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  • TDS - Tax Deducted at Source

    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.

    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).

    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.

    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.

    News About TDS

    • New IT Office for TDS in Ferozpur Road, Ludhiana

      The IT department has launched a new office in Ferozpur Road, at a mall to be able to provide services to taxpayers in Ludhiana and surrounding areas. The services include aid for people with cases that are related to Tax deducted at Source (TDS) & appeals.

      This office was opened by Chief commissioner of income tax Ajay Singh, (CCIT), Ludhiana last Thursday. Mr singh also that the office will have designated officers that include Commissioner of Income Tax (Appeals), Deputy Commissioners (TDS), Joint Commissioners (TDS), Income Tax Officers(TDS) and along with the valuation & audit officials who will function under their respective jurisdictions. There is also a Bar room to accommodate bar associations for the members.

      27th September 2016

    • Union anticipates INR 46,739 Cr TDS from Delhi this fiscal

      Over 40 percent of tax amassment, which is INR 46,739 Cr, is anticipated by the government to come solely via TDS (Tax Deducted at Source) from Delhi in this financial year (2016-17), according to top executive in the tax department. Ms. Nutan Sharma, the Chief Commissioner of Income Tax-TDS reiterated the importance of TDS and how it rose to be one of the major source of tax for the government in a short span while speaking at a seminar organized in the capital. There are also plans to revise rates where possible.

      8th August 2016

    • CBDT Eases TDS Claims Process for Non-Resident Companies

      In order to relax the rules pertaining to TDS (Tax Deducted at Source) for non-resident companies, the CBDT (Central Board of Direct Taxes) has come out with a new rule that allows the former to claim benefits without quoting PAN.

      The new rule 37BC allows companies to make a claim by providing personal details such as name, tax residency certificate and others. Such companies include companies, body corporates, partnerships operating outside India. Section 206AA has been amended so that treaty benefits are not denied by the authorities in case of non-availability of PAN. The new will bring the much needed clarity in this area of tax.

      29th July 2016

    • Government Exploring Options to Ease TDS Issues

      In the wake of increase in complaints relating to TDS (Tax Deducted at Source), the government is exploring various options which includes tweaking the software to counter issues faced by taxpayers. The common rant of assessees is that the tax deducted by vendors and employers is not remitted to the government resulting in harassment during the refund process.

      It must be noted that commissioner level officers are entrusted with powers to provide relief to taxpayers in this regard for up to Rs.1 lakh if a TDS certificate is available. The government has issued orders to crack down on deductors who do not deposit the taxes. The CBDT (Central Board of Direct Taxes) has issued instructions to the officials to find a solution at the earliest which includes modifying the software to allow certain provisions.

      20th July 2016

    • Taxation norms eased for NRIs, PAN no longer mandatory

      Non-Resident Indians or NRIs have reason to celebrate. The Central Board of Direct Taxes or the CBDT has eased the taxation norms for NRIs. NRIs can now avail lower withholding tax without compulsion of producing their PAN card details. Lower withholding tax can be availed under section 206AA of the Income Tax Act. A new rule, 37BC has been inserted by the CBDT to ensure that NRIs need not produce their PAN card in order to avail withholding rate. CBDT understood that the earlier rule was quite painful for NRIs where they had to go through the formalities of availing a PAN card only for this one transaction of withholding.

      Prior to this change, PAN was mandatory for all Non-Resident Indians and generation of TDS certificate was impossible without one. For this change to take full effect, changes need to be made in the TDS management system of the IT department too.

      30th June 2016

    • Taxpayers Can Now Approach Deductors for TDS Certificate

      From June 1, 2016, taxpayers can approach the deductors for TDS certificate towards tax deducted for the previous assessment year. The deadline set by the Income Tax Department expired on May 31.

      The TDS certificate(s) should be mandatorily issued, failing to which the deductor is liable to pay a penalty. Deductors such as Banks and Employers should issue Form 16 and 16A appropriately. For quarter 1, the deadline for issuing certificates is July 30th, quarter 2 is 30th October, quarter 3 is 30th January and for quarter 4, the last date is May 30th. It must be noted that the last day for finalising and issuing certificates for tax deducted at source was May 31st for the preceding quarter.

      22nd June 2016

    • Nil TDS on PF Withdrawals of up to Rs.50,000

      June 1st onwards, there will be no TDS charged on PF withdrawals that are for an amount of Rs.50,000 or less. The earlier limit for tax free withdrawal from PF account was Rs.30,000. PF withdrawals were being taxed in the first place to discourage premature withdrawal of funds and to encourage long term savings. TDS deducted is at the rate of 10 per cent provided, the PF account holder has furnished his/her PAN.

      However, in case an account holder submits form 15G or 15H, TDS is not deducted on the PF withdrawal amount. This is applicable to account holders who are below 60 years of age. Also, transfer of PF from one account to another does not attract any TDS deduction.

      31st May 2016

    • Nagaland comes last in Income Tax Payments

      During a training conducted by the Finance department, Directorate of Income Tax of Guwahati and School Education Department on May 16 in income tax and TDS, it was revealed that Nagaland came 6th in the list of income tax payers in the north eastern states. At present, Assam stands tall as the state with the highest number of taxpayers followed by Meghalaya. As per the provisions u/s 80CCD of the Income Tax in India, every individual is duty bound to pay the applicable taxes on the income earned.

      The many reasons for low collection of income tax in Nagaland is led by the lack of education about applicable taxes followed by the tribal populace where business class is the least.

      24th May 2016

    • CBDT issues New Form for declaration of deductions for TDS

      The Central Board of Direct Taxes (CBDT) has introduced a new form 12BB for employees to use while declaring deductions for tax deducted at source (TDS). All employees will henceforth be required to submit the particulars of their tax savings to their employers in the new form 12BB. Previously, employees had to file self-declarations of their tax savings or deductions to their employees along with proof of the same for each financial year. The employer would then calculate the TDS based on the employee’s estimated income after taking into consideration the employee’s self-declarations. The CBDT has also extended the due dates for filing TDS returns to July 31st, October 31st, January 31st and May 31st for quarters ending June 30th, September 30th, December 31st and March 31st respectively.

      9th May 2016

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