 26Q | TDS on all payments except salaries | Q1 – 31st July |
Form 24Q | TDS on Salary | Q1 – 31st July |
Form 27Q | TDS on all payments made to non-residents except salaries | Q1 – 31st July |
Form 26QB | TDS on sale of property | 30 days from the end of the month in which TDS is deducted |
Form 26QC | TDS on rent | 30 days from the end of the month in which TDS is deducted |
TDS Credits in Form 26AS
It is important to understand how TDS is linked to your PAN. TDS deductions are linked to PAN numbers for both the deductor and deductee. If TDS has been deducted from any of your income you must go through the Tax Credit Form 26AS. This form is a consolidated tax statement that is available to all PAN holders.
Since all TDS is linked to your PAN, this form lists out the details of TDS deducted on your income by each deductor for all kinds of payments made to you – whether those are salaries or interest income – all TDS linked to your PAN is reported here. This form also has income tax directly paid by you – as advance tax or self-assessment tax (From FY 2022-23 it is made available in AIS). Therefore, it becomes important for you to mention your PAN correctly, wherever TDS may be applicable to your income.
An inaccurate claim of TDS credit can result in defective notice from the income tax department. Hence it is very important to reconcile the TDS credits in form 26AS with TDS receivables accounted in books, applicable mainly when TDS is made by multiple customers/vendors involved in business.
FAQs
At what rate the deductor will deduct TDS if I do not furnish my Permanent Account Number to them?
As per Section 206AA of the Income Tax Act, if you do not furnish your Permanent Account Number to the deductor, then the deductor shall deduct TDS at the higher of the rate prescribed in the relevant provisions of the Act or at 20%.
What is the difference between TAN and PAN?
PAN is a Permanent Account Number and TAN stands for Tax Deduction Account Number.
TAN should be obtained by the person responsible to deduct TDS, i.e., the deductor. The deductor is required to quote TAN in all the documents relating to TDS.
However, there is an exception- in the case of TDS on the purchase of land and building under Section 194-IA, the deductor is not required to obtain TAN and can use PAN for remitting the TDS.
Also, in the case of TDS on rent as per Section 194-IB, and TDS on payment of certain sums by Individuals or HUFs as per Section 194M, the deductor can use PAN instead of TAN for remitting TDS.