Tax Deducted at Source (TDS) is one of the most important taxation systems in India. It is a mechanism wherein the tax amounts are deducted from your income and paid to the government by an employer or another payer of income, such as a bank, before it reaches you. In this blog post, we will explore what is Tax Deducted at Source (TDS), how it works in India and why it is important for any citizen living in India. We will also look at various TDS exemptions available in the country and how they can be used to save on tax liabilities. So keep reading to find out more about TDS in India!
What is Tax Deducted at Source (TDS)?
TDS or Tax Deducted at Source is a method of indirect tax collection. The person making payment of certain specified types of income to the recipient deducts tax on such income at the rates prescribed by Income Tax Department and pays it to the government. This is called Tax Deducted at Source (TDS).
The government has prescribed certain threshold limits for payment of TDS. If the amount of payment (of income) is below the threshold limit, no TDS is deducted.
In India, TDS is deducted by both central and state governments. There are different threshold limits for different types of payments and incomes. TDS deduction is one of the modes of collecting taxes in India and helps in checking tax evasion to a large extent.
TDS Deductor and TDS Deductee
TDS stands for Tax Deducted at Source, which is a mechanism for collecting income tax in India. The TDS system requires certain persons to deduct tax at a specified rate before making payment to the receiver, and deposit the same with the government.
The TDS Deductor is the person who is responsible for deducting the tax at source and depositing it with the government. In most cases, the TDS Deductor is an employer who deducts tax from the salaries of employees, or a person making payment to contractors, professionals or freelancers. The TDS Deductor is required to obtain a Tax Deduction and Collection Account Number (TAN) and comply with various provisions of the Income Tax Act, 1961.
On the other hand, the TDS Deductee is the person from whose income tax is deducted at source. The TDS Deductee can be an individual, a company, a partnership firm, or any other entity that receives payment subject to TDS. The TDS Deductee can claim credit for the tax deducted at source while filing their income tax return.
In summary, TDS Deductor is the person responsible for deducting tax at source, and TDS Deductee is the person from whose income tax is deducted at source.
On what type of payment and When TDS is deducted.
TDS (Tax Deducted at Source) is deducted on various types of payments made by the deductor to the deductee. The following are some common types of payments on which TDS is deducted:
- Salaries: Employers deduct TDS on salaries paid to their employees. TDS is deducted by an employer from an employee’s salary at the time of payment. The deduction is made on behalf of the government and the amount deducted is deposited with the government.
- Interest on fixed deposits: TDS is deducted on interest earned on fixed deposits exceeding Rs. 40,000 in a financial year.
- Rent: If the rent paid by the deductor to the landlord exceeds Rs. 2,40,000 per annum, TDS is deducted on the excess amount.
- Professional fees: TDS is deducted on professional fees paid to professionals such as doctors, lawyers, and consultants.
- Commission: TDS is deducted on commission paid to agents, brokers, and other commission agents.
- Contract payments: TDS is deducted on payments made for contracts, sub-contracts, and advertising contracts.
- Royalty and technical fees: TDS is deducted on royalty and technical fees paid to non-residents.
The purpose of TDS is to ensure that tax is collected at the source of income. This helps to ensure that taxpayers do not have to pay tax on their income at the end of the financial year.
TDS is also deducted on certain other types of income, such as interest earned on bank deposits, dividends received from shares, and commissions earned on insurance policies.
The rate at which TDS is deducted depends on the nature of the payment and the status of the deductee. The TDS deduction is made at the time of payment or at the time of credit, whichever is earlier. The TDS amount deducted by the deductor is then deposited with the government within the due date specified under the Income Tax Act, 1961.
What is the purpose of Tax Deducted at Source(TDS)?
The purpose of Tax Deducted at Source (TDS) is to ensure that taxpayers pay their fair share of taxes. It also allows the government to collect taxes in a more efficient way. By deducting taxes at the source, it reduces the need for taxpayers to file tax returns and makes it easier for the government to collect taxes.
Who is responsible for paying Tax Deducted at Source (TDS)?
In India, TDS is deducted by the payer at the time of making certain specified payments to the payee. The rate of deduction and the threshold limit for deduction of TDS is prescribed by the Income Tax Act. The deductor is required to deposit the deducted amount with the government within a specified time. The payee can claim credit for the tax so deducted while filing his/her return of income.
TDS is not deductible on all types of payments. Payments on which TDS is not deductible are called ‘ exempt payments ‘. Examples of exempt payments include interest on securities, dividends, life insurance maturity proceeds, etc.
The person responsible for making payment on which TDS is deductible is called the ‘deductor’. The deductor is required to deduct TDS at the time of making payment to the payee and deposit it with the government. The amount deducted as TDS should be deposited in an authorized bank account.
What are the rates of Tax Deducted at Source(TDS)?
As per the Income Tax Act, 1961, TDS is required to be deducted by the payer at the rates specified in the Finance Act of the relevant year. The rates of TDS for financial year 2022-23 (assessment year 2023-24) are as follows:
For resident individuals:
i. On income from salary – TDS is to be deducted at the rate of 10% (plus surcharge and cess as applicable).
ii. On interest earned on bank deposits – TDS is to be deducted at the rate of 10% (plus surcharge and cess as applicable).
iii. On dividends received – TDS is to be deducted at the rate of 10% (plus surcharge and cess as applicable).
iv. On income from mutual funds – TDS is to be deducted at the rate of 10% (plus surcharge and cess as applicable).
For non-resident individuals:
i. On income from salary – TDS is to be deducted at the rate of 20% (plus surcharge and cess as applicable).
ii. On interest earned on bank deposits – TDS is to be deducted at the rate of 30% (plus surcharge and cess as applicable).
iii. On dividends received – TDS is to be deducted at the rate of 30% (plus surcharge and cess as applicable).
iv. On income from mutual funds – TDS is to
| Section | Nature of Payment | Threshold (Rs.) | Individual / HUF TDS Rates (%) | Others TDS Rate (%) |
|---|---|---|---|---|
| 192 | Salaries | Rs. 2,50,000 | Slab Rates | Slab Rates |
| 192A | Premature EPF withdrawal* | Rs. 50,000 | 10% (20% in case of no PAN) | 10% (20% in case of no PAN) |
| 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% |
| 194ABA | Income from online games | NA | 30% | 30% |
| 194BB | Amounts that someone has won from horse races | Rs. 10,000 | 30% | 30% |
| 194C | Payments to contractor or sub-contractor – Single Payments | 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% |
| 194E | Payment to non-resident sportsmen/sports association | NA | 20% + Surcharge & Cess | 20% + Surcharge & Cess |
| 194EE | Payment of an amount standing to the credit of an individual under NSS (National Savings Scheme) | Rs. 2500 | 10% | 10% |
| 194F | Payment of repurchase of unit by UTI (Unit Trust of India) or any mutual fund | No Limit | NA | 20% |
| 194G | Payments or commission on sale of lottery tickets | 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 | Rent payment that is made by an individual or HUF not covered under payment 194I | 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 | NA | 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 holder | NA | 10% | 10% |
| 194LC | Payment of interest by an Indian Company or a business trust in respect of money borrowed in foreign currency under a loan agreement or by way of issue of long-term bonds | NA | 4% (Long-term Bond or Rupee Denominated Bond listed on RSE in IFSC) 5% (Others) | 4% (Long-term Bond or Rupee Denominated Bond listed on RSE in IFSC) 5% (Others) |
| 194LD | Payment of interest on rupee-denominated bonds, municipal debt security, and government securities | NA | 5% | 5% |
| 194M | Amounts paid for contract, brokerage, commission or professional fee (other than 194C, 194H, 194J) | Rs. 50,00,000 | 5% | 5% |
| 194N | In case cash withdrawal over a certain amount takes place from the bank, and ITR is filed | Rs. 3 cr (Cooperative society) Rs. 1cr – Others | 2% | 2% |
| 194N | In case cash withdrawal over a certain amount takes place from the bank, and ITR not filed | Rs. 3 cr (Cooperative society) Rs. 1cr – Others | 5% | 5% |
| 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% (5%, in case of no PAN) | 1% (5%, in case of no PAN) |
| 194P | TDS on Senior Citizen above 75 Years (No ITR filing cases) | NA | Slab Rates | Slab Rates |
| 194Q | Payments made for the purchase of goods | Rs. 50,00,000 | 0.10% | 0.10% |
| 194R | Benefits or perquisites arising from business or profession | Rs. 20,000 | 10% | 10% |
| 194S | TDS on the payment of any crypto or other virtual asset | Rs 50,000 (Specified Persons) Rs 10,000 (Others) | 1% | 1% |
| 206AA | TDS for non-availability of PAN | NA | At a rate higher of 1. Specified rate as per the act 2. 20% 3. Rate in force | 20% |
| 206AB | TDS on non-filers of Income tax return | NA | Rate higher of: 1. 5% 2. Twice the mentioned rate in provision 3. Rate in force |
What is the due date for TDS payment & TDS Return?
The due date for TDS (Tax Deducted at Source) payment depends on the type of deductor and the mode of payment.
For non-government deductors, the due date for TDS payment is as follows:
- If TDS is paid through challan – TDS payment due date is 7th of the following month in which the deduction is made. For example, TDS deducted on 15th January should be paid on or before 7th February.
- If TDS is paid without challan (i.e. through book entry) – TDS payment due date is 30th of the following month in which the deduction is made.
It’s important to note that the due date for TDS payment may vary for certain specified types of payments and deductors, and it’s always advisable to refer to the relevant guidelines or consult a tax expert for accurate information.
How to file a TDS return?
In order to file a TDS return, taxpayers must first obtain a TDS certificate from their bank or employer. This certificate contains information such as the amount of TDS deducted, the period over which it was deducted, and the PAN number of the taxpayer. Taxpayers must then file a TDS return using this certificate and PAN number.
The TDS return must be filed within the prescribed time frame, which is typically one month after the end of the financial year in which the TDS was deducted. Taxpayers can file their return online or offline. Offline returns must be sent by post to the Centralized Processing Center (CPC) of the Income Tax Department.
What is TDS Certificates?
TDS stands for Tax Deducted at Source. TDS Certificates are documents issued by a deductor (a person or entity who deducts tax) to the deductee (the person from whose income tax is deducted) as proof of deduction of tax at source.
TDS certificates are issued in accordance with the provisions of the Income Tax Act, 1961, and its rules. These certificates contain details such as the amount of tax deducted, the rate of deduction, the nature of the payment, the name and PAN of the deductor and deductee, and the date of deduction and deposit of tax.
There are different types of TDS certificates, including Form 16, Form 16A, and Form 16B. Form 16 is issued by the employer to the employee, Form 16A is issued for non-salary payments, and Form 16B is issued for the sale of immovable property.
TDS certificates are important documents for the deductee as they serve as proof of tax deducted and can be used to claim credit for the same while filing income tax returns.
What is Form 26AS?
Form 26AS is a consolidated tax credit statement that contains details of all tax payments made by a taxpayer during a financial year. It is a statement of all tax-related transactions of a taxpayer that are registered with the Income Tax Department of India.
The form includes details of taxes deducted at source (TDS) on salary, interest income, and other payments, as well as taxes collected at source (TCS) by sellers of goods and services. It also includes details of advance tax and self-assessment tax payments made by the taxpayer.
Form 26AS serves as an important document for taxpayers when filing their income tax returns as it helps them verify the tax credits claimed by them. The form is available online and can be accessed by taxpayers through their Permanent Account Number (PAN) on the income tax e-filing website.
Why there is difference in TDS amount in TDS Certificates and Form 26AS?
There can be various reasons for the difference in TDS amount mentioned in TDS certificates and Form 26AS. Some of the common reasons are:
- Time lag: The TDS certificate is issued by the deductor to the deductee after the deduction of tax at source. However, it may take some time for the deductor to deposit the TDS amount with the government and for the same to reflect in Form 26AS. Hence, there can be a time lag between the issuance of the TDS certificate and the amount reflecting in Form 26AS.
- Incorrect details: Sometimes, the deductor may provide incorrect details while issuing the TDS certificate, such as wrong PAN or TDS amount. This can result in a difference in the TDS amount mentioned in the certificate and Form 26AS.
- Disputed TDS: There can be cases where the deductee disputes the TDS amount deducted by the deductor, and it gets rectified by the income tax department after verification. In such cases, the TDS amount mentioned in Form 26AS may differ from the TDS certificate.
- Multiple TDS certificates: In case the deductee has received TDS certificates from multiple deductors for the same financial year, it may lead to confusion and differences in the TDS amount mentioned in the certificates and Form 26AS.
It is important for the taxpayer to reconcile the TDS amount mentioned in the TDS certificates and Form 26AS before filing their income tax returns to avoid any discrepancies. If there is a difference, the taxpayer should contact the concerned deductor or the income tax department to rectify the same.
Conclusion
TDS (Tax Deducted at Source) is an important taxation mechanism in India that helps the government to collect taxes from the taxpayers. It is applicable on most incomes and requires tax deduction to be made by the payer, like employers or banks, for certain types of payments. The TDS rate varies depending on whether it’s a salary payment or other income type and can provide relief from double taxation as well as ensure compliance with tax laws. Understanding TDS rates in India can help you make informed decisions about your taxes and save time when filing them online.