What is TDS?
Managed by the Central Board for Direct Taxes (CBDT), TDS, short form for tax deducted at source is a means of collecting income tax and is a part of the Department of Revenue managed by Indian Revenue Service and was introduced to collect tax at the source from where the individual’s income is being generated and its objectives can be summed up as below:
- TDS was introduced to help the salaried people in paying the applicable taxes in easy installments as they earn every month and to avoid the burden of a lump sum payment.
- Timely collection of taxes. Since TDS is deducted at the source itself i.e. at the time of payment of income, tax of assesses like professionals, contractors etc are collected well in time.
- It generates liquid cash throughout the year which is required by the government throughout the year.
In other words, TDS i.e. tax deducted at source is a system where the person responsible for making the payments such as salaries, commission, professional fees, interest, rent etc is responsible for deducting a certain percentage of tax before making the full payment to the receiver of the payment. Because the government wants the payers to deduct the applicable tax beforehand and deposit it with the government rather than receiving it at a later date.
For example: Firm ABC Pvt Ltd makes a payment of Rs 50,000 to Mr.Z towards his professional services, then as per the Income Tax Act, ABC firm is liable to deduct Rs 5,000 as TDS and make the balance payment of Rs 45,000 to Mr.Z and the TDS will be directly deposited to the government by the firm.
TDS is levied on incomes earned from the incentives and commissions, dividends, payments earned for services offered, rent and purchase of immovable property, fixed deposits and sale and the deduction of TDS is not same for everyone and it rather depends and varies based on the source of your income and varies between 1% to 30% of your income depending on the income tax slab you fall into. TDS involves two terminologies i.e. deductor and deductee.
A deductor is a person who is responsible and liable to deduct the tax at the time of payment of income and depositing the same in the government credit whereas a deductee is a person who receives the payment after TDS is deducted from his salary and you can see TDS paid by you by viewing Form 26AS and in case TDS paid by you has exceeded the liable amount, then there you can file a claim for the refund. However, in order to do so, you as deductee have to submit the requisite investment proofs.
Claim for TDS Deduction
In case you submit investment proofs in order to claim deductions to your employer or the deductor and your total taxable income falls below the taxable limit, you are not required to pay any tax and in case your total taxable income is below the taxable limit, then you can submit Form 15G and Form 15H. If you have not submitted the investment proofs or TDS has already been deducted then you can claim the refund of the deducted amount. You are not liable to pay TDS if your total annual income is Rs 2,50,000/- for men and women below 60 years of age.
TDS deductions are directly linked to your PAN Card number, irrespective of whether you are a deductor or a deductee and if TDS has been deducted on your total taxable income then it is important for you to check the Tax Credit Form 26AS which is a consolidated tax statement for all PAN holders. Through form 26AS you can view and check details of TDS deducted on your income by each deductor for all kinds of payments you have received such as salary or interest income. Apart from the TDS details, form 26AS also lists down income tax details directly paid by you as advance tax or self-assessment tax.
Once TDS is deducted from your taxable income, the deductor will issue TDS certificate to you i.e. to the deductee and there are mainly two types of TDS certificates such as:
- Form 16: Form 16 is issued by the employer or the deductor to the employee or the deductee comprising details of tax deducted throughout the financial year;
- Form 16A: Issued by the deductor in all cases other than salary.
For example, Ms. Neena is working as a salaried employee in a firm and tax is deducted on her salary is at the rate of 15%. In this case, the firm shall issue Form 16 to Ms. Neena describing details of her salary and tax paid against it. However, if Ms Neena has been working as a professional and is receiving professional fees from a firm which is subject to TDS, then Ms.Neena will be provided Form 16A for the same.
TDS is deducted at various rates as mentioned in the sections of Income Tax Act and there are approx 20-25 sections prescribing different types of payments on which TDS is applicable, such as:
|Section||Nature of payment||Rate of TDS|
|192||Salary||15% (Education and higher education cess @ 2% & 1% respectively in cases where salary exceeds Rs 1 crore)|
|194||Deemed Dividend u/s 2(22)(e)||10%|
|194A||Interest other than interest on securities||10%|
|194C||Payment or credit to a resident contractor/sub-contractor||
1% (in cases of individuals and HUF)
2% (in cases of person other than individual or HUF)
5% (in cases of individuals and HUF)
10% (in cases of person other than individual or HUF)
|194G||Commission on sale of lottery tickets||10%|
|194H||Commission or Brokerage||10%|
2% (rent of plant & machinery)
10% (rent of land or building or furniture or fixtures)
|194-IA||Payment/credit of consideration to a resident transferor for transfer of any immovable property (other than rural agricultural land)||1%|
|194J||Professional fees, technical fees, royalty or remuneration to a director||10%|
|194LA||Payment of compensation on acquisition of certain immovable property||10%|
Electronic payment of TDS
TDS can be paid both by the physical mode i.e. Challan 281 for TDS Payment and electronic mode i.e. e-TDS payment.
For the online payment of TDS, you need to follow the below mentioned steps:
- Visit the online website of TIN NSDL www.tin-nsdl.com
- Choose the challan number (ITNS 281) for the payment of TDS.
- Enter your valid TAN number, where TAN stands for Tax Deduction and Collection Account Number and is a 10 digit alphanumeric number allotted to the deductors.
- Enter the details such as name, address of TAN etc related to the accounting head under which the payment is to be made.
- Click on “Submit” to submit the data after which a confirmation message will be displayed on the screen.
- Confirm the details included in the challan. Once the confirmation is done, you will be directed to the payment page or the net banking page of the selected bank.
- Once the payment made by you is successful, a challan counterfoil would be displayed which is also an evidence of successful payment.
Indian government has made the life a lot easy by facilitating the TDS payment online and e-payment of TDS has several advantages such as: .