What is TDS?

5paisa Research Team

Last Updated: 24 Apr, 2024 12:12 PM IST

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TDS, or Tax Deducted at Source, is a government procedure to collect taxes directly from income sources. Payers deduct a certain percentage of tax from payments to receivers, remitting it to the government. It applies to various income categories like salaries, interest, rent, and commissions, aiming to prevent tax evasion. Understanding TDS is crucial for both payers and receivers in India. Deductors, responsible for deduction and deposit, follow rates set by the tax department. TDS is deducted regardless of payment mode and is linked to PAN for both deductor and deducted.

All about Tax Deducted at Source (TDS)

What is Tax Deducted at Source (TDS)?

TDS meaning or Tax Deducted at Source, is when income tax is deducted from specified payments like rent, commission, or salary at the time of payment. It ensures advance tax deduction by the payer, relieving the recipient of the hassle.

The recipient receives the net amount after TDS deduction, which is then added to their income. TDS functions on the "pay as you earn" principle, with the payer deducting a percentage and remitting it to the government. For instance, ABC Pvt. Ltd. deducts 10% TDS (Rs. 10,000) from a payment of Rs. 1,00,000 to RTC Pvt. Ltd., remitting Rs. 90,000 to them.

When should TDS be deducted, and who is liable to deduct it?

The IT department introduced TDS (Tax Deducted at Source) to deduct tax from payments received and deposit the money in a government account. The payer is responsible for withholding and depositing the tax with the government. There are two parties in action: the deductee is the one whose income is deducted, and the deductor is the one who is deducting. Here’s how the deduction cycle of TDS works:
 
●  As per the Income Tax Act, all the payments that fall under the act are liable for TDS. The only exemption is for the individual or the Hindu Undivided Family. Furthermore, an audit is not required. 
 
●  Any individual or Hindu Undivided Family (HUF) paying rent above Rs. 50,000 is required to pay 5% TDS. Regardless of whether your books are audited, the tax will be subtracted. People or companies falling under the 5% TDS bracket are not liable to apply for a Tax Deduction Account Number.
 
●  The answer to “What is TDS in salary” depends on the income tax bracket the employee belongs to, employers may deduct TDS. The bank will deduct 10% of your income from the respective employer. However, there is a 20% deduction if your PAN isn't linked to the bank. According to the TDS rates outlined in the Income Tax Act, the deductor can withhold the salary and submit it to the government later.
 
●  If employees release their total income to their employer and confirm that they do not fall under taxable income, the Tax Deducted at Source (TDS) wouldn’t be levied. People falling below the taxable threshold can submit forms 15H and 15G to the bank to get an exemption from the TDS. In doing so, the bank will not deduct TDS from your income.
 
●  In case you can’t submit forms to the bank or reveal your total income to the employer, you can file for a refund. However, it would help if you revealed your total income tax department to claim a refund.

How Does TDS Work?

TDS is deducted by the payer, known as the deductor, with a TAN number. The recipient, or deductee, receives the payment after deduction. The deducted amount is deposited via Challan 281 to the government by the 7th of the following month.

The deductee verifies TDS from Form 16/16A and claims credit while filing taxes. Excess TDS can be refunded. TDS applies to various payments like salary, interest, rent, etc., with rates varying. The deductor issues a TDS certificate and deposits tax within due dates. TDS doesn't exempt from filing ITR if income exceeds the exemption limit.

Types of TDS

TDS applies according to transaction types, each having its own applicable rate. Various sources eligible for TDS deductions include:
    • Rent
    • Dividends
    • Sale of property
    • Bank interest
    • Insurance commissions, etc.
    • Salary income
    • Professional fees
    • Contractor payment
    • Transfer of immovable property
    • Interest on fixed deposits (FD)
    • Commission or brokerage
    • Winning from games like a crossword puzzle, lottery, etc.

TDS Rate Chart for FY 2023-24

The Income Tax in India has different TDS rates depending on the nature of payments. 

 

Section

Payment Type

TDS rate in percentage (%)

192

Salary

Normal Slab Rate

192 A

Withdrawal from employee’s provident fund

10%

193

Interest on securities

10%

194

Dividend income

10%

194 A

Interest income other than Interest on securities

10%

194 B

Income from lotteries, crossword puzzles, card games and any other games involved in gambling or betting

10%

194 C

Payment/ credit to a resident contractor or sub-contractor

1% for HUF and individuals, and 2% for others

194 D

Insurance Commission

5%

194 EE

Payment under National Savings scheme

10%

194 G

Commission on sale of lottery tickets

10%

194H

Commission or Brokerage

10%

194-I

Rental Income

2% for plant, machinery or equipment, and
10% for land or building or furniture or fitting.

194-IA Payment for the sale of any immovable property other than agricultural land 1%
194LA Payment on acquisition of any specific immovable property 10%

What is a TDS Refund?

Tax Deducted at Source (TDS) refund is issued by the income tax authority when the TDS deducted or advance taxes paid exceed actual tax liability. TDS is deducted by the payer from income like salary, rent, or interest and remitted to the government.

If a mismatch occurs between actual tax liability and TDS deducted, you can claim a refund of the excess amount. However, refunds are only applicable when actual tax liability is less than TDS deducted. To claim a refund, file a refund claim with your annual income tax return. Understanding TDS is crucial for taxpayers to comply with Indian tax regulations.

How to apply for a TDS refund?

People filing income tax returns know that a TDS refund and an income tax return are the same. However, there is a misconception about TDS being different from an Income tax return. While filing the TDS return, the applicant must reveal bank account details such as account number, IFSC code, etc. Then, the applicant can claim during the annual filing period of the income tax return. 
 
If the deductor has deducted more tax amount than that of filing, you can claim the amount as a refund. For online filing of TDS refund, the applicant must have a Tax Filing and Collecting Return Number (TAN). Importantly, the TAN should be registered for e-filing.
 
Before heading to the File Validation Utility, ensure the TDS statement is well-prepared using the Return Preparation Utility. Additionally, ensure your Digital Signature Certificate is registered for e-filing. This may only apply to people who are using DSC for e-filing.
 
This is how you can claim a TDS return online.
 
Step 1: Visit the official website of the Income Tax Department (https://incometax.gov.in).
Step 2: On the top right, click on “log in” (people who haven't registered will have to create an account).
Step 3: Log in to file the TDS using your user ID, which is your TAN.
Step 4: After logging in, click on “TDS” and select “Upload TDS” from the drop-down menu.
Step 5: A new window will appear wherein you must fill in the form.
Step 6: Click on “Validate” after rechecking the form's fields.
Step 7: Validate your return with DSC or Electronic Verification Code (EVC).
 
After filing TDS, check the refund column. The refund is processed within six months of filing the ITR. The applicant can also check the refund status on the Income tax portal.
 

Steps to check TDS Deduction Status

The deductor usually automates the TDS deduction from the deductee’s account. The deductor informs the banks accordingly. Payments like commission on immovable property or anything that occurs once a month/year are deducted immediately while the payment is made. Here is the step-by-step procedure to check the status of your refund.
 
Step 1: Visit the official website of the Income Tax Department.
Step 2: Login using your details, i.e., TAN
Step 3: Locate “My Account” and click on “view Form 26AS (Tax Credit).”
Step 4: Download the file by selecting the year.
Step 5: The downloaded file will be password protected. The date of birth mentioned in your PAN will be the password for the file. For example, your date of birth mentioned in your PAN is 12.07.1985. Therefore, the password would be 12071985.
Step 6: You can check all TDS details, including deductions and refunds.
 

Advantages of TDS

Tax evasion was a severe problem for the department before the implementation of the TDS. Both people evading tax and the department had to go through the cumbersome process of extracting tax. However, since the advent of TDS, things have been less complicated. Here are a few advantages of TDS observed by both the taxpayer and the IT department.
 
●      It helps in controlling tax evasion instances.
●      It is a steady source of revenue.
●      It is simpler for the deductee as the tax on his/her behalf is already paid.
●      The tax collection agencies have felt less burdened since the implementation of TDS.

For the financial year 2023-24, deductors must deposit tax deducted at source and file TDS returns according to the table below:

Quarter ending

Month of deduction

Due dates for depositing TDS  (FY 2023-24)*

30th June 2023

April 2023

7th May 2023

 

May 2023

7th June 2023

 

June 2023

7th July 2023

30th September 2023

July 2023

7th August 2023

 

August 2023

7th September 2023

 

September 2023

7th October 2023

31st December 2023

October 2023

7th November 2023

 

November 2023

7th December 2023

 

December 2023

7th January 2023

31st March 2024

January 2024

7th February 2024

 

February 2024

7th March 2024

 

March 2024

7th April 2024 (for tax deducted by govt. office)

    30th April 2024 (for other deductors)

Different types of TDS Return Forms

TDS return is a statement issued post-tax payment, detailing all TDS deductions made in a quarter, submitted to India's Income Tax Department by the payer.

Tax returns encompass TDS deduction data, payer/payee PAN, and payment details to the Indian Government, including TDS challan info.

Various forms are used for TDS returns:

Form No.

Description

Details

Form 24Q

Quarterly TDS statement for tax deducted on salary payments.

- Used for preparing eTDS returns for the TDS deducted on salary under Section 192 of the Income Tax Act, 1961. - Submitted on a quarterly basis. - Contains details like salaries paid and the TDS deducted of the employees by the employer. - Contains 2 annexures: - Annexure-I: Details of the deductor, deductees, and challans. - Annexure II: Salary details of the deductees. - Annexure-I is to be submitted by the deductor for all the four quarters of the financial year. - Annexure II need not be submitted in the first three quarters but has to be furnished and submitted in the fourth quarter with details of the employees’ salaries for the entire financial year.

Form 26Q

Quarterly TDS statement for other cases like TDS deducted on professional fees, interest payments, etc.

- Submitted for tax deduction at source for all the payments received other than salary. - Submitted on a quarterly basis. - Applicable for tax deducted at source under sections 200(3), 193, and 194 of the Income Tax Act, 1961. - Income on which tax is deducted includes interest on securities, dividend securities, professional fees, directors’ remuneration, etc. - PAN is compulsory for non-government deductors. For government deductors, “PANNOTREQD” must be mentioned on the form.

Form 27Q

Quarterly TDS statement for tax deducted while making payment, other than salary, to non-resident (not being a company), and foreign company.

- Submitted on a quarterly basis. - Applicable for payments made to non-resident Indians and foreigners other than salary. - Submitted on a quarterly basis. - Applicable for tax deducted at source under section 200(3) of the Income Tax Act, 1961. - Income on which tax is deducted includes interest, bonus, additional income, or any other sum owed to non-resident Indian or foreigner. - PAN is compulsory for non-government deductors. For government deductors, “PANNOTREQD” must be mentioned on the form.

Form 26QB

Challan-cum-statement for tax deducted under Section 194-IA.

- Must be provided within 30 days from the end of the month in which TDS is deducted. - Not required to file a separate return.

Form 26QC

Challan-cum-statement for tax deducted under Section 194-IB.

- Must be provided within 30 days from the end of the month in which TDS is deducted. - Not required to file a separate return.

Form 27EQ

Quarterly statement for tax collected at source under Section 206C.

- Submitted on a quarterly basis. - Must furnish TAN. - Shows the Tax Collected at Source (TCS), which is the tax collected by the seller. - Furnished by corporate deductors and collectors but not by government deductors. - PAN is compulsory for non-government deductors. For government deductors, “PANNOTREQD” must be mentioned on the form.

How to Know the Deducted TDS Amount

You can conveniently verify whether TDS has been deducted and credited to your account online through the following steps:

• Visit the official website of the Income Tax Department and sign up as a new user by providing your Permanent Account Number (PAN) and creating a password.
• Log in to the portal using your registered ID and password.
• Choose the option to view your tax credit statement or Form 26AS.
• You will be directed to the TDS Reconciliation Analysis and Correction Enabling System page, where you can access comprehensive details of your tax liabilities. This includes information on Tax Deducted at Source (TDS), advance tax payments, and more.

By following these steps, you can conveniently track and verify your TDS deductions online, ensuring accurate tax compliance and financial transparency.
 

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Frequently Asked Questions

The Tax Deducted at Source (TDS) is deducted at the time of payment generation. Thus, the party generating income is eligible to deduct TDS. 
 

The Tax Deducted at Source (TDS) is deducted at the time of payment generation. Thus, the party generating income is eligible to deduct TDS.

The TDS rate depends upon the nature of the payment and on the slab prescribed by the Income Tax Department. 
 

Yes, PAN card is indeed mandatory for TDS payment.

If the payable salary is less than Rs. 2,50,000 per annum, the employee does not need to pay TDS. 
 

If the payable salary is less than Rs. 2,50,000 per annum, the employee does not need to pay TDS.

TDS ensures tax collection at the income source. The deductor, obligated to make a payment, deducts tax and remits it to the Government. This mechanism aids in advance tax collection, broadening the tax base, curbing evasion, and fostering financial transparency.