TDS stands for Tax Deducted at Source. This refers to the tax deducted by the employer from an individual's salary, which is subsequently deposited with the Income Tax Department on the taxpayer's behalf. It is a specific percentage of the monthly income that is deducted at the time of payment.
As per the Income Tax Act of 1961, anyone whose income exceeds a specified threshold is obligated to pay taxes.
What is Tax Deducted at Source (TDS)?
Tax Deducted at Source is a type of advance tax imposed by the Government of India periodically. The TDS that is deducted is later claimed as a refund when the taxpayer files their Income Tax Return.
TDS deductions apply to the following income sources:
- Salary
- Commission earned
- Rent
- Interest payments from banks
- Professional or consulting fees
- Contractor payments
- Amounts under LIC
- Compensation for acquiring immovable property
- Brokerage or commission
- Insurance commissions
- Interest on securities
- Remuneration paid to a company's director, etc.
- Winnings from games like lotteries, crossword puzzles, card games, etc.
- Interest, excluding interest on securities
- Deemed Dividend
- Transfer of immovable property
TDS deduction rules require the payment of tax when a taxpayer is due to receive payment or when actual payment is made (whichever comes first). Let’s examine a few examples to understand TDS better with its application:
- Example 1 –
Suppose Mr. Paul, a self-employed professional, receives an advance of Rs.40,000 and another Rs.20,000 upon completing his work.
In this case, the payee will deduct TDS from the advance amount (Rs.4,000, 10% of Rs.40,000) and from the remaining Rs.20,000 (Rs.2,000, 10%). Thus, the total TDS payable will be Rs.6,000.
- Example 2 –
If Mr. Paul receives the full payment after completing his work, the payee will deduct Rs.6,000 in TDS from the total amount, and Mr. Paul will receive Rs.54,000 for his services.
How TDS Functions and Who is Responsible for Deducting It?
The individual or organization making the payment is responsible for deducting TDS. They must deduct the specified amount at the prescribed rate and deposit it with the Government within each financial year. TDS must be deducted at the following rate.
It is important to note that if the PAN is missing, TDS will be deducted at a rate of 20%, unless a different specific rate (like MMR) is applicable.
TDS Returns and Related Forms
A TDS return is a report issued after the taxes have been paid successfully, showing all transactions related to TDS deductions for a specific quarter. This report is issued by the payer and submitted to the Income Tax Department of India.
TDS returns include all TDS deduction details collected by the payer, as well as other critical information, such as the Permanent Account Numbers (PAN) of both the payer and the payee, along with payment details sent to the Government of India. The return also includes details of TDS challans.
Several forms are associated with TDS returns, and the following table outlines their details.
|
Form Number |
Purpose |
Submission Frequency |
|
Form 24Q |
Statement detailing TDS deducted from salary payments |
Quarterly |
|
Form 26Q |
Statement detailing TDS deducted on income other than salary |
Quarterly |
|
Form 26QB |
Statement detailing TDS deducted on income from the sale of immovable property (excluding agricultural land) |
Must be submitted within 30 days from the end of the month in which the deduction was made. |
|
Form 26QC |
Statement detailing TDS deducted from rental payments |
Must be submitted within 30 days from the end of the month in which the deduction was made. |
|
Form 27Q |
Statement detailing TDS deducted on income from interest, dividends, or other sums payable |
Quarterly |
The person deducting TDS is also obligated to issue an acknowledgment form to the taxpayer. This document serves as evidence that the taxes have been paid and deposited to the Government.
The TDS certificate contains details such as payment particulars, details of the payer and payee, date of tax deduction, and date of credit submission. This certificate is crucial for claiming a tax credit or refund (if applicable) while filing the Income Tax Return.
Different TDS certificates are issued for different TDS forms. These include the following:
|
TDS Certificate |
Corresponding TDS Return Form |
Due Date |
Issuance Frequency |
|
Form 16 |
Form 24Q |
By 15th June of the Financial Year following the year in which tax is deducted |
Annually |
|
Form 16A |
Form 26Q |
Within 15 days of submitting Form 26Q |
Once every quarter |
|
Form 16B |
Form 26QB |
Within 15 days of submitting Form 26QB |
Monthly |
|
Form 16C |
Form 26QC |
Within 15 days of submitting Form 26QC |
Monthly |
Due Dates for Submitting Different Forms
Taxpayers must submit forms containing TDS deduction details by specific due dates for each quarter.
|
Quarter |
Quarter Period |
Last Date for Filing |
|
1st quarter |
1st April to 30th June |
31st July |
|
2nd quarter |
1st July to 30th September |
31st October |
|
3rd quarter |
1st October to 31st December |
31st January |
|
4th quarter |
1st January to 31st March |
31st May |
Penalty Provisions
Taxpayers who fail to comply with the TDS deduction rules will face penalties, often in the form of interest charges and additional fees based on the original taxable amount.
Various penalty types may apply; for instance –
-
Regulation Regarding Tax Deduction
The deducted tax will be applied at the time the actual payment is made. Any delays in tax deduction will incur a penalty of 1% interest per month until the tax is deducted.
If the person responsible for TDS deduction does not perform the deduction, they may be prohibited from calculating taxable profit based on total expenses.
-
Regulations on TDS Payment
Taxpayers are obligated to transfer the payable tax amount to the Government of India by the 7th day of the month following the tax filing.
Failure to make timely TDS payments will result in a penalty of 1.5% per month (on the total amount due) until the payment is made.
-
Regulations on TDS Return Filing
TDS returns must be filed by the 31st day of January, May, July, and October each financial year.
Failure to file or delayed filings will incur a penalty of Rs.200 per day (as per Section 234E of the Income Tax Act) until the return is submitted. However, the penalty amount cannot exceed the total tax due.
How to Check the Deducted TDS Amount
You can easily check whether TDS has been deducted and if it has been credited to the taxpayer’s account online. Follow these steps to check your TDS payment status –
- Step 1 – Visit the official Income Tax Department of India website and choose to register as a new user.
- Step 2 – Enter your Permanent Account Number and create a password.
- Step 3 – After logging in with your credentials, click on the option to view your tax credit statement or Form 26AS.
26AS is a statement that shows detailed information about TDS deductions in a given financial year.
- Step 4 – You will be redirected to the TDS Reconciliation Analysis and Correction Enabling System, which displays the complete details of a taxpayer’s liabilities, including TDS deductions, advance tax paid, and more.
TDS Refund and Tax Reduction Exemptions
If a taxpayer has overpaid taxes beyond the required amount, they can file for a tax refund. The refund will be processed along with the annual income tax return.
For example, suppose Mr. Paul submitted an invoice for Rs.40,000 but received only Rs.39,200 after a 2% (Rs.800) TDS deduction. Under Section 194C, he is only liable for 1% (Rs.400). The excess Rs.400 will be refunded when he files his Income Tax Return.
If a person's income is below the taxable threshold, they can request zero TDS deduction. There are two ways to do so –
- Submitting Form 15G or 15H to declare income below the basic exemption limit can exempt an individual from TDS. These forms must be submitted annually; otherwise, the person may face TDS deductions.
- Submitting Form 13 to apply for a certificate of lower or NIL tax deduction will also register as zero TDS under these provisions.
TDS is a crucial aspect of the Income Tax Act, 1961. Taxpayers must understand the applicable limits, forms, and rules in detail to comply with the Indian Income Tax Department's regulations.
Recent Updates on TDS
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