TDS - Tax Deducted at Source

TDS is the amount of tax which is deducted by the employer or deductor of an assessee and is deposited to the Income Tax Department on behalf of him/her. The TDS rates are set on the basis of the age bracket and income of different individuals.

What is TDS?

TDS or Tax Deducted at Source is a specific amount which reduced when a certain payment like salary, commission, rent, interest, professional fees, etc is made. The person who makes the payment deducts tax at source, and the person who receives a payment/income has the liability to pay tax. It lowers tax evasion because tax will be collected at the time of making a payment

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

  • If you are making any sort of payment specified under the Income Tax Act, then TDS will be deducted at the time of these payments. However, no TDS will be deducted if you are an individual or Hindu Undivided Family (HUF) and your books are not required to be audited.
  • In case of paying rent by you either as an individual or HUF where the amount payable exceeds Rs.50,000 then a TDS at 5% will be deducted even if your books are not liable for tax audit. You will not be required to apply for Tax Deduction Account Number (TAN) if you are liable to have TDS deducted at 5%.
  • If you are a working professional then your employer will deduct TDS as per the applicable income tax slab rates. The bank with whom you hold a working account will deduct TDS at 10%. However, if they do not have your PAN details, then TDS at 20% will be deducted. For the majority of the payment, TDS rates are set in the Income Tax Act the payer deducts TDS as per the rates applicable.
  • You will not be required to pay any tax if you submit your investment proofs to your employer and your total income that can be taxed is below the total taxable threshold. Thus, no TDS will be deducted in this case. You can also submit Form 15G and Form 15H to the bank if the total taxable income is below total taxable limit. The bank in this case will not deduct any TDS on your interest income.
  • In case you failed to submit the investment proof to your employer and the bank deducted the TDS, you can file a return and claim a refund of it, provided your total taxable income is below the total taxable limit.
Example of TDS

Let’s assume that a start-up company called ABC Pvt. Ltd. pays Rs.90,000 as rent every month to whoever owns the property. The TDS applicable to the amount is 10%, so the company must subtract Rs.9,000 and pay Rs.81,000 to the property owner. In this case, the owner of the property will receive Rs.81,000 following TDS. The owner can add the gross amount of Rs.90,000 to his income, thereby allowing him to take credit of the Rs.9,000 that has already been deducted by ABC Pvt. Ltd.

TDS
TDS

Types of TDS

Here are some of the income sources that qualify for TDS:

  • Salary
  • Amount under LIC
  • Bank Interest
  • Brokerage or Commission
  • Commission payments
  • Compensation on acquiring immovable property
  • Contractor payments
  • Deemed Dividend
  • Insurance Commission
  • Interest apart from interest on securities
  • Interest on securities
  • Payment of rent
  • Remuneration paid to director of the company, etc.
  • Transfer of immovable property
  • Winning from games like a crossword puzzle, card, lottery, etc.

What is the TDS rate on salary?

TDS rates on salary are the same as the tax slab rates applicable to individuals. If you are less than 60 years of age, your TDS liability will be nil in case your income is less than Rs.2.5 lakh. Individuals who earn between Rs.2.5 lakh and Rs.5 lakh will be subject to TDS at 5%, while those who earn between Rs.5 lakh and Rs.10 lakh will have a TDS liability of 20%, and those who earn more than Rs.10 lakh will be subject to a TDS rate of 30%

How to File TDS return online?

In order to file your TDS return, there are few things you must ensure. They are as follows:

  • Have a valid TAN (Tax Deduction and Collection Account Number) and make sure it is registered for e-filing
  • Prepare your TDS statements using Return Preparation Utility before validating the same using File Validation Utility
  • You must have a valid Digital Signature Certificate that is registered for e-Filing in case you want to upload your returns using DSC
  • Provide the demat account or bank account details of your principal contact, or ensure that his/her PAN is linked with his/her Aadhaar in case you want to upload your returns using Electronic Verification Code

TDS Due Dates of FY 2020-21 for Return Filing

Here are the due dates for TDS Payment filing for FY 2020-21:

Quarter Period Due Date for filing
Quarter 1 April 2020 to 30 June 2020 31 March 2021
Quarter 2 July 2020 to September 2020 31 March 2021
Quarter 3 October 2020 to December 2020 31 December 2021
Quarter 4 January 2021 to March 2021 31 May 2021

Steps to upload TDS statements

Here is a simple guide to upload your TDS statements on the official website of the Income Tax Department :

  1. Visit https://www.incometaxindiaefiling.gov.in/home. On the right side of the page, you will see ‘Registered User?’ followed by the ‘Login Here’ option.
  2. Click on the aforementioned option and fill in your login information before clicking on ‘Login’. Your TAN will be your user ID.
  3. After you have logged in, locate the ‘TDS’ drop-down menu where you will have to select ‘Upload TDS’.
  4. A form will appear, and you will have to choose the right details before clicking on Validate’ once the details have been selected.
  5. You will then have to validate your returns using either DSC or EVC.

Challan for TDS Payment

Challan ITNS 281 is the Challan form for online 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. TDS exception is essentially a mechanism developed by the Indian Government where in there is a tax deduction at the source of an income, calculated at a specific rate and thereby becomes payable to the department of Income Tax.

Penalty for Late Filing TDS Return

Here are the penalties levied by the Income Tax Department for the failure to submit or defaults in submitting your TDS return/statements:

  • Failure to submit your returns: Under Section 272A(2) of the Income Tax Act, a penalty of Rs.100 will be levied for each day that the returns remain unsubmitted, subject to a maximum of the TDS amount.
  • Failure to file your returns on time: Under Section 234E of the Income Tax Act, a penalty of Rs.200 will be levied for each day that the returns remain unfiled, subject to a maximum of the TDS amount.
  • For defaults in the filing of TDS statement: Under Section 271H of the Income Tax Act, a penalty of Rs.10,000 to Rs.1 lakh will be levied in case the deductor defaults at the time of filing TDS return within the due date.
  • For incorrect details: Under Section 271H of the Income Tax Act, a penalty of Rs.10,000 to Rs.1 lakh will be charged in case the deductor submits incorrect information pertaining to PAN, challan particulars, TDS amount, etc.
  • For non-payment of TDS: Under Section 201A of the Income Tax Act, interest will also be levied along with the penalty in case TDS is not paid within the due date. In case a part of the tax amount or the whole of it is not deducted at source, interest will be charged at 1.5% every month starting from the date on which the tax was deductible to the date on which the tax is actually deducted.

How to Claim TDS Refund?

Individuals can claim TDS refund on the Income Tax website. However, the Income Tax Returns must be filed, and the TDS refund must be shown. Once the ITR is filed, the TDS refund will be processed by the Income Tax Department. The refund might be credited to the bank accounts by 6 months. Individuals can also check the status of the refund with the help of the e-filing website login.

What is a TDS Certificate?

TDS Certificates are of two types: Form 16 and Form 16A. Under Section 203 of the Income Tax Act, 1961, a certificate must be provided to the deductee showing the amount that has been subtracted as tax. The deductor is liable to provide this form to the deductee.

  • For salaried class: In case of salaried employees, employers are required to provide them with Form 16 with a mention of the amount that has been deducted as TDS. Form 16 contains a host of details such as the computation of tax, the deduction of tax, and the payment of TDS. Employers must issue this form to their employees before May 31 of the following financial year.
  • For non-salaried class: The deductor provides the deductee with Form 16A, and it contains all the details regarding the computation of tax, the deduction of TDS, and payments.

FAQ's on TDS

  1. What are the advantages of TDS?
  2. Some of the advantages of TDS are:

    1. It ensures that people do not evade payment of taxes.
    2. TDS acts as a steady source of revenue for the Government.
    3. It is much more convenient for the deductee as the tax amount payable is automatically deducted.
    4. The burden on Tax Collection Agencies to collect tax significantly reduces.
  3. How will I know that my TDS has been deducted?
    1. Visit the official website of the Income Tax Department.
    2. Provide your details and login to the portal.
    3. Under the ‘My Accounts’ tab, click on ‘view Form 26AS (Tax Credit)’.
    4. Select the year and pdf format to download the file.
    5. Your downloaded PDF file is password protected. The password here will be the date of birth mentioned on your PAN. For example, if your date of birth is 5 March 2000 then the password will be 05032000.
    6. You can then view all the details related to the TDS deduction.
    7. You can use your bank’s net banking facility to check whether your TDS has been deducted provided your PAN is linked to it.
  4. What will be consequences of non-payment or delay in payment of TDS?
    • In case the deductor fails to pay the TDS on time, then a penalty of Rs.200 per day, under Section 234E will have to be paid.
    • Under Section 201A if a company fails to deduct TDS on time, then an interest of 1% p.m. will be charged from the deduction date to the date on which the TDS was deducted.
    • In case the employer fails to submit the returns within the due date or provides incorrect information, then a penalty between Rs.10,000 and Rs.1 lakh under Section 271H in addition to the penalty under Section 234E will be levied.
    • In case the company deducts the TDS but fails to make the payment on time, then under Section 201A, an interest of 1.5% p.m. will be charged from the deduction date to the date on which the TDS was paid.
  5. Is TDS required to be paid only by salaried individuals?
  6. Any individual with annual income of over Rs.2.5 lakh will have to pay taxes. Hence TDS is required not only to be paid by salaried people but self-employed individuals as well.

  7. Is PAN required for payment of TDS?
  8. Yes, the details of your PAN are necessary for the payment of TDS.

News About TDS

  • Clarifications issued by the CBDT in regard to the new TDS/TCS norms

    A detailed clarification was issued by the Central Board of Direct Taxes (CBDT) in regard to the new TDS/TCS norms that will be applicable from 1st October 2020 onward. As per the Finance Act, 2020, the scope widens for TCS provisions to cover overseas fund transfer under the RBI LRS, sale of tour packages from abroad, and sale of goods. A new provision was also introduced under Section 194-O in regard to tax on e-commerce operators. As per the Act, three provisions have been introduced in regard to TCS. As per the new rules, companies must file their returns by the 10th day of the following month.

    30 September 2020

  • TDS rules amended by Income Tax Department

    The Income Tax department has amended TDS (Tax deducted at source) rules after introducing new TDS rates for high-value cash withdrawals from banks. The move is seen as one that further tightens the noose and seeks more disclosure. TDS forms have been amended by the Central Board of Direct Taxes (CBDT) to give effect to the new withholding provisions under Finance Act, 2020.

    It must be noted here that the amendment in Rule 31A makes it mandatory to provide particulars of amount paid or credited on which tax was not deducted or deducted at lower rate in view of the notification issued under second proviso to section 194N or in view of the exemption provided in third proviso to section 194N or in view of the notification issued under fourth proviso to section 194N. The format of Form 26Q and 27Q has also been revised. In this forms, details of TDS deducted and deposited on various resident and non-resident payments are required to be deposited.

    05 July 2020

  • Finance Minister announces liquidity of Rs.50,000 crores through TDS/TCS rate reduction

    During the press conference held by the Finance Minister, Nirmala Sitharaman, in order to provide additional funds at the disposal of taxpayers, the rates of TDS (Tax Deduction at Source) for non-salaried specified payments made to residents have been reduced by 25% of the current rate.

    Additionally, the rate of Tax Collection at Source (TCS) for specified receipts have been reduced by 25% of the existing rate as well. According to the Finance Minister, the payment for contract, professional fees, interest, rent, dividend, commission, brokerage, etc. will be eligible for the reduced rate of TDS.

    The mentioned rate of reduction will be applicable from 14 May 2020 to 31 March 2021 and this measure will release liquidity worth Rs.50,000 crore.

    14 May 2020

  • Government clarifies confusion over TDS on Mutual Funds

    The tax department had clarified that a 10% TDS is applicable on dividend payment by mutual funds. This means that TDS is not levied on any gains that arise from redemption of units. The tax department is now levying a 10% TDS on dividend and income payable by a mutual fund if the amount exceeds Rs.5,000 in a year.

    Dividend distribution tax (DDT) payable by companies and mutual funds on dividend paid to shareholders had been scrapped by Finance Minister Nirmala Sitharaman in Budget 2020-21. A lot of questions had cropped up regarding if mutual funds would be a requirement to deduct TDS on the capital gains on redemption units.

    The announcement clarifies all confusions and states that a mutual fund is mandatory to deduct a TDS of 10% on dividend payment.

    05 February 2020

  • Failure to share Aadhaar and PAN details could result in 20% TDS

    According to the government, it is now compulsory for employees to share their Aadhaar or PAN details in case they are eligible for TDS. Failure to do so will mean that they could face a deduction of 20% from their income. The CBDT (Central Board of Direct Taxes) recently issued a TDS circular according to which Aadhaar is now one of the documents that can be submitted to the Income Tax Department in case they do not have their Permanent Account Number. A tax officer with knowledge on the subject said that even now, if your PAN has not been shared, the bank or the employer must subtract tax at the prescribed rate. Since Aadhaar is now a part of the rules, you can submit the same in case you do not have PAN. The rules were amended in the previous budget session, to make it compulsory to share your Aadhaar in case you do not have a PAN, thus meaning that the 2 numbers are now inter-operable. If you do not have a PAN, you can share your Aadhaar and the Income Tax Department will generate a PAN for you.

    24 January 2020

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