Tax Deducted at Source (TDS ) - TDS Payment , Rates & Its Types

TDS or Tax Deducted at Source, is a means of indirect tax collection by Indian authorities according to the Income Tax Act, 1961. TDS is managed by the Central Board of Direct taxes (CBDT), which comes under the Indian Revenue Services (IRS).

TDS is collected as a means to keep a stable revenue source for the government throughout the year, while desisting people from avoiding taxes.

What is TDS?

Tax Deducted at Source or TDS is a type of tax that is deducted from an individual’s income on a periodical or occasional basis. TDS can be applicable for income that are regular as well as irregular in nature. Income Tax Act, 1961 regulates TDS in India through Central Board of Direct taxes (CBDT) under the Indian Revenue Services (IRS). TDS rule directs the payee or employer to deduct a certain amount of tax before making full payment to the receiver. TDS is applicable for salary, commission, professional fees, interest, rent, etc.

TDS Calculation

Payments such as salaries, interest payment, commission, fees to lawyers and freelancers etc. are subject to TDS. For salaries, the percentage of TDS will be based on income slabs rates. Similarly, each type of income has its own percentage of tax that is calculated when the amount meets certain limit.

Since TDS is collected at source without the calculation of investment that is eligible for tax deductions, hence, an individual can declare and submit his investment proof in order to file a return and claim for the TDS refund.

TDS Deduction

If an individual has paid excess TDS when compared to the liable tax amount, the deducted or payee can file a claim for a refund of the excess amount. The TDS deductions are calculated based on various factors for individuals from different types of income categories.

How is TDS Deducted?

Income and expenditure such as salary, lotteries, interests from banks, payment of commissions, rent payment, payments to freelancers, etc. fall under the ambit of TDS. When making payments under these segments, a percentage of the overall payment is withheld by the source that is making the payments. This source, which can be a person or an organization, is known as the Deductor. The person whose payment is getting deducted is called the Deductee. For instance, a deductor is the employer paying salary to an employee (the deductee).

Rates for tax deduction at source 2017-18

Particulars	TDS Rates (in %)
Section 192: Payment of salary	According to Income Slab as specified above
Section 192A: Payment of accumulated balance of provident fund which is taxable in the hands of an employee (with effect from 01.06.2015).	10
Section 193: Interest on securities
a) any debentures or securities for money issued by or on behalf of any local authority or a corporation established by a Central, State or Provincial Act;	10
b) any debentures issued by a company where such debentures are listed on a recognized stock exchange in accordance with the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and any rules made thereunder;	10
c) any security of the Central or State Government;	10
d) interest on any other security	10
Section 194: Dividend other than the dividend as referred to in Section 115-O	10
Section 194A: Income by way of interest other than "Interest on securities"	10
Section 194B: Income by way of winnings from lotteries, crossword puzzles, card games and other games of any sort	30
Section 194BB: Income by way of winnings from horse races	30
Section 194C: Payment to contractor/sub-contractor
a) HUF/Individuals	1
b) Others	2
Section 194D: Insurance commission	5 (10% till Assessment year 2016-17)
Section 194DA: Payment in respect of life insurance policy	1 (2% till 31-5-2016)
Section 194EE: Payment in respect of deposit under National Savings scheme	10 (20% till 31-5-2016)
Section 194F: Payment on account of repurchase of unit by Mutual Fund or Unit Trust of India	20
Section 194G: Commission, etc., on sale of lottery tickets	5 (10% till 31-5-2016)
Section 194H: Commission or brokerage	5 (10% till 31-5-2016)
Section 194-I: Rent
a) Plant & Machinery	2
b) Land or building or furniture or fitting	10
Section 194-IA: Payment on transfer of certain immovable property other than agricultural land	1
Section 194J: Any sum paid by way of a) Fee for professional services, b) Fee for technical services c) Royalty, d) Remuneration/fee/commission to a director or e) For not carrying out any activity in relation to any business f) For not sharing any know-how, patent, copyright etc.	10
Section 194LA: Payment of compensation on acquisition of certain immovable property	10
Section 194LBA(1): Business trust shall deduct tax while distributing, any interest received or receivable by it from an SPV or any income received from renting or leasing or letting out any real estate asset owned directly by it, to its unitholders.	10
Section 194LBB: Investment fund paying an income to a unitholder [other than income which is exempt under Section 10(23FBB)]	10
Section 194LBC: Income in respect of investment made in a securitization trust (specified in Explanation of Section 115TCA)	25% in case of Individual or HUF 30% in case of other individual
Any Other Income	10

TDS Return

An individual is required to file TDS return in order to receive TDS refunds and to maintain a healthy financial record. The TDS return can be carried out over the internet by visiting the website - http://www.incometaxindia.gov.in/

The individual will need to sign onto the website by using the existing credential or by registering for the services. There are specific deadlines that an individual will require to follow to ensure the TDS returns are filed within the due time. Depending on the income category, the individual will need to fill up the necessary form and provide required documents for the refund process to begin.

Once the individual has registered and submitted the return, he/she will need to validate the TDS Return File. The validation can be done by using the free software provided by the Income Tax Department.

If you are wondering about the possibilities of receiving a refund for the excess TDS paid, you will need to file the claim through TDS return to receive a refund for the excess amount.

Challan for TDS Payment

Challan ITNS 281 is the Challan form for payment of TDS (Tax Deducted at Source) and TCS (Tax Collected at Source). Challan No. 281 is applicable for Tax Deducted at Source / Tax Collected at Source (TDS/TCS) from corporates as well as non-corporates.

Challan TDS 281

The challan no. 281 is used for deposits of TDS/TCS. By using the form, you will need to mention the correct 10-digit Tax Deduction Account Number (TAN), name, and address of the deductor on each challan used for depositing tax. You can verify the TAN details from Income Tax Department website - www.incometaxindia.gov.in prior to depositing TDS/TCS. As a taxpayer, you will require using separate challans to deposit tax deducted under each section and indicate the correct nature of payment code in the relevant column in the challan.

e-Filing of TDS Return

• Follow the instruction below for the e-filing of TDS return:
• Choose the appropriate file format.
• The file should be in a clean text ASCII format with 'txt' as the filename extension. You can also download the free software to prepare the return file using the Return Preparation Utility provided by NSDL or any other third party software.
• Once the file is prepared, validate the file using the File Validation Utility (FVU) provided by NSDL.
• Rectify the errors, if found by FVU.
• Generated .fvu file can either be submitted at TIN-FC or uploaded at www.tin-nsdl.com website

e-Payment of TDS

The Income Tax Department provides an online option to Pay Taxes Online. The e-Payment service facilitates payment of direct taxes online. The taxpayer will require having the net-banking services from any of the authorized banks.

Penalty for Late Filing of TDS Return

If an individual fails to file the TDS Return within due time, he/she will need to pay a fine of Rs.200 per day until the return is filed. The fee is applicable for every day until the fine amount is equal to the total liable TDS amount.

If the taxpayer exceeds one-year time limit to file the TDS return or furnishes incorrect details of PAN, TDS amount, he/she will need to pay a penalty of minimum Rs.10,000 to Rs.1 lakh.

Reimbursement of Expenses Related to TDS

• The following reimbursement of expenses are considered for TDS:
• Management expenses to parent company are non-taxable
• Per-Diem expenses are non-taxable
• Relocation expenses for employees are non-taxable
• Audit fee is taxable
• Marketing expenses are taxable
• Traveling expenses are non-taxable, however, if it is taxable for FTS
• The reimbursement for visit of a foreign artist is non-taxable
• Consultant fees are non-taxable
• Infrastructure expenses are non-taxable, etc.

Salary TDS Calculator

In order to calculate TDS from salary, you will need to calculate the total gross income from salary as well as other sources, then calculate all the investments and exemptions. Once you have calculated the total amount, you can reduce the allowable investment and exemptions from your salary, this will give you your annual income that will be taxed on the various income slabs.

TDS Return Due Date

TDS return and last dates of FY 2016-17

Quarter	Quarter Period	Last Date of Filing
1st Quarter	1st April to 30th June	31st July, 2016
2nd Quarter	1st July to 30th September	31st Oct, 2016
3rd Quarter	1st October to 31st December	31st Jan, 2017
4th Quarter	1st January to 31st March	31st May, 2017

Advantages of TDS:

TDS is based on the principle of ‘pay as and when you earn’. TDS is a win-win scenario for both the taxpayers and the government. Tax is deducted when making payments through cash, credit or cheque, which is then deposited with the central agencies.

• Responsibility sharing for deductor and tax collection agencies.
• Prevents tax evasion.
• Widens the tax collection base.
• Steady source of revenue for the government.
• Easier for a deductee as tax gets automatically collected and deposited to the credit of the central government.

Types and Rates of TDS:

TDS is calculated on the basis of a threshold limit, which is the maximum level of income after which TDS will be deducted from future income/payments. TDS is deducted as a percentage of overall payment, and may range from 1% to 30% of actual payable amount.

Major sections of the Income Tax Act that outline TDS deductions are:

IT Section	TDS Rate	Threshold limit*
Section 192	According to income slab	According to income slab
Section 193	10% of income from interests on securities.	NIL
Section 194	10% of income from deemed dividends	NIL
Section 194A	10% of income from interests other than those on securities	Rs.5,000
Section 194B	30% of lottery or game-related winnings	Rs.10,000
Section 194BB	30% of income from horse racing	Rs.5,000
Section 194C	1% of earning from contracts or sub contracts for individuals and HUF (Hindu Unified Families) 2% for corporates	Rs.30,000
Section 194D	10% of income from insurance commissions	Rs.20,000
Section 194EE	20% of payment in NSS deposits	Rs.2,500
Section 194F	20% of payment made for repurchase of UTI or MF units	NIL
Section 194G	10% of commission earned from selling lottery tickets	Rs.1,000
Section 194H	10% of commission or brokerage earnings	Rs.5,000
Section 194I	2% of rent of plant and machinery 10% of rent of land, building, fitting, or furniture	Rs.1.8 lakhs
Section 194J	10% of fees for technical or professional services	NIL
Section 194L	10% of compensation payment made to a resident when acquisitioning some immovable property	Rs.1 lakh

*Threshold limit denotes the amount of income/profit up to which TDS will not be deducted. TDS will be calculated on value of income up and over threshold limit only.

TDS on income from salaries. are deducted on an estimation made at the start of the financial year. The employer is responsible for deducting taxes every month in equal instalments. In case the deductee has switched jobs during the fiscal year, the employer will deduct taxes on the basis of all accrued income in the fiscal year. Deductees should be very careful when mentioning their overall income as tax avoidance will be penalised by relevant authorities.

When TDS is not Deducted?

TDs is not collected on payments made to the Reserve Bank of India, the Government of India etc. TDS will not be collected when interest is credited or paid to:

• Central or State Financial Corporations.
• Banking companies.
• Interest paid under Direct Taxes or refund from the IT department.
• UTI, LIC and other insurance or co-operative societies.
• Interests earned from recurring deposit or savings account in cooperative societies or banks.
• Interest in Indira Vikas Party, KVP, or NSC.
• Interest earned in NRE account.
• All institutions notified under no-TDS.

Apart from these, there are other avenues also where TDS may not be applicable, such as interest on compensation from MVCT (Motor Vehicles Claims Tribunal). Therefore, taxpayers are advised to check if their interest income is liable for TDS with a particular institution or not.

TDS Certificate:

As TDS is collected on an ongoing basis, it can be difficult to keep track of deductions by an individual. As per Section 203 of the ITA, the deductor has to furnish a certificate of TDS payment to the deductee/payee. This certificate is also offered by banks making deductions on pension payments etc. The certificate is typically issued at the deductor’s own letterhead. Individuals are advised to request for TDS certificate wherever applicable, and if not already provided.

Refund of Excess TDS Deductions

If a person has been subjected to excess TDS deductions, the deductor can make claims for refund of the excess amount. The difference between the tax deducted and the actual payments made by the deductor, whichever is higher, is accepted as the excess payment, and this amount will be refunded after adjusting against any tax liabilities under Direct Tax Acts.

Quick Takeaways

• TDS denotes the tax deductions at source of an individual’s income/payments. The deductor (employer/contractor etc) is the person who is making payments to the deductee (employee, stock broker etc.).
• TDS helps in reducing tax filing burdens for a deductee and ensures stable revenue for the government.
• In most cases, TDS is collected after a certain threshold limit of earnings has been crossed. The highest TDS of 30% is applicable on winnings from horse races, and lotteries and other games.
• TDS certificate is issued wherever TDS has been collected, typically by the deductor or a bank.
• TDS is exempted on some payments made to government, RBI, cooperative societies etc.
• Refunds can be requested if there are discrepancies in the collected amount and the actual payable amount.

TDS vs Income Tax

TDS is a small amount of tax that can be deducted monthly, annually, periodically or occasionally from the earning of an individual or a business (the earning is not limited to salary but also includes interest, commission, fee etc.). The earning could be regular or irregular in nature. Income tax is levied on the total income (salary) on an annual basis for individuals as well as businesses. 

Frequently Asked Questions: TDS

1. What is the minimum salary one should have for TDS to be deducted by the employer?

   A) Salary needs to be subject to TDS only if the employee falls under the Income Tax Slab. This means that an individual earning less than Rs. 2.5 lakh, senior citizens with a salary of less than Rs. 3 lakh and super seniors (above the age of 80) earning less than Rs. 5 lakh, do not need to pay tax and hence no TDS has to be deducted from their remuneration.

2. Is TDS applicable only on salary?

   A) No. TDS is also applicable on items such as income from interests on savings, fixed and recurring accounts, securities and deemed dividends, income from horse racing and insurance commissions, lottery or game-related prize money, payment in NSS deposits, repurchase of UTI or mutual fund units, etc. The details are available in Income Tax Act, Sections 192 to 194L.

3. How do I know how much TDS has been deducted and whether it has been credited to me?

   A) The employer/deductor is liable to give you a TDS certificate or Form 16 and 16A confirming the amount of tax deducted. You can also log in to your Income Tax e-filing portal and check either your Form 26AS or ‘View Your Tax Credit’ option on the menu.

4. Can I request tax deductors to not subtract tax from an amount and pay the whole amount to me?

   A) Non-deduction of tax at source is possible only if your income is going to be below the minimum income tax slab. If that is the case with you, then you can declare your income as being lower than Rs. 2.5 lakh (or others as applicable to various category of citizens) through Form 15G/15H and provide the form to the deductor. Form 15G is for individuals and Form 15H for senior citizens. You can also apply to the Assessing Officer of the Income Tax Department through Form 13 and get a certificate approving deduction of lower taxes or nil deduction of taxes. But if your income is above the minimum tax rate slab, then you cannot seek exemption from TDS.

5. What will happen if the tax deductor fails to deduct tax or deposit the collected tax with the government?

   A) The deductor will have to pay an interest on the amount due to the government under Section 201 of the Income Tax Act. The interest applicable is: a) 1 percent for every month or part of a month on the tax due, calculated from the date on which the tax had to be deducted to the date when it was actually deducted (ii) at 1 and 1.5 percent for every month or part of a month on the tax pending, calculated from the date when the tax was deducted to the date when it is actually paid. Under section 271C, the deductor may also have to pay penalty of an amount equal to the tax not deducted or not paid.

6. Is an employee responsible if the deductor fails to collect or deposit the tax?

   A) No. The onus of deduction and deposit of tax collected at source lies with the employer/deductor and not an employee or deductee.

7. Is TDS deducted on traveling expenses?

   No, TDS is not deducted for traveling expenses.

8. Will TDS be deducted on service tax?

   Considering the fact that service tax is not an income for the service provider, TDS is to be deducted at the total amount excluding the service tax, if service tax is separately indicated in the invoice.

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