Full form of TDS is Tax Deducted at Source. You may have experienced TDS in many forms - Bank FDs, salary payments to vendor payments, and TDS seem to infiltrate everywhere. Normally, TDS means an advance tax withheld by the payor from your income, whichever form it is.

So, it ends up reducing your income. Therefore, it should be an important focus when looking to save tax. However, does it mean you need not file an income tax return? Or can the deduction benefit you anywhere? Let’s find out.

What is TDS?

TDS or Tax Deducted at Source is an income tax that is collected from certain payments like rent, salary, commission, interest, professional fees, etc. The person paying the amount should deduct TDS from such a payment.

As per the Income Tax Act, any company or a person is required to deduct tax at the source itself if the money paid exceeds the specified limit. The person who receives a payment also has a liability to pay tax on their income.

The payee will receive credits against the TDS payments, which they can claim against their actual tax liability while filing the annual ITR.

The purpose of TDS may have been to reduce the chances of tax evasion by the recipient of the income. But, for an honest taxpayer, it also brings a few benefits.

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 that attract TDS:

a) Salary Transfer
b) Professional Fee
c) Consultation Fee
d) Rent Payments
e) Commission
f) Interest on Securities & Deposits
g) Dividend on company shares and mutual funds
h) Lottery and similar winnings
i) Payment of Royalty
j) Salary Transfer
k) Professional Fee
l) Consultation Fee
m) Rent Payments
n) Commission & brokerage payments
o) Interest on Securities & Deposits
p) Dividend on company shares and mutual funds
q) Lottery, lucky draw and similar winnings
r) Payment of Royalty
s) Director’s Remuneration
t) Transfer of Property
u) Other interest payments

What is a TDS Return?

You make the payments to other parties against their services throughout the year. If these payments to one party exceed the specified limit for the payments made under sections 192 to 195 of the Indian Income Tax Act, you must deduct the applicable TDS amount.

You will need to deposit the deducted TDS amount quarterly along with the respective TDS Return. Depending on the nature of payment (applicable section) you will file a separate TDS form as TDS Return, each quarter.

Example of Tax Deducted at Source

TDS has to be deducted at the applicable rates only. For example, the TDS rate on rent payments to resident individuals and HUFs by resident individuals and HUFs is 5%, when the rent is more than Rs 50,000 p.m.

Thus, if you are living in a rented house and paying Rs 70,000 per month as rent, you should deduct Rs 3500 per month as TDS before paying the rent. You will need to pay Rs 66,500 to the property owner and will deposit Rs. 10,500 every quarter to the CBDT as the collected TDS amount.

Similarly, a firm may deduct TDS on the fees payable to a consultant for the professional services at 10%.

How does TDS Work?

TDS would apply to all taxable incomes except it’ll be deducted at source at a fixed rate. For almost all payments except salary, TDS rate depends on the type of income rather than the amount of payment.

In the case of salary, the employer can estimate the total expected income of the employee. Thus, TDS deduction happens at the applicable slab rate and may change in the middle of the year based on:

1. Changes to income due to bonus, appraisal

2. Submission of investment proof

Pro Tip: With salary TDS deduction a lot of employed taxpayers fail to prepare. These taxpayers end up losing a big chunk of their salaries in the last quarter of the financial year.

So, start your tax-saving investments in April itself, and keep your TDS deductions higher in the beginning. Thus, you will avoid last moment rush for tax saving investments and income loss both.

When should TDS be Deducted and Who is Liable to Deduct it?

Any person including an individual, HUF (Hindu Undivided Family), firm and NRI (non-resident Indian), is expected to deduct tax at source, provided:

Types of Payments that are Exempt from TDS

Certain payments are exempt from TDS if they do not exceed the specified limit for the TDS deduction. The following types of payments will not attract TDS if they do not exceed the specified limit (for A.Y. 2021-22):

How and When to File TDS Returns?

You will need to use the appropriate form based on the type of payment on which TDS has been deducted. Corporates and payers making payments to NRIs, usually need to file TDS returns every quarter.

Other payments will require a TDS return within a stipulated time as per the table below:

TDS Rates for Various Regular Payments

TDS Payment Due Dates

Anyone deducting TDS from the payments made to another party as income should deposit the amount to the Central Government Account before the 7th of the next month. For example:

Except for March, where you can deposit the TDS amount by 30th April.

What is a TDS Certificate?

The deducting party issues TDS certificates to the taxpayers. Depending on the type of payment TDS certificates can be issued in the following forms:

How to File TDS Return online?

You will need a TAN or Tax Deduction & Collection Account Number to file a TDS return. Follow the process below to file your TDS return online:

1. Register your TAN number for e-filing
2. Prepare your TDS return using one of the online portals. You can log in to the incometaxindia.gov.in to generate a TDS payment challan
3. Log in to the net banking and pay the collected due TDS amount
4. You can use a valid DSC (Digital Signature Certificate) to e-file and verify your online TDS return

While filing TDS you also need the PAN and bank account details of the payee. If the payee’s PAN is linked with Aadhaar you can upload your returns using Electronic Verification Code (EVC).

How to Apply for a TDS Return?

The party deducting the TDS can issue a TDS certificate in the applicable Form 16. The deducted TDS amount is reflected in Form 26AS as Tax Credits for the payee (person receiving the amount after TDS deduction).

If you want to claim a TDS return you will need to file your ITR for the assessment year (AY). The applicable credits are adjusted out of your tax payable for the AY. If eligible for a refund, the same will be processed and credited to your bank account within six months.

In case, where the deducted TDS amount does not show up on your Form 26AS, you will need to submit the TDS certificate received from the deductors.

What happens after TDS Deduction?

After TDS deduction the person or firm deducting the TDS needs to deposit the same with the central government. Once deposited the same will reflect on form 26AS of the person who received the income after TDS. All the TDS payments reflecting on your Form 26AS will be automatically adjusted in your taxable income.

The payor should also give you a TDS certificate which you can alternatively use while filing your ITR. Yes, you do need to file your personal ITR even after TDS deduction.

All the deducted TDS gives you tax credits and reduces your tax liability.

So, for example, if you end up paying 30% TDS on a lottery payment of Rs. 300,000 (i.e. you received only Rs. 210,000), and this is your only income in the financial year, when you file your ITR your total tax liability would be zero (Rs. 250,000 being the minimum exempt income). Thus, the excess tax you ended up paying as TDS would be returned to you.

Thus, don’t miss filing your personal ITR, especially after TDS on any of your income.

Also Read - Form 15G & 15H