Tax Deducted at Source

TDS – What is Tax Deducted at Source, Deduction Rules & Payment Methods?

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 What is TDS?

TDS full form is Tax Deducted at Source. TDS is the tax amount that an employer or deductor deducts at a deductee and pays the amount to the Income Tax Department. A person who has the right to deduct the tax amount is deductor. A person from whose account gets tax deduction is called deductee. So, the TDS meaning is collecting taxes from the payee’s account before the payer pays to a payee.

Who can deduct TDS?

Usually, the deductor deducts the tax amount from the deductee’s salary at the time of paying salary, and forwards the same tax amount to the Income Tax Department directly. The deductor does this act on behalf of the employee or deductee.  Also, the deductor has to pay this TDS amount to the government within a certain time limit. Here the deductor can make tds payment online for an easy process. If it exceeds the time limit, he has to pay a penalty for it. So, what is TDS is clear from this definition.

Example

For instance, consider a start-up company has to pay Rs. 90,000 as rent to the owner of the property. Here the TDS is 10% of the amount, which is Rs. 9,000. So, the company cuts Rs. 9,000 and pays the remaining amount Rs. 81,000 as rent to the property owner. Now, the company pays Rs. 9,000 to Income tax on behalf of the property owner. This explains the concept of the tds on property. Use the tds calculator to calculate the exact TDS rate.

Types of TDS

Here we will see some of the income sources that are applicable for TDS.

  • Amount under LIC
  • Salary payment
  • Bank interest amount or tds on interest
  • Commission payouts
  • Brokerage
  • Insurance commission
  • Compensation on obtaining immovable property
  • Rent payment or tds on rent
  • Deemed Dividend
  • TDS on sale of property
  • Interest on securities
  • Interest amount remaining from interest on securities
  • Payments to contractor
  • TDS on advertisement
  • Transfer of immovable property
  • Winning amount from playing games like lottery, card, etc
  • Remuneration paid to the director of the company
  • TDS on professional fees

Points to Remember Before Deducting TDS

  • When an individual’s income doesn’t come under the income tax slab, then he/she has to provide Form 15G or Form 15H to the deductor. This Form submission will inform the deductor not to deduct any TDS on your income.
  • One can refer the Section 192 to 194L of Income Tax Act to understand the income sources coming under TDS.
  • For senior citizens, Form 15H is helpful to refer for TDS
  • Other individuals can refer to Form 15G.
  • For salaried individuals, TDS depends on the income tax slab rate.
  • When an individual’s income reaches a limit, then the TDS is applicable.
  • Deductor deducts a certain percentage of TDS based on the income amount for deductees.

TDS Rates for FY 2020-21

Here the TDS rate chart for a clear understanding of the deductee:

 Section

 

Income Source or Expenses  Threshold limit TDS Rate
192

 

Salary payment Depends on the Income Tax Slab Based on slab rate
192A

 

Premature withdrawal of PF amount Rs. 50,000 10% TDS

20% TDS if no PAN card

193 Interest on Securities Rs. 10,000 10% TDS
193 Interest on Debt Rs. 5,000 10% TDS
194 Deemed Dividend Income Not applicable 10% TDS
194A Other interest than ‘interest on securities’ Rs. 10,000 – TDS payer is a bank or post office

Rs. 5,000 – for other cases

10% TDS

 

194B Winning amount from playing games like lottery, puzzle, etc Rs. 10,000 30% TDS
194BB Winning amount from playing games like jackpot, horse racing, etc Rs. 10,000 30% TDS
194C Contractors and Sub-contractors payment or TDS on contractor Rs. 30,000 – Single payment

Rs. 1,00,000 – Annual payment

1% TDS
194D

 

Insurance commission to agents or TDS on commission Rs. 15,000 5% TDS
194DA Maturity of LIC policy Rs. 1,00,000 5% TDS
194EE National savings scheme payment Rs. 2,500 10% TDS
194F Repurchasing from mutual funds Not applicable 20% TDS
194G Lottery tickets sale commission Rs. 15,000 5% TDS
194H TDS on brokerage Rs. 15,000 5% TDS
194I Land or building rent Rs. 2,40,000 10% TDS
194 IA Other than agricultural land, the immovable properties sale Rs. 50,00,000 1% TDS
194J TDS on professional services Rs. 30,000 10% TDS

 

194K

 

Dividend payout from mutual funds Rs. 5,000 10% TDS

 

194LA

 

Compensation for immovable property Rs. 2,50,000 10% TDS

 

194LB Debt fund interest Not applicable 5% TDS
194N

 

Annual cash withdrawal from more accounts Rs. 1 crore 2% TDS
194O

 

e-commerce operator payments to a seller Rs. 5 lakhs 1% TDS

 How to file TDS Returns?

Here we will see how to file tds return in detail.

  • One should have a valid TAN which is Tax Deduction and Collection Account Number. Ensure that you register it for e-filing
  • Use Return Preparation Utility to prepare the TDS statements before checking the same documents using File Validation Utility
  • To upload the returns using DSC (Digital Signature Certificate), you should have a valid DSC. You need to register DSC for e-filing
  • To upload the returns using an electronic verification code, you should provide the bank account details of your principal contact. Check the contact’s PAN card is in link with Aadhar card.

Step-by-Step Procedure to Upload TDS statements

The simple procedure to upload your TDS statements is as follows:

  1. Visit the website https://www.incometaxindiaefiling.gov.in/home. It will take you to a page where you will find two options such as ‘Registered User?’ And ‘Login Here’ options.
  2. Click on the option to fill your details and then, log on to the page. For user ID, you need to enter the TAN.
  3. After logging on to the page, click on the TDS drop-down menu. Here you will find an option ‘Upload TDS’, and click on it.
  4. Now, you will get a form, where you need to choose the right details. Then click on Validate after selecting the right details.
  5. Then, use either EVC or DSC, to validate your returns.

Advantages of Tax Deducted at Source (TDS)

  • TDS deduction happens all over the financial year hence, it helps the government to see a good revenue inflow.
  • Tax evasion is not a problem
  • TDS is the best way to create responsibility for the deductor to collect taxes and pay it to the government.
  • TDS helps to widen the tax base collected from deductees.

Challan for TDS Payment

To make online payment of TDS and TCS, one can make use of Challan ITNS 281. This Challan form is valid for both paying TDS (Tax Deducted at Source) and TCS (Tax Collected at Source). This TDS exception helps the Indian Government to get revenue flow continuously. Once you deposit the Challan in the bank for TDS payment, you can track the tds Challan Status online.

TDS Certificates

TDS certificates are of two categories: Form 16 and Form 16A. An Income Tax Act, 1961, under Section 203, the deductor must provide a TDS certificate to the deductee. This certificate shows the proof that the amount deducted as tax from salary. The deductor is responsible to provide this certificate to the deductee.

For Salaried Class

For salaried employees, the employers have to provide Form 16 to show the amount deducted as TDS from the salary of employees. Form 16 contains crucial details about the calculated TDS such as tax computation, tax deduction, and the TDS payment. Deductor has to provide this form to deductee before May 31 of the year.

For Non-Salaried Class

For non-salaried employees, the employer has to provide the Form 16A to the deductee. It contains all essential details of the TDS such as tax computation, tax deduction, and the TDS payments. The deductor has to issue the form within 15 days of the tds return due date. 

TDS Payment Due Dates

The monthly due date for making TDS payments is as follows:

 Month  Due Date for making TDS payment
January On or before of 7th February
February On or before of 7th March
March

 

For Government deductors – On or before of 7th April

For non-government deductors – On or before of 30th April

April On or before of 7th May
May On or before of 7th June
June On or before of 7th July
July On or before of 7th August
August On or before of 7th September
September On or before of 7th October
October On or before of 7th November
November On or before of 7th December
December On or before of 7th January

TDS Return Filing Due Dates for FY 2020-21

Let us discuss the due dates for filing TDS payments.

Quarter Time Due Date for filing TDS payments
Quarter 1 April to 30 June (2020) 31st July
Quarter 2 July to September (2020) 31st October
Quarter 3 October to December (2020) 31st January
Quarter 4 January to March (2020) 31st May

Penalty for Late Filing TDS Return

The deductor has to pay penalty when he/she breached the TDS deadlines.

Failure to submit your returns

According to Section 272A(2) of the Income Tax Act of India, if one fails to submit the returns, then they have to pay a penalty of Rs. 100 for each day of delay after the due date. This will lead to a maximum TDS amount.

Failure to submit your returns on time

According to Section 234E of the Income Tax Act of India, if one fails to file the returns on time, then they have to pay a penalty of Rs. 200 for each day, resulting in a maximum TDS amount.

For defaults in the filing of TDS statement

According to Section 271H of the Income Tax Act of India, a deductor has to pay a penalty of Rs. 10,000 to Rs. 1 Lakh, in the event of failing to pay the TDS returns at the time of filing TDS returns.

For incorrect details

According to Section 271H of the Income Tax Act of India, a deductor has to pay a penalty of Rs. 10,000 to Rs. 1 Lakh, in the event of wrong details to the government such as PAN card, TDS amount, Challan details, etc.

For non-payment of TDS

According to the Section 201A of the Income Tax Act of India, if you didn’t make TDS payment within the due date, the interest will charge with the penalty amount. If the part of the tax amount or whole part is not deducted at source, then the interest will be charged at 1.5%. This deduction of interest is for every month from the date on which TDS is deducted. One can calculate the interest rate using the tds interest calculator online.

When is TDS not applicable?

  • If you are paying the amount to state or central financial corporations, then TDS will not be applicable
  • If you are paying the amount to the government or other government bodies like RBI, then TDS is not applicable.
  • Under Section 192 of the Income Tax Act, if deductee shows the no-deduction certificate to the deductor, then the tax will not be applicable.
  • In the event of paying an amount to mutual funds, you don’t have to pay TDS under Section 10(23D).
  • If you pay the interest to banks, LIC, National Savings Certificate, Banking co-operative society, Kisan Vikas Patra, etc. you don’t have to pay TDS.

How to know the deducted TDS amount?

To understand how to check the deducted TDS amount from your account, you can follow the below steps.

Step 1: Enter the official website of the income tax department of India in the web browser and register as a new user in it.

Step 2: Provide your details like Permanent Account Number, etc. and create a password.

Step 3: Once you log on to the page using a registered ID and password, you can click the option to see the tax credit statement. Or click the Form 26AS. This form carries detailed information about your tax credit statement.

Step 4: Now the website will take you to the page where you will get various details such as tds online payment, advance tax paid, and other details.

Refund of TDS

Using the income tax website, one can claim the TDS refund. But one has to file Income Tax Returns to get your TDS refund. As soon as your file the ITR, the income tax department will process your TDS refund. You may get a refund credited within 6 months to your bank account. To check the tds refund status, you can log on to the e-filing website.

For instance, your invoice amount is Rs. 40,000 for which you receive an amount of Rs. 39,200 after the TDS cut of 2% (Rs. 800), you will get a refund of Rs. 400. According to Section 194C, your TDS is 1% so it is Rs. 400. Thus, you will get a balance of Rs. 400 as a refund, when you file an income tax return.

TDS rates on Salary

TDS on salary is equal to the tax slab rate that applies to any individual. If your age is less than 60, then you don’t have to pay TDS. This is applicable when your income is less than Rs. 2.5 lakhs. But if it falls between Rs. 2.5 lakhs to Rs. 5 lakhs, then you have to pay TDS of 5%. For income falling between Rs. 5 lakhs to Rs. 10 lakhs, your TDS liability is 20%. Finally, if the income crosses Rs. 10 lakhs, then your TDS rate is 30%.

FAQs on TDS

Q1: Whether TDS on material and labor is applicable?

Ans: Here the TDS applies to the salary payment for labor only not material.

Q2: Whether TDS on purchase of property is applicable?

Ans: If the property costs more than Rs. 50 lakhs, then 1% TDS is applicable under Section 1941A.

Q3: Whether there is TDS against transportation and freight charges?

Ans: If the taxpayer owns more than 10 goods carries, then the TDS on transportation is applicable.

Q4: What is TIN?

Ans: TIN stands for Tax Information Network. This is an advanced system for various tax-related issues such as tax collection, processing of tax, and monitoring of tax, etc using IT.

The Bottom Line

Thus, Tax Deducted at Source is an essential tax of India under the Income Tax Act, 1961. All the taxpayer should be aware of the TDS limit, forms, etc. Understanding the TDS details will help you to ask your deductor if more deductions are there in your salary amount. You can also submit for TDS returns after filing ITR to income tax.

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