What is Tax Deducted at Source (TDS)

published by | January 27, 2025

TDS full form stands for Tax Deducted at Source. It is the tax amount deducted by the employer from the taxpayer which is deposited to the IT Department on behalf of the taxpayer. It is a certain percentage of one’s monthly income which is taxed from the point of payment.

According to the Income Tax Act 1961, every individual or organisation is liable to pay taxes if their income is above a certain threshold. 

What is Tax Deducted at Source (TDS)

Tax Deducted at Source (TDS)

Tax Deducted at Source (TDS) is a procedure implemented by the Indian government to collect taxes at the source of income. A certain percentage of tax is deducted by the payer at the time of making payments to the receiver, and this amount is then remitted to the government. TDS is applicable to a wide range of income categories such as salaries, interest on fixed deposits, rent, commissions, etc. TDS helps prevent tax evasion and understanding it is crucial for both payers and receivers of income in India.

TDS has to be deducted at the rates prescribed by the tax department. The company or person that makes the payment after deducting TDS is called a deductor and the company or person receiving the payment is called the deducted.

TDS deduction is applicable to such of the following income sources-

  • Salary
  • Commission earned
  • Rent
  • Interest payment by banks
  • Professional or consultant fees
  • Contractor payments
  • Amount under LIC
  • Compensation on acquiring immovable property
  • Brokerage or Commission
  • Insurance Commission
  • Interest on securities
  • Remuneration paid to the director of a company, etc
  • Winning from games like a crossword puzzle, card, lottery, etc.
  • Interest apart from interest on securities
  • Deemed Dividend
  • Transfer of immovable property

When and Who Should Deduct TDS?

  • Responsibility for Deducting TDS: Anyone who makes such payments is responsible for TDS deduction.
  • Exemption for Individuals and HUFs: Individuals and Hindu Undivided Families (HUFs) without needing a tax audit are exempt from TDS.
  • Mandatory 5% TDS for Rent Payments: Individuals and HUFs must deduct a 5% TDS on monthly rent payments exceeding Rs 50,000, even if they are not subject to a tax audit.
  • TDS by Employers: Employers can make TDS deductions based on the income tax slab rates applicable to employees. Banks typically deduct 10% or 20% if they lack PAN (Permanent Account Number) information.
  • Avoiding TDS with Investment Proof: If your total taxable income is below the limit, you can prevent TDS by providing proof of investments that qualify for deductions.
  • Preventing TDS on Interest Income: To avoid Tax Deducted at Source on interest income when your income is below the taxable limit, you can submit Form 15G or Form 15H.
  • Claiming a Refund for Excess TDS: If Tax Deducted at Source is deducted, but your income falls below the taxable limit, you can claim a refund by filing an income tax return.

What are the TDS rates?

TDS rates vary based on the nature of payment, such as salary, interest, dividends, professional fees, and rent. These TDS rules and rates are specified under the Income Tax Act, 1961, and are influenced by factors like payment type, recipient’s status (resident or non-resident), and applicable thresholds. Below is a table highlighting the TDS deduction rates applicable for different categories of payments in the Financial Year 2024-25.

Nature of PaymentSectionThreshold Limit (₹)TDS Rate (%)Applicable to
Salary192Slab-basedSlab ratesResident individuals
Interest on Securities19310,00010%Residents
Dividends1945,00010%Residents
Rent of Land or Building194I2,40,00010%Residents
Rent of Plant, Machinery, or Equipment194I2,40,0002%Residents
Fees for Professional or Technical Services194J30,00010%Residents
Payment to Contractors194C30,000 (single payment) / 1,00,000 (aggregate)1% (individuals) / 2% (others)Residents
Commission or Brokerage194H15,0005%Residents
Purchase of Goods194Q50,00,0000.10%Business entities
Payments to Non-Residents195–Varies by income typeNon-residents

How to Pay TDS Online?

  • Step 1: Go to NSDL’s website dedicated to e-payment of taxes.
  • Step 2: Under the TDS/TCS section, select ‘CHALLAN NO./ITNS 281.’ This will take you to the e-payment page.
  • Step 3: Under ‘Tax Applicable,’ choose ‘Company Deductees’ if you deducted TDS while paying a company. Otherwise, select ‘Non-Company Deductees.’
  • Step 4: Enter the TAN (Tax Deduction and Collection Account Number) and the Assessment Year for payment.
  • Step 5: Provide the ‘Pin Code’ and select your ‘State’ from the drop-down menu.
  • Step 6: Indicate whether the payment is for TDS deducted and payable by you or for TDS on regular assessment.
  • Step 7: Select the ‘Nature of Payment’ and the ‘Mode of Payment’ from the available options.
  • Step 8: Click the ‘Submit’ button.
  • Step 9: After submission, a confirmation screen will appear. If your TAN is valid, the taxpayer’s full name, as per the records, will be displayed on this confirmation screen.
  • Step 10: Upon confirming the entered data, you will be directed to the net banking site of your bank.
  • Step 11: Log in to your bank’s net banking site using your user ID and password provided by the bank.
  • Step 12: Make the payment through the net banking portal.
  • Step 13: Upon successful payment, a challan counterfoil will be displayed, which contains the CIN (Challan Identification Number), payment details, and the bank name through which the e-payment was made. This counterfoil serves as proof of the payment made.

FAQs

What are the TDS Payment Due Dates?

All employers or deductors responsible for withholding Tax Deducted at Source (TDS) from payments such as salaries or professional fees must deposit the deducted amount to the Central Government’s account within the given time frame. Timely compliance is essential to avoid penalties for the evasion of TDS rules. The table below outlines the monthly TDS payment due dates:

MonthDue Date
AprilOn or before 7th of May
MayOn or before 7th of June
JuneOn or before 7th of July
JulyOn or before 7th of August
AugustOn or before 7th of September
SeptemberOn or before 7th of October
OctoberOn or before 7th of November
NovemberOn or before 7th of December
DecemberOn or before 7th of January
JanuaryOn or before 7th of February
FebruaryOn or before 7th of March
MarchOn or before 30th of April
What is a TDS return?

A deductor has to deposit the deducted TDS to the government and the details of the same have to be filed in the form of a TDS return. A TDS return has to be filed quarterly. Different types of TDS deductions have to be filed using different TDS return forms.

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