What is TDS?

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. 

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:

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:

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.