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What is Tax deduction at source (TDS)

what is tds

TDS stands for Tax Deducted at Source. It is a procedure implemented by the Indian government to collect taxes at the source of income. A certain percentage of tax is deducted by the payer at the time of making payments to the receiver, and this amount is then remitted to the government. TDS is applicable to a wide range of income categories such as salaries, interest on fixed deposits, rent, commissions, etc

The introduction of TDS has helped prevent tax evasion and has made it easier for the Income Tax department to track and collect taxes

It was challenging to trace the widespread tax evasion that the Income Tax department was dealing with. However, tax evasion has significantly decreased since the implementation of TDS.

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

  • TDS Applicability: All payments covered under the Income Tax Act are subject to TDS, except for individuals or Hindu Undivided Families (HUFs) not requiring an audit.
  • TDS on Rent: Individuals or HUFs paying rent over ₹50,000 must deduct 5% TDS. This applies even if their books are not audited, and they do not need a Tax Deduction Account Number.
  • TDS in Salary: TDS deduction depends on the employee’s income tax bracket. Banks deduct 10% TDS on income from employers, but this increases to 20% if the PAN is not linked.
  • Exemptions: Employees not falling under the taxable income can avoid TDS by disclosing their total income to their employer and submitting Forms 15H and 15G to the bank.
  • Refunds: If unable to submit the necessary forms or disclose income, individuals can file for a TDS refund by revealing their total income to the tax department.

It’s important to stay informed about TDS regulations to ensure compliance and take advantage of any applicable exemptions or refunds.

What is the TDS rate for interest on fixed deposits?

The TDS (Tax Deducted at Source) rate for interest earned on fixed deposits in India is 10% if the interest income exceeds ₹40,000 in a financial year. For senior citizens, this threshold is higher at ₹50,000. However, if the depositor does not provide their PAN details to the bank, the TDS rate can be as high as 20%

It’s important to note that these rates are for the financial year 2021-22 and may be subject to change. Always check for the latest rates and regulations to ensure accurate information.

How can I check my TDS status?

To check your TDS (Tax Deducted at Source) status in India, you can follow these steps:

  1. Visit the official website of the Central Board of Direct Taxes at tdscpc.gov.in.
  2. Enter the Captcha code and click on Proceed.
  3. Fill in the required details such as your PAN (Permanent Account Number), the TAN (Tax Deduction and Collection Account Number) of the deductor, the relevant Financial Year, the Quarter, and the Type of Return.
  4. Click on Go to view the status of the e-filing of your TDS statement.

Alternatively, you can also check your TDS status using Form 26AS, which is a consolidated tax statement that includes details of various taxes deducted on your behalf. You can access Form 26AS through your account on the Income Tax e-filing portal or via your bank’s net-banking facility if it is linked with your PAN.

Remember to have all the necessary information handy, such as your PAN and TAN, to ensure a smooth process.

Example of TDS & Types of TDS

TDS stands for Tax Deducted at Source, which is a means of collecting income tax in India. Here’s an example of how TDS works:

Suppose ABC Pvt Ltd has to pay Mr. XYZ a professional fee of ₹1,00,000. The TDS rate specified for professional fees is 10%. Therefore, the TDS to be deducted would be ₹10,000 (10% of ₹1,00,000). The net payment to Mr. XYZ after TDS deduction would be ₹90,000 (₹1,00,000 – ₹10,000), and ABC Pvt Ltd would deposit the ₹10,000 as TDS to the government1.

Types of TDS include deductions on various payments such as:

  • Salary (Section 192)
  • Interest on securities (Section 193)
  • Dividends (Section 194)
  • Winning from horse races (Section 194BB)
  • Payment of accumulated balance in Employer’s Provident Fund to an employee (Section 192A).

Different sections of the Income Tax Act specify different rates and conditions for TDS deduction on various types of payments. For instance, TDS on salary is not a fixed percentage but is calculated based on the applicable income tax slab rates.

What are the rules for Tax Deducted at Source?

The rules for Tax Deducted at Source (TDS) in India are quite comprehensive. Here are some key points:

  • Deductor’s Responsibility: A person making specified payments is required to deduct TDS at the time of payment and deposit it with the government.
  • TDS Rates: The rates for TDS deduction are specified in the Income Tax Act or the First Schedule to the Finance Act.
  • Payment to Non-Residents: For payments to non-resident persons, withholding tax rates specified under Double Taxation Avoidance Agreements should be considered.
  • Deposit Modes: TDS can be deposited electronically by corporate assesses and others covered under section 44AB of the Income Tax Act. Others can use physical mode via Challan 28.
  • TDS Certificate: The deductor must issue a TDS certificate to the deductee, which can be used to claim credit for the amount deducted.
  • TDS Returns: Deductors are required to file quarterly TDS statements.
  • Special Cases: Individuals and HUFs not liable for a tax audit but paying rent over ₹50,000 per month must deduct TDS at 5% without needing a TAN.
  • TDS under GST: TDS is also applicable under Goods and Services Tax (GST) at the rate of 2% for payments exceeding ₹2,50,000 under a single contract.

These are just a few of the rules governing TDS in India. It’s important for both deductors and deductees to be aware of these regulations to ensure compliance and proper credit of taxes. For a detailed understanding, it’s advisable to refer to the Income Tax Act and the guidelines provided by the Central Board of Direct Taxes (CBDT).

Penalty for non-compliance with TDS rules in india

In India, non-compliance with TDS (Tax Deducted at Source) rules can lead to several penalties and consequences. Here are some key points:

  1. Disallowance of Expenses: If TDS is not deducted or paid, 30% of the expenditure on which tax was deductible may be disallowed under section 40(a)(ia) of the Income Tax Act1.

  2. Interest Charges: Interest may be charged under section 201(1A) for non-deduction or late payment of TDS. The interest rate is 1% per month or part of a month from the date the tax was deductible until it is deducted, and 1.5% per month or part of a month from the date of deduction to the date of actual payment12.

  3. Penalties:

    • Section 271H: A penalty of minimum ₹10,000 and maximum ₹1,00,000 for failure to file TDS/TCS returns or filing incorrect returns.
    • Section 272A(2)(k): A penalty of ₹100 for every day the failure to file TDS returns continues1.
    • Section 221: In addition to tax and interest, a penalty not exceeding the amount of tax in arrears may be levied for being an assessee in default.

  4. Prosecution: In severe cases, non-compliance can lead to prosecution under sections 276B or 276BB of the Income Tax Act.

  5. Fees for Late Filing: Under section 234E, there is a fee of ₹200 per day for delay in filing TDS/TCS statements. This fee cannot exceed the TDS amount.

It’s important to comply with TDS provisions to avoid these penalties and additional charges. For specific cases or more detailed information, consulting with a tax professional or referring to the latest updates from the Income Tax Department is recommended. Book free consultant with us

How do I calculate TDS?

Calculating TDS (Tax Deducted at Source) in India involves a few steps and depends on the nature of the payment and the applicable TDS rate. Here’s a general process to calculate TDS:

  1. Identify the Nature of Payment: Determine the type of payment you are making, such as salary, interest, rent, professional fees, etc.

  2. Determine the TDS Rate: Refer to the relevant section of the Income Tax Act to find the TDS rate applicable to the payment type. For example, TDS on salary is as per the income tax slab rates, while TDS on interest from fixed deposits is generally at 10%.

  3. Check for Threshold Limit: Some payments have a threshold limit, and TDS is only deducted if the payment exceeds this limit.

  4. Calculate the TDS Amount: Apply the TDS rate to the amount of payment exceeding the threshold limit, if any. For salaries, the TDS is calculated based on the estimated annual income and applicable slab rates.

  5. Account for PAN: If the recipient’s PAN is not available, TDS may be deducted at a higher rate as per Section 206AA.

  6. Include Surcharge and Cess: If applicable, add surcharge and education cess to the TDS amount.

  7. Deduct and Deposit TDS: Deduct the TDS amount from the payment to the recipient and deposit it with the government.

Here’s a simple formula for TDS calculation on salary:

TDS=Payment Amount×TDS Rate

For accurate calculations, you can use the TDS calculator provided by the Central Board of Direct Taxes, which has been amended up to the Finance Act, 20232. It’s important to consider tax treaties and monetary limits for TDS applicability when determining the TDS liability.

Please note that the above information is a general guideline. For specific cases or detailed calculations, it’s recommended to consult with a tax professional or refer to the official documents provided by the Income Tax Department.

how to avoid TDS in India

To avoid TDS (Tax Deducted at Source) in India, you can take several legitimate steps depending on your income and investments. Here are some methods:

  1. Submit Investment Proofs: Provide proofs of eligible investments under sections like 80C, 80D, etc., to your employer to reduce your taxable income.

  2. Form 15G/15H: If your total income is below the taxable limit, you can submit Form 15G (for individuals below 60 years) or Form 15H (for senior citizens) to banks to prevent TDS on interest income.

  3. House Rent Allowance (HRA): If you pay rent, you can claim HRA by providing your landlord’s PAN and rent receipts to your employer.

  4. Education Loan Interest: Claim deduction under Section 80E for interest paid on education loans.

  5. Home Loan Benefits: Claim benefits on home loan interest under Section 24 and principal repayment under Section 80C.

  6. Health Insurance Premium: Deduct health insurance premium under Section 80D.

  7. Avoiding Higher TDS for NRIs: NRIs can open specific accounts like NRO, FCNR, or NRE to avoid higher TDS rates.

  8. Advance Tax Payment: If you have other income sources, pay advance tax to avoid TDS.

  9. Consult a Tax Advisor: For personalized advice, consult a tax advisor to plan your taxes efficiently.

Remember, these steps should be taken in compliance with the tax laws, and it’s important to maintain proper documentation for all claims and deductions. For more detailed guidance, it’s advisable to consult with a tax professional.

What are the TDS rates?

The TDS (Tax Deducted at Source) rates in India vary depending on the nature of the payment and the status of the recipient. Here are some of the TDS rates for the financial year 2023-2024 (Assessment Year 2024-2025) as per the latest amendments:

  • Salary: As per the normal slab rate or the new tax regime slab rate as opted by the employee.
  • Accumulated balance of provident fund: 10% if the amount exceeds ₹50,000.
  • Interest on securities: 10% if the interest exceeds ₹2,500.
  • Dividends: 10% if the dividend exceeds ₹5,000.
  • Interest on Bank/Post Office Deposits:
    • For senior citizens: 10% if the interest exceeds ₹50,000.
    • For others: 10% if the interest exceeds ₹40,000.
  • Winnings from lotteries, crossword puzzles, card games, etc.: 30% if the winnings exceed ₹10,000.
  • Winnings from online games: 30% with no threshold limit.

These are just a few examples, and there are many other sections under the Income Tax Act that specify different TDS rates, nature of payments, and their threshold limits. It’s important to refer to the detailed TDS rate chart for the specific section applicable to your payment to determine the correct TDS rate.

For individuals, the TDS rates based on income are as follows:

  • Income between ₹2.5 lakh and ₹5 lakh: 5%
  • Income between ₹5 lakh and ₹10 lakh: 20%
  • Income above ₹10 lakh: 30%

Please note that if the recipient’s PAN is not available, TDS may be deducted at a higher rate as per Section 206AA. Additionally, surcharge and education cess may also apply to the TDS amount.

For the most accurate and updated information, it’s advisable to consult the TDS rate chart provided by tax experts or use the TDS calculator provided by the Central Board of Direct Taxes, which has been amended up to the Finance Act, 2023. Consulting with a tax professional is also recommended for personalized advice.

What are the TDS rates?

To apply for a TDS refund, you need to follow these steps:

  1. File your Income Tax Return (ITR): Calculate your taxable income and taxes, and file an ITR. If the TDS deducted is higher than your total tax liability for the financial year, you are eligible for a refund.

  2. Provide Bank Details: While filing the ITR online, provide details of a bank account and IFSC code. The Income Tax Department requires these details to process the refund.

  3. Submit Form 15G/H: If your taxable income is less than the basic exemption limit, submit Form 15G (for individuals below 60 years) or Form 15H (for senior citizens) at the beginning of the financial year to your bank to avoid TDS deduction on interest income.

  4. Claim Refund for Excess Deduction: If excess TDS has been deducted on salary due to non-submission of investment proofs or rent receipts, you can claim a refund by filing your ITR.

After you have filed your ITR, the returns will be processed by the officials, and if a refund is due, it will be initiated to the bank account you provided. Please note that it may take a few months for the refund to be processed.

For detailed information and assistance, you can  consult with us. Book consultancy now

What is a TDS certificate?

A TDS certificate is a document issued by the person or entity that deducts Tax Deducted at Source (TDS) to the assessee from whose income the TDS was deducted. It serves as proof of the tax deducted at the time of making specified payments such as rent, commission, professional fees, salary, interest, etc., and is necessary for the assessee to claim tax credit.

There are different types of TDS certificates:

  • Form 16: Issued by employers to employees, detailing the TDS on salary.
  • Form 16A: Issued for TDS on income other than salary, like interest on fixed deposits.
  • Form 16B: Issued for TDS on sale of property.
  • Form 16C: Issued for TDS on rent.

These certificates contain details such as the amount of TDS, the nature of payments, the period for which the TDS is deducted, and the date of deposit of TDS to the government. The recipient of the income can use these certificates to claim credit for the TDS deducted against their final tax liability.

How can I get a duplicate TDS certificate if I lost it?

If you’ve lost your TDS certificate, you can obtain a duplicate by following these steps:

  1. Contact the Deductor: Reach out to the person or entity that deducted the TDS and request a duplicate certificate. They are obligated to provide you with a duplicate TDS certificate.

  2. TRACES Website: The deductor can download the duplicate TDS certificate from the TRACES website (TDS Reconciliation Analysis and Correction Enabling System) and provide it to you.

  3. Form 16/16A: For TDS on salary, the duplicate certificate will be Form 16, and for TDS on other incomes, it will be Form 16A. The deductor should mark the certificate as a ‘duplicate’ to indicate that it is not the original.

  4. Provisional Receipt: If you need a duplicate provisional receipt for TDS/TCS statements, you can raise an online request through the Protean eGov Technologies Ltd. portal. The corresponding duplicate receipt will be sent to the email ID as per the latest TDS/TCS statement submitted.

Remember to keep the duplicate certificate safely, as it is an important document for claiming TDS credit while filing your income tax returns.

How long does it take to get a duplicate TDS certificate?

The time taken to obtain a duplicate TDS certificate can vary, but as per the provisions of the Income Tax Act, the TDS certificate must be issued by employers to an employee within 15 days of filing their fourth-quarter TDS returns. This is also applicable for Form 16A, which is issued for TDS on income other than salary.

In case you need a duplicate certificate, you should contact the deductor (employer or entity) who can download it from the TRACES website and provide it to you. The process should ideally not take longer than the stipulated time of 15 days after the TDS returns are filed, provided there are no delays from the deductor’s end.

If you experience a significant delay, you may follow up with the deductor or seek assistance from a tax professional to expedite the process.

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