TDS is the acronym for "Tax Deducted at Source." It was introduced by the income tax department to reduce tax evasion, by collecting taxes on incomes right when the revenue is generated, rather than at a later date. As the phrase implies, TDS is received from the income payer rather than the income receiver.
TDS is collected for various incomes like salaries, interest, commissions, etc. However, it does not apply to all revenues and for all taxpayers. Here, in this guide, you can find all that you need to know about TDS.
What is TDS?
As per the income tax act, a company or an individual making a payment that exceeds a certain sum is required to deduct TDS. The rate of TDS deduction is specified by the IT department.
TDS is an advance tax and is different from the regular income taxes collected. Generally, an individual pays income tax on the incomes earned by him/her for a fiscal year. But, the TDS is a type of advance tax and is deducted from your income (salary, payments, etc.) before it reaches you. You receive the net amount (salary, commission, or interest) after the appropriate TDS has been deducted by the income payer.
In TDS terminology, the individual or company making the payment after deducting TDS is known as the deductor, and the person receiving the payment is referred to as the deductee. The deductor is responsible for paying the TDS payments to the government. TDS is deducted for all payment types irrespective of the mode of payment – cheque, cash, online transactions, etc. The TDS payments and deductions are linked with the PAN of both the deductor and deductee.
Let's explain TDS with an example. ABC Mart Pvt Ltd occupies a building for rent of Rs. 50,000 per month. While paying the monthly rent to the property owner, ABC will deduct TDS at 10%, which is Rs. 5000 and pay the balance Rs. 45,000 to the owner of the property.
Thus, the recipient of the income (in this case, the property owner) receives the net income of Rs. 45,000 after TDS. The property owner then adds the gross amount, Rs. 50,000 while calculating his income tax. He can take credit for the amount that has already been deducted, i.e., Rs. 5000 while calculating his income taxes.
Which payments require TDS deductions?
TDS is deducted on the following:
Interest payments made by banks
Salaries deposited by companies
However, note that TDS is generally deducted only by companies making rental payments and other fees. Individuals do not have to deduct TDS while making rental payments and professional fees to doctors, lawyers, etc.
Who deducts TDS?
Note that TDS deductions are always made by the income payer and not the income recipient. An individual or company making specific payments (as mentioned under the ITA) is required to deduct TDS at the time of payment.
However, note that TDS deductions are not needed if the individual (or HUF) receiving the payment does not require audits. But, the exception to this clause is rent payments exceeding Rs. 50,000 per month. Monthly rents that exceed Rs. 50,000 must be subject to TDS at 5%, even if the recipient is not subject to any tax audits.
Here are other instances where TDS is deducted:
Salaries paid by employers are subject to TDS, at the applicable income tax slab rates.
Banks deduct TDS at 10% (or 20% if you have not furnished your PAN) on the incomes earned by your savings or fixed accounts.
When is TDS not deducted?
You do not have to pay any income tax if your total taxable income is below the taxable limit. In such cases, TDS should not be deducted from your income. You can submit the appropriate proofs to your employer to stop them from deducting TDS on your salary. Similarly, you can submit Forms 15G and 15H to your bank, to prevent them from deducting TDS on the interests earned by you.
If your employer or bank has already deducted TDS, you can file a return and claim TDS refunds. Note that TDS refunds are permitted only when your income is below the taxable limit.
When should TDS deductions be paid to the government?
TDS deductions for the previous month must be filed by the 7th of the subsequent month. Let's explain this with an example. For instance, all TDS salary deductions made in January must be deposited before the 7th of February.
How to deposit TDS to the government?
TDS deposits can be made online in a hassle-free manner. To deposit TDS to the government, you need to make use of the ITNS-281 challan available on the NSDL website. Fill in the challan details, and on successful completion, the site will generate a challan counterfoil containing the payment details. The counterfoil acts as proof of the payment.
How to file TDS returns?
All TDS deductors are required to file TDS returns. These returns are submitted once every quarter and include various details like – the amount of TDS, TAN of the deductor, PAN of the deductee, mode of payment, etc.
The income tax department has several forms for filing TDS returns based on the reason why TDS was deducted. The various forms and the due dates for filing TDS returns include:
|TDS Form No.||Purpose of TDS||Due Dates for Filing Returns|
|24Q||For Salaries||Q1 – 31st July
Q2 – 31st October
Q3 – 31st January
Q4 – 31st May
|27Q||For all payments made to NRIs for purposes other than salaries||Q1 – 31st July
Q2 – 31st October
Q3 – 31st January
Q4 – 31st May
|26QB||For the sale of a property||30 days from the month’s end, in which TDS was deducted|
|26QC||For rent||30 days from the month’s end, in which TDS was deducted|
The TDS deductor has to furnish a TDS certificate. The TDS certificates are issued using various forms depending on the purpose of deduction. The multiple TDS certificates, their frequencies, and due dates include:
|Form Number||Purpose||Frequency||Due Date|
|Form 16||For salary payments||Once every year||Before 31st May|
|Form 16A||For non-salary payments||Once every quarter||Before 15 days from filing TDS returns|
|Form 16B||For property sale||For every transaction||Before 15 days from filing TDS returns|
|Form 16C||For rents||For every transaction||Before 15 days from filing TDS returns|
How can I know how much TDS is deducted from my income?
You can ask your employer to provide you with Form 16, which includes details on how much tax is deducted from your account. Alternatively, you can also visit the income tax India e-filing website and check Form 26AS for further information on TDS deducted from your income.
What happens if the deductor fails to deduct TDS? Will it affect the deductee as well?
It's the duty and responsibility of all taxpayers to deduct TDS at source for any income they pay. Failure to deduct TDS will lead to adverse consequences for the deductor and not the deductee.
I have not received the TDS certificate from my employer. Can I claim TDS returns while filing my income tax?
Yes. The tax credits for you will be available in your Form 26AS. You can check this form to claim tax returns accordingly.
What is the salary threshold for which TDS is deducted?
If the net taxable income of an individual is less than Rs. 2,50,000 for every fiscal year, then there are no requirements for TDS deductions.
What are the duties that must be followed by the deductor?
A TDS deductor has to ensure the following:
Mention the Tax Deduction Account number in all transactions and forms pertaining to the TDS.
Deduct TDS at the applicable rate for all transactions that qualify.
Pay the TDS to the government before the due date.
File TDS returns periodically before the due date.
Issue TDS certificates to all deductees.
File TDS Returns Regularly
Non-compliance with TDS could lead to severe penalties. So, if you're an employer or an organisation, make sure that you deduct TDS for all employees and other qualifying transactions and pay the amount to the government within the due date.