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HomeIncome TaxAll Important Guidelines On Tax Deducted at Source (TDS) In India

All Important Guidelines On Tax Deducted at Source (TDS) In India

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Tax Deducted at Source is the complete form of TDS. You may have encountered TDS in many forms – bank FDs, salary payments, and vendor payments, and it seems TDS is everywhere. It means that an advance tax has been withheld from your income by the payor, no matter what form it takes. You end up with a reduction in your income as a result. It is, therefore, essential to consider it when looking for tax savings. 

Did You Know? The income Tax Act of 1922 introduced the TDS provision in India. At first, only four sources of income were subject to TDS.

TDS and Its Advantages

The TDS or Tax Deducted at Source is an income tax collected from certain payments, including rent, salaries, commissions, interest, and professional fees. When paying an amount, the payer should deduct TDS.

The payee can claim the TDS credits against their actual tax liability when filing the annual ITR (Income Tax Return)

TDS may have been to reduce the chances of income recipients evading taxes. For honest taxpayers, it also has a few advantages. They are –

  • It ensures that people do not avoid the payment of taxes.
  • The Government receives a steady flow of revenue from TDS.
  • As the TDS deducted tax amount payable automatically, it is very convenient for the deductee.
  • There is a significant reduction in the burden on Tax Collection Agencies to collect taxes.

Also Read: Step-by-Step Guide for E-Verifying Your Income Tax Return

Types and Rates of TDS

The below table explains the source, type, and TDS rates.

Section Number

Source

Payee Type

Threshold Limit

TDS Rate

192

Salary Payment

Individual

Fundamental exemption limits as per the income tax slab rates.

Rates of Income Tax in force.

193

Interest on securities

Resident

 

10%

194

Deemed Dividend

Resident Individual

2500 each financial year.

10%

194A

Interest excluding securities interest.

Resident

10000 if an individual gets the interest from the following,

Banks;

Post Office deposits; or

Co-operative Banks

In any other case, ₹5000 will be the limit.

          

10%

194B

Income from games like a card, crossword puzzles, lottery, etc.

Any person

The amount exceeds ₹10000

30%

194BB

Income from House race games

Any person

The amount exceeds ₹10000

30%

194C

Contractor payments

Resident contractor

For a single amount exceeding ₹30000; or

For aggregate sums paid in the FY exceeding ₹100000.

For any individual/HUF = 1% of the sum paid.

For any other person = 2% of the sum paid.

194D

Insurance Commission

Any resident

15000 per Financial Year

10%

194DA

Amount under LIC

Resident

During the FY, the aggregate payment must not exceed ₹100000

1%

194H

Commission or Brokerage

Resident

15000 per financial year

5%

194 – I

Rent

Resident

₹180000 per Financial Year

For P&M or equipment = 2%

For Land, building, furniture, or fixtures = 10%.

194 – IA

Any transfers on immovable property

Resident transferor

Consideration of ₹50lakhs.

1%

194J

Royalty, Professional or technical service fees, Director Remuneration, Non-compete fees

Resident

30000 for each income in the FY 

10%

194LA

Compensation for acquiring immovable property

Resident

250000 per FY

10%

Examples of TDS

Suppose a start-up pays ₹90,000 monthly rent to the property owner. Since the company must deduct 10% TDS from this amount, it must pay the property owner ₹81,000 after subtracting ₹9,000. Accordingly, the property owner will receive ₹81,000 after TDS. By adding the ₹90,000 to his income, the owner can take credit for the ₹9,000 the company already deducted.

Also Read: Income Tax Deductions on Section 80, Section 80C, 80CCC, 80CCD & 80D

When TDS is Deducted and Who is Liable to Deduct?

By the Income Tax Act, companies or individuals must deduct tax at the source when the amount paid exceeds a specific limit. Payment recipients are also liable to pay taxes on their income.

  • Whenever you make a payment specified in the Income Tax Act, TDS will be deducted. The Government will not deduct TDS from an individual’s income or Hindu Undivided Family (HUF), and no need for any audits for your books.
  • An individual or HUF member who pays rent exceeding ₹50,000 will be charged a TDS of 5% even if their books are not liable for a tax audit. Applying for a Tax Deduction Account Number (TAN) is unnecessary if you are eligible to deduct TDS at 5%.
  • Depending on the applicable income tax slab rate, your employer will deduct TDS from your paycheck if you are a professional. Bank will deduct the TDS with which you hold an active account at a rate of 10%. TDS will, however, be charged 20% if you still need to provide your PAN number. The Income Tax Act sets TDS rates for most payments, and the payer deducts TDS at the appropriate rate.
  • When you submit your investment proofs for your employer and your total taxable income does not exceed the absolute taxable threshold, you will not have to pay any taxes. The Government will not deduct any TDS in this case. Also, suppose your total taxable income is below the total taxable limit. In that case, you can submit Form 15H or Form 15G to the bank. In this case, the bank will not deduct any TDS from your interest income.
  • When you fail to submit investment proof to your employer, and the bank deducts the TDS, you can file a return and get a refund. This is applicable only if your total taxable income does not exceed the total taxable amount.

What is a TDS Return?

Throughout the year, you pay other parties for their services. When payments made under sections 192 to 195 of the Indian Income Tax Act exceed the specified limit, you must deduct applicable TDS.

The deducted TDS amount must be deposited quarterly with the TDS Return. Every quarter, you must file a separate TDS return, depending on the nature of the payment.

How to File TDS Return Online?

You need to ensure a few things before filing your TDS return. These are:

  • Register your Tax Deduction and Collection Account Number (TAN) for electronic filing and ensure it is valid
  • Use Return Preparation Utility to prepare your TDS statements and File Validation Utility to validate them.
  • When uploading your returns using DSC, you must have a valid Digital Signature Certificate that is registered for e-Filing
  • If you intend to upload your returns using the Electronic Verification Code, provide the details of your principal contact’s Demat account or bank account.

Steps to upload TDS Statements

You can upload your TDS statements to the official website of the Income Tax Department by following these steps:

Step1: Go to http://incometaxindiaefiling.gov.in/ and click on ‘Login Here’. 

Step 2: Enter your login credentials and click on ‘Login’. Your user ID will be your TAN.    

Step 3: Once you’ve logged in, click on the ‘Upload TDS’ option under the TDS tab. 

Step 4: You will be provided with a form where you will need to select the correct details. 

Step 5: The returns can be validated through the following modes

Step 6: The next screen will give you the option to use an EVC already generated or generate a new EVC. 

Also Read: Depreciation Under Income Tax Act

Penalty for Late Filing TDS Return

Suppose you fail to submit or default in submitting your TDS return or statement. In that case, the Income Tax Department will impose the following penalties:

Failure to submit your returns: 

Under Section 272A (2) of the Income Tax Act, a penalty of ₹100 will be imposed for every day the returns remain unsubmitted, up to the amount of TDS.

Failure to file your returns on time: 

Under Section 234E of the Income Tax Act, a penalty of ₹200 will be imposed for each day the returns remain unfilled up to the TDS amount.

For defaults in filing TDS statements: 

According to Section 271H of the Income Tax Act, a penalty of ₹10,000 to ₹1 lakh will be levied on the deductor for failure to file a TDS return on time.

For incorrect details: 

Deductors who submit incorrect information regarding PAN, challan details, or TDS amount are subject to a penalty of ₹10,000 to ₹1 lakh under Section 271H of the Income Tax Act.

For non-payment of TDS: 

If TDS is not paid till the due date, interest and a penalty are imposed under Section 201A. From the date from which the tax was deductible until the tax was deducted, interest will be charged at 1.5% every month for any part of the tax not deducted at the source.

What is a TDS Certificate?

The Income Tax Act 1961 prescribes two types of TDS certificates: Form 16 and Form 16A. These certificates show the amount deducted as tax under Section 203.

For Salaried Class: 

Employers must provide Form 16 to salaried employees detailing the amount deducted as TDS. Several details are included in Form 16, such as the computation of tax, the deduction of tax, and the payment of TDS. Employers must provide this form to employees by May 31 of the following year.

For Non-Salaried Class: 

The deductor sends Form 16A to the deductee, which contains all the information regarding tax computation, TDS deduction, and payment.

Conclusion

TDS refers to the deduction of taxes from an individual’s income. Deductors must pay deductees. The TDS reduces the burden of filing taxes for deductees and ensures that the Government receives stable revenues. After you earn a certain amount, TDS is collected. Horse races, lotteries, and other games are subject to a maximum of 30% TDS. The deductor or the bank issues the TDS certificate as soon as the TDS is collected. Refunds can be requested if there is a discrepancy between the amount collected and the amount payable.

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