What is Tax Deducted at Source or TDS, Applicability and Rates ?
TDS or Tax Deducted at Source is income tax reduced from the money paid at 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.
When should TDS be deducted, and by whom?
Any person making specified payments mentioned under the Income Tax Act must deduct TDS when making such specified payments. But no TDS has to be deducted if the person making the payment is an individual or HUF whose books are not required to be audited.
However, if rent payments are made by individuals and HUF exceeding Rs 50,000 per month, they are required to deduct TDS @ 5% even if the individual or HUF is not liable for a tax audit. Also, such Individuals and HUF responsible 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 payer basis 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 & 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.
What is the due date for depositing the TDS to the government?
The Tax Deducted at Source must be deposited to the government by the 7th of the subsequent month.
How and When to file TDS returns?
Filing Tax Deducted at Source returns is mandatory for all the persons who have deducted TDS. TDS return is to be submitted quarterly and various details need to be furnished like TAN, amount of TDS deducted, type of payment, PAN of deductee, etc. Also, different forms are prescribed for filing returns depending upon the purpose of the deduction of TDS. Various types of return forms are as follows: Form 26QTDS on all payments except salaries Q1 – 31st July Q2 – 31st October Q3 – 31st January Q4 – 31st May
| Form No | Transactions reported in the return | Due date |
| Form 24Q | TDS on Salary | Q1 – 31st July Q2 – 31st October Q3 – 31st January Q4 – 31st May |
| Form 27Q | TDS on all payments made to non-residents except salaries | Q1 – 31st July Q2 – 31st October Q3 – 31st January Q4 – 31st May |
| 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 |
What is a TDS certificate?
Form 16, Form 16A, Form 16 B and Form 16 C are all TDS certificates. TDS certificates have to be issued by a person deducting TDS to the assessee from whose income TDS was deducted while making payment. For instance, banks issue Form 16A to the depositor when TDS is deducted on interest from fixed deposits. Form 16 is issued by the employer to the employee.
| Form | Certificate of | Frequency | Due date |
| Form 16 | TDS on salary payment | Yearly | 31st May |
| Form 16 A | TDS on non-salary payments | Quarterly | 15 days from due date of filing return |
| Form 16 B | TDS on sale of property | Every transaction | 15 days from due date of filing return |
| Form 16 C | TDS on rent | Every transaction | 15 days from due date of filing return |
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 which 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. Therefore, it becomes important for you to mention your PAN correctly, wherever TDS may be applicable on your Income.
It is an online TDS software that requires no download or desktop installation or software update. It helps you to prepare regular & correction e-TDS statements online easily with just a few clicks on your computer. It is also compatible with TDS returns of previous financial years for easy import. Also, you can generate your TDS certificates using ClearTDS.
SMS Alerts for Higher Transparency
The income tax department has been sending SMS to the taxpayers from VK-ITDEFL that mentions the amount of Tax deducted at source (TDS) against the PAN (Permanent Account Number) of the taxpayer. The SMS alert will let you know the TDS credited in respect of your Income from salary, interest etc., every quarter. The amount of TDS would stand accumulated in your Form 26AS for the respective financial year.
This initiative was implemented by the Finance Ministry to increase transparency and reduce the cases of TDS mismatches at the time of income tax filing. Taxpayers can cross-check the information provided in the SMS with the information on the payslips to make sure that there is no mismatch. TDS mismatch could be a common reason for incorrect income tax return filing.
Tax liability in a case where TDS is already deducted from Income
On salary, TDS is deducted based on the income tax slab applicable to you. In the case of other income types, the TDS rates are fixed and vary between 10% and 20%. The tax rates are not based on your total Income. Hence, you would suffer a TDS on your receipts in certain cases. Separately, you would be required to calculate your annual Income by aggregating Income from all sources.
Your actual tax liability would be calculated on the total taxable Income. From the taxes calculated, you can claim credit for TDS deducted on your various receipts. Reduce the Tax deducted at source from your actual tax liability to know the balance to be paid to the income tax department. You may have a refund too. In both cases, you have to file an income tax return and pay the Tax due or claim a refund.
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