All About TDS Tax Deducted at Source

TDS full-form is Tax Deducted at Source, and as mentioned earlier, it is a mechanism in India where the person making a payment deducts tax from the payment made to the recipient and remits the same to the government.

Employers, like banks and other entities that pay salaries to their employees, must deduct a certain percentage of tax at the source itself and deposit it with the government. This helps ensure that taxpayers fulfil their tax obligations and prevents tax evasion.

Some of the advantages of TDS include reducing the burden of paying a large sum of tax at once, ensuring timely and regular tax payments, improving tax compliance, and preventing tax evasion. TDS payments also provide a reliable source of revenue for the government and help increase the tax system's efficiency.

Moreover, TDS certificates issued to the payees serve as proof of tax paid and can be used for filing tax returns and claiming refunds. So, how does it work? Let’s find it through an easy example below. Keep reading!

So, what is TDS in income tax? Let us understand with a simple example.

Let's take the example of Ashmita, a freelance graphic designer who worked on a project for a company and charged them ₹50,000. The company is required to deduct TDS at a specified rate before making the payment to Ashmita.

Suppose the TDS rate is 10%. So, the company will deduct ₹5,000 (10% of ₹50,000) as TDS from the payment to Ashmita and remit the same to the government.

This means Ashmita will receive only ₹45,000 as the payment for her services, and the remaining ₹5,000 will be credited to her TDS account, which she can claim while filing her income tax return if she does not have a taxable income.

As you can see, TDS ensures that the government receives a portion of the tax due on the income earned by individuals or businesses, even before they file their tax returns.

Now that you are aware of what is TDS, you should know certain TDS deduction rules.

TDS should be deducted by anyone making a payment to someone else for a specific type of transaction for a service or product. The payment could be in the form of salary, interest, commission, rent, etc. The specified types of transactions are listed under the Income Tax Act 1961 and are periodically updated by the government.

The following are some examples of when TDS should be deducted:

• Salary: TDS should be deducted by the employer while paying salary to employees.

• Interest: TDS should be deducted by banks and other financial institutions while paying interest on fixed deposits, recurring deposits, etc.

• Rent: TDS should be deducted by individuals and companies while paying rent to landlords.

• Commission: Companies should deduct TDS while paying agents commissions.

The rate at which income tax TDS should be deducted depends on the nature of the payment and the applicable provisions of the Income Tax Act. If your total income is below the taxable limit, you can submit Forms 15G and 15H to the bank to avoid TDS being deducted from your interest income.

You can file a return and request a refund of this TDS if you cannot furnish your employer with the necessary documentation or if your employer or bank has already deducted TDS when your total income is below the taxable limit.

[Note: If TDS is not deducted or not deposited with the government, the person making the payment may face penalties and interest. Therefore, it is essential to comply with TDS provisions to avoid any legal consequences.]

• Section 194BA – TDS has been introduced on the income generated from online gaming.

• Section 196A – With effect from April 1st, 2023, non-residents who get income from mutual funds in India can use a Tax Residency Certificate to receive TDS at the rate specified in the tax treaty rather than the standard 20% rate.

• Section 192A – For employees without PAN, the TDS rate on PF withdrawals has been decreased from the maximum marginal rate to 20%.

• Section 193 – Interest on listed debentures is not free from TDS. As a result, interest in these particular securities must be taxed.

• Section 194N – Cooperative societies have raised the TDS threshold for cash withdrawals. From April 1st, 2023, instead of the current ₹1 crore cap, cooperative societies would deduct tax from cash withdrawals if the amount surpasses ₹3 crores.

When TDS is deducted, a portion of an individual's income is withheld and paid directly to the government as a tax instead of the entire income being paid to the individual.

Once TDS is deducted, the person or entity who has made the payment will issue a TDS certificate to the individual who has received the payment. The TDS certificate contains details such as the amount of TDS deducted, the nature of the payment, and the rate at which TDS has been deducted.

The individual who received the TDS certificate can then use it to claim credit for the amount while filing their income tax return. The TDS amount is deducted from the total tax liability, and the individual must pay the remaining tax liability, if any.

It is important to note that TDS is not a final tax liability but only an advance tax payment. If the TDS deducted is higher than the actual tax liability, the individual can claim a refund for the excess amount

TDS must be deposited with the government within a specific time frame, which varies depending on the type of payment and the nature of the deductor.

For example, if an employer deducts TDS from an employee's salary, they must deposit the TDS with the government within 7 days from the end of the month in which the deduction was made.

The TDS payment deadline for deductions made on rent and property purchases is 30 days after the end of the month the deductions were made.

TDS can be deposited online or offline, and various forms and challans are used. To make the TDS deposit online, follow the steps below:

1. Go to the NSDL TIN (Tax Information Network) website at https://www.tin-nsdl.com/.

2. Click on the option "e-payment: Pay Taxes Online" on the homepage.

3. Select the relevant challan for TDS payment, i.e., ITNS 281 for non-corporate taxpayers or ITNS 280 for corporate taxpayers.

4. Select the assessment year and the payment type (TDS).

5. Enter your TAN (Tax Deduction and Collection Account Number) and other details, such as the name of the deductor, address, and payment type.

6. Verify the details and click on "Proceed."

7. You will be directed to a payment gateway where you can choose the mode of payment (Net Banking, Debit Card, Credit Card, or UPI) and enter the payment details.

8. A receipt will be generated after successful payment, which you can save or print for your records.

[Note: It is essential to ensure that all the details entered are correct, as incorrect information can lead to payment failure or incorrect credit of TDS to the relevant account.]

All individuals who have paid TDS must file Tax Deducted at Source returns. TDS returns must be submitted quarterly and contain a wide range of information, including TANs, TDS amounts, payment methods, PANs, and more. Additionally, multiple forms are required for filing returns depending on why TDS is being deducted.

To check the status of online TDS payments, visit the NSDL TIN website and follow these simple steps:

1. CIN Based

The taxpayer may review the following information by entering the challan data, such as the BSR code of the collecting branch, the challan date, the challan serial number, and the amount (optional):

• Challan serial number

• Date of TDS deposit

• BSR code

• Description with Major Head Code

• TAN/PAN number

• Taxpayer’s name Receipt date by TIN

• Amount confirmation, if it has been entered correctly or not.

2. TAN Based

The taxpayer can get the following information by providing the TAN and challan date range for a specific financial year:

• CIN

• Decription with Major Head Code

• Minor Head Code

• Mode of Payment

The system will then verify that the information entered by the taxpayer against a CIN matches the specifics of the amount supplied by the bank.

TDS certificate stands for Tax Deducted at Source certificate, a document issued to the person whose income has been subject to TDS. TDS is the tax deducted by the payer on behalf of the payee at the time of payment.

The certificate shows the amount of TDS deducted, the nature of the payment, the rate at which TDS is deducted, and the amount paid or credited to the payee. The TDS certificate is issued by the deductor to the deductee and serves as proof of the TDS deduction. The certificate is important for filing income tax returns and claiming refunds.

Form 16, Form 16A, Form 16 B and Form 16 C are the TDS certificates. For instance, when TDS is deducted from interest on fixed deposits, banks issue Form 16A to the depositor. The employer furnishes Form 16 to the employee.

Refer to the table below to better understand the various TDS certificates:

The TDS certificate guarantees that the money you deduct won't be lost and will be deposited with the government. As a result, you may submit a TDS return quickly while showing this relevant document. If your employer deducts TDS, you can ask them to share the TDS certificate. Or, you can view TDS (Tax Deducted at Source) certificate online by following these steps:

• Visit the official website of TRACES (TDS Reconciliation Analysis and Correction Enabling System) at https://www.tdscpc.gov.in/

• Click on the "Login" button on the page's right-hand side.

• Enter your User ID, Password, and the Captcha code as displayed on the screen.

• Click on the "Login" button.

• After logging in, click the "View TDS / TCS Credit" option under the "Statement / Form" section.

• Select the relevant financial year for which you want to view the TDS certificate.

• Click the "View / Download" option to download the TDS certificate.

• The TDS certificate will be displayed on the screen in PDF format.

• You can either download or print the certificate for future reference.

• Ensure that the details mentioned in the TDS certificate match your records.

That's it! Following these steps, you can easily view your TDS certificate online in just a few minutes!

Here are some benefits of paying TDS (Tax Deducted at Source) online:

- Convenience: Paying TDS online is more convenient than traditional offline methods as it can be done anywhere and anytime.

- Time-saving: Online payment of TDS saves time as there is no need to visit the bank or the tax department to deposit the TDS.

- Easy tracking: Online payment of TDS provides an instant acknowledgement, which serves as proof of payment and helps in easy payment tracking.

- Avoid penalties: Paying TDS online ensures timely payment, which helps to avoid penalties for late payment or non-payment of TDS.

- Secure: Online payment of TDS is secure and safe as it uses encrypted channels and provides instant confirmation of payment.

- Cost-effective: Paying TDS online saves costs associated with physical payment, such as travel expenses, bank charges, and other incidental expenses.

- Timely credit: Paying TDS online ensures timely credit of TDS to the government, which helps avoid interest on delayed payments.

The penalty provisions for the late payment or non-payment of filing TDS are as follows:

1. Late filing of TDS return

A penalty of ₹200 per day is applicable for late filing of TDS returns. The penalty is calculated from the due date of filing the return till the actual date of filing.

For example, if the due date for filing the TDS return is 31st May, and the return is filed on 15th June, the penalty for late filing would be calculated as follows:

Number of days of delay = 15 days (from 1st June to 15th June)

Penalty for late filing = ₹200 per day x 15 days = ₹3,000

2. Late payment of TDS

If the TDS is not paid on time, interest at the rate of 1.5% per month (or part thereof) is applicable from the due date of payment till the date of actual payment.

For example, if the due date for payment of TDS is the 7th of every month, and the TDS is paid on the 20th of the same month, interest at the rate of 1.5% per month would be applicable for 13 days (from 7th to 20th). The interest payable would be calculated as follows:

TDS amount x 1.5% per month x 13/30 days

3. Non-payment of TDS

If the TDS is not paid, a penalty equal to the amount of TDS is levied under Section 221 of the Income Tax Act, 1961.

For example, if the TDS amount is ₹50,000 and is not paid at all, a penalty of ₹50,000 would be levied.

It is important to note that these penalty provisions are subject to change occasionally. Therefore, staying updated with the latest tax laws and regulations is advisable to avoid any penalties or interest.

To claim a refund or reduction of TDS, the taxpayer needs to file an income tax return (ITR) and provide details of the TDS deducted. The taxpayer must mention the excess TDS amount that needs to be refunded or why the TDS should not have been deducted.

After verifying the taxpayer's claim, the income tax department will refund the excess TDS amount or reduce the TDS liability accordingly. Taxpayers can claim a refund or reduction of Tax Deducted at Source (TDS) under the following circumstances:

- Excess TDS Deducted: If the taxpayer's total tax liability is lower than the amount of TDS deducted, the taxpayer can claim a refund for the excess TDS deducted.

- Non-applicability of TDS: If the taxpayer's income is exempt from tax or if the income is below the taxable limit, TDS should not have been deducted. In such cases, the taxpayer can claim a refund of the TDS amount.

**- Incorrect TDS Deducted: **If the TDS amount is incorrectly deducted due to an error in computation or due to the wrong rate of TDS applied, the taxpayer can claim a refund of the excess TDS amount.

You may already know that an individual's health insurance premiums can be eligible for tax deduction under section 80D of the Income Tax Act. The health insurance tax benefits extend further up to ₹75,000 if you pay the health insurance premium for yourself, your spouse, children and your dependent parents.

Simply put, investing in a health insurance plan and claiming deductions under section 80D can reduce your taxable income, and ultimately you will pay less tax.

Further, if you have made investments eligible for tax deductions, you can submit proof of the investment to your employer or the financial institution to avoid a TDS deduction on that amount. This is particularly relevant in the case of PPF and NPS investment, ELSS, and life insurance investments and repayment of home loan principal. Any all these cases, you can claim a deduction under section 80C.

• Who is responsible for deducting TDS?

The person or entity paying the payee is responsible for deducting TDS. For example, if an employer pays a salary to an employee, the employer is responsible for deducting TDS from the salary paid.

• What are the different types of payments on which TDS is applicable?

TDS applies to various payment types such as salaries, rent, interest, commission, professional fees, contract payments, and more. The rates of TDS and the threshold limits vary depending on the type of payment.

• Can TDS be claimed as a tax deduction?

TDS can be claimed as a tax deduction while filing the income tax return. The amount of TDS deducted is considered as tax paid by the taxpayer. Therefore, if the TDS deducted is more than the actual tax liability, the taxpayer can claim a refund for the excess TDS deducted.

• Is it possible to avoid the TDS deduction?

Yes, it is possible to avoid TDS deduction by submitting Form 15G or Form 15H. These forms are applicable to individuals who do not have taxable income or whose tax liability is lower than the minimum threshold limit. By submitting these forms, the individual can request the payer not to deduct TDS from the payment.

• How much TDS deductions can I claim under Section 80C?

Section 80C of the Income Tax Act, 1961 allows for deductions on various investments and expenditures up to a maximum limit of ₹1.5 lakh in a financial year.