TDS - Tax Deducted at Source

TDS is the amount of tax which is deducted by the employer or deductor from the taxpayer 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 that is reduced when a certain payment like salary, commission, rent, interest, professional fees, etc. is made. The person who makes the payment deducts tax at the source, while the person who receives a payment/income has the liability to pay tax. It lowers tax evasion because the tax will be collected at the time of making a payment.

Read about the Union Budget 2021 Highlights:
Dividend payments to REITs and InvITs will be exempt from TDS
In the Union Budget for FY22, Finance Minister Nirmala Sitharaman announced that dividend payments to REITs (Real Estate Investment Trusts) and InvITs (Infrastructure Investment Trusts) will be made exempt from Tax Deduction at Source (TDS). This aims to increase compliance with tax laws. A proposal was also made to take advance tax liability on dividend income after the payment or declaration of a dividend has been made.

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 rent payment by an individual or HUF member, where the amount payable exceeds Rs.50,000, then a TDS at 5% will be deducted even if your books are not liable for a tax audit. You will not be required to apply for a 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 payments, 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 the 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 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 for the Rs.9,000 that has already been deducted by the company.

All about Tax deduction at source (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 the director of a 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%

Under the new tax regime, no TDS will need to be paid for an annual income of up to Rs.2.5 lakh. In case the annual income is between Rs.2.5 lakh and Rs.5 lakh, the TDS liability is 5%. In case the annual income is between Rs.5 lakh and Rs.7.5 lakh, the TDS liability is 10%. In case the annual income is between Rs.7.5 lakh and Rs.10 lakh, the TDS liability is 15%. In case the annual income is between Rs.10 lakh and Rs.12.5 lakh, the TDS liability is 20%. In case the annual income is between Rs.12.5 lakh and Rs.15 lakh, the TDS liability is 25%. In case the annual income is above Rs.15 lakh, the TDS liability is 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:

  • You must have a valid Tax Deduction and Collection Account Number (TAN) 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 January 2021
Quarter 4 January 2021 to March 2021 30 June 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’.
  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 and 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.

Steps to check TDS Deduction Status

one needs to follow the steps mentioned below to check their status of TDS

  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.

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 account within 6 months. Individuals can also check the status of the refund on the official website of the Income Tax Department.

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.

Advantages of TDS

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.

FAQs on TDS

1. What is the full form of TDS?

TDS stands for tax deducted at source.

2. What is the use of TDS challan?

TDS challan is mainly used for depositing the tax deducted at source (TDS) with the government.

3. Is TDS required to be paid only by salaried individuals?

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.

4. Is PAN required for payment of TDS?

Yes, the details of your PAN are necessary for the payment of TDS.

5. What is the penalty if an employer fails to submit the returns within the due date?

A penalty between Rs.10,000 and Rs.1 lakh under Section 271H will be levied.

6. What is the penalty for a company that fails to deduct TDS on time?

Under Section 201A, the interest of 1% p.m. will be charged from the deduction date to the date on which the TDS was deducted.

News About TDS

  • Relaxed TDS Provisions For the ST Community

    The Centre had eased provisions of the Income Tax Act, 1961 with regard to the tax deducted at source (TDS) on any interest payment by a Scheduled Bank to a member of a Scheduled Tribe (ST). The Union Finance Ministry had said that no tax deductible on the following payment under section 194A of the Act: payment of interest (other than interest on securities) made by a Scheduled Bank to a member of Scheduled Tribe. The order had also stated that the payer satisfies itself that the receiver is a member of a Scheduled Tribe, during the previous year relevant for the assessment year in which the payment has been made, by getting the necessary documentary evidence for support of the argument.

    20 September 2021

  • Scheduled Tribe Category do not have to pay TDS on Interest from Bank Deposit

    The Central Board of Direct Taxes (CBDT) has now said that, no TDS on interest from bank deposit is to be paid for the scheduled tribe. The CBDT had conferred by sub-section(1F) of section 197A of the Income Tax Act, 1961 and notified that there will be no deduction of tax made on the payment under section 194A of the Act: payment in the nature of interest, other than interest earned on securities, that is made by a Scheduled Bank that is in a specified area to a member of Scheduled Tribe. The payer has to satisfy itself that the receiver is a member of Scheduled Tribe and stays in a specified area, and the payment is accruing as referred to in section 10(26) of the Act, during the previous year. The payer reports the payment in the statements of deduction of tax as in sub-section (3) of section 200 of the Act. The payment made during the previous year does not exceed Rs.20 lakh. .

    20 September 2021

  • Provisions of TDS Relaxed For Scheduled Tribes

    The Ministry of Finance has now modified the rules of the Income-tax Act, 1961 with regard to the tax deducted at source (TDS) on interest payments that are made by a scheduled bank to a scheduled tribe (ST). According to the order that was issued on 17 September, 2021 by the Central Government of India, there is no deduction of tax that will be made on the payment under section 194A of the Act. This includes payment in the nature of interest, other than interest on securities, that are made by a Scheduled Bank that is located in a specified area to a member of Scheduled Tribe who stays in a specified area as referred to in s.10(26) of the Act." All scheduled banks have to make sure that the member of the Scheduled Tribe resident in the designated area is a member of the Scheduled Tribe.

    20 September 2021

  • Income Tax department has introduced a provision related to TDS effective July 1

    As per the new provision introduced by the Income Tax department which has come into effect from July 1, businesses buying shares or commodities traded through recognized stock or commodity exchanges will not be required to deduct TDS on the transaction. This will be applicable to businesses with less than Rs.10 crore turnover. The provision has been brought in after the tax department received representations stating that there are practical difficulties in implementing the provisions of Tax Deduction at Source (TDS) contained in Section 194Q of the I-T Act in case of transaction via certain exchanges and clearing corporations. It needs to be mentioned here that Section 194Q relating to TDS deduction by businesses was introduced in the 2021-22 budget and has come into effect beginning July 1, 2021

    05 July 2021

  • Certain taxpayers might be required to pay double TDS from July

    Certain taxpayers might be required to pay TDS at higher rates with effect from 1 July 2021. As per the Finance Act 2021, taxpayers who have not filed TDS in the last 2 years and the TDS deducted each year has exceeded the mark of Rs.50,000, the IT department will charge greater interest for the ITRs with effect from 1 July 2021.

    14 June 2021

  • TDS on PPF and savings schemes withdrawals

    New regulations have been issued for Tax Deducted at Source (TDS) for cash withdrawals from the Public Provident Fund (PPF) account. This has been announced by the Department of Post. These new rules are only applicable in cases when the combined withdrawal from all post office schemes and PPF account exceeds Rs.20.

    Also, if income tax returns (ITR) have not been filed by the investor for the last three years, TDS will be deducted directly from the amount withdrawn, effective from 1 July 2020. The rules state that:

    If the total cash withdrawn from a non-ITR filer ranges from Rs.20 lakh to Rs.1 crore in one financial year, 20% TDS will be deducted from the amount that is more than Rs.20 lakh. If such a person withdraws more than Rs.1 crore, TDS will be 5% on the amount that exceeds Rs.1 crore.

    However, for those who have filed their income tax returns, if cash withdrawn exceeds Rs.1 core in a financial year, the TDS is 2% for the amount that exceeds Rs.1 crore.

    The TDS will be deducted from the Post Office of the depositor who will also be informed in writing about the deduction and a voucher for the amount deducted will be sent to the HO and SBCO.

    29 March 2021

  • TDS implications for people who are not tax-filers

    Those who do not file income tax returns and withdraw cash from their bank account will have Tax Deducted at Source as per the Income Tax Act, 1961, Section 194N. This rule was brought into regulation last year to increase tax collections as well as digital transactions. The TDS would be calculated on the basis of the previous three ITRs filed for the three preceding assessment years, for which the deadline to file ITRs has passed. However, if ITR had been filed for any of the three preceding years, then there would be no TDS for cash withdrawals of up to Rs.1 crore in a year. For cash withdrawals that exceed Rs.1 crore in a year, TDS would be taken at 2%. If ITRs have not been filed for any of the preceding three years, then TDS is applicable for all cash withdrawals exceeding Rs.20 lakh for which TDS will be calculated at 2%. For withdrawals that exceed Rs.1 crore for people in this category, TDS would be calculated at 5%. TDS will be taken for cash withdrawals from post offices, cooperative banks, and banks. This limit is applicable for all accounts held with the same bank. If there are multiple accounts with the same bank, TDS will be taken once the cash withdrawal has exceeded the limit across all accounts or any one account of the bank. The limit is separate for accounts with different banks.

    26 March 2021

  • TDS will be cut on using bank accounts without filing taxes

    According to Section 194N of the Income Tax Act, the bank will be deducting TDS if the bank account holder has been withdrawing cash without filing tax returns. This rule was introduced on 1 July 2020.

    As per sources, the rates and limits will depend on if the account holder has filed ITRs for the past 3 years. If income tax returns have been filed for the past 3 years, withdrawals can be permitted of up to Rs.1 crore in a year. If the withdrawals exceed Rs.1 crore annually, a TDS of 2% will be charged.

    If the account holder has not filed tax returns for the past 3 years, the TDS will be applicable on withdrawals of Rs.20 lakh to Rs.1 crore. For withdrawals above Rs.1 crore, a TDS of 5% will be charged.

    23 March 2021

  • Madras HC allows claiming input tax credit on TDS from VAT

    In an order passed by the Madras High Court, an individual can now claim input tax credit for tax deducted at source (TDS) pending from the value-added tax (VAT) regime under the current goods and services tax (GST) system.

    Justice Anita Sumant who passed the judgement said that any deduction made towards an anticipated tax liability will be considered taxable.

    18 March 2021

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