Tax Deduction at Source (TDS) in India - The Ultimate Guide

TDS stands for Tax Deducted at Source is tax levied on any income or profit on periodic intervals by the Indian authorities. As per provision of the Income Tax Act 1961, income tax must be deducted at origin or source before paying the accounting balance to the individual (payee).

Moreover, every organization or individual generating income is obligated to pay taxes if their profit or income amount exceeds specific thresholds.

TDS is regulated in India by the Central Board of Direct Taxes (CBDT), which is part of the Indian Revenue Services (IRS).

To learn TDS or ‘Tax Deducted at Source’ in detail, we have covered all components linked to TDS in this extensive guide. We’ll learn:

• What is TDS?
• Example of TDS
• Tax Deduction at Source Types
• What is the TDS Certificate?
• When does TDS have to be deducted, and who is responsible for deducting it?
• Tax Deduction at Source Rates
• How to File TDS?
• When and How to File TDS Returns?
• Method to Upload TDS Statement
• TDS Due Dates for Return Filing (FY 2021-22)
• Late Filing TDS Return
• Step-by-Step to Check Status of TDS Deduction
• How Can You Avoid TDS?
• Benefits of TDS Deduction at Source
• Frequently Asked Questions (FAQs) on TDS

What is TDS?

Tax Deducted at Source or TDS—  incorporated by the Income Tax Department— is an income tax deducted at the source of the income.

Further, the concept of TDS was implemented to collect tax from the income source point to reduce tax evasion.

Two parties involved in the Income Tax collection. It includes:

• Payer or Deductor
• Payee or Deductee

Generally, the individual (deductee) receiving the payroll salary is subjected to make the income tax payment. And, the other person (deductor) shall deduct the income tax and remit the tax into the Central Government account.

Furthermore, TDS or deduction of tax at source is applicable to certain payments. It includes brokerage, salary, interest, professional fees, contract payments, royalty, and more. Also, TDS is applicable despite the payment mode such as credit, cash, or cheque.

Example of TDS

Check this example on how TDS work:

Tax deduction at source Types

Following is the list of types of TDS. Check out:

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

What is the TDS Certificate?

The people in charge of deducting tax at source provide TDS certificates. Further, the certificates must be issued when it is deducted so that the payee knows how much tax has been paid.

Tax deduction at source certifications include Form 16, Form 16A, Form 16 B, and Form 16 C. Moreover, the certificates must be supplied to the assessee whose income TDS was deducted while making payment by the person deducting TDS.

When does TDS have to be deducted, and who is responsible for deducting it?

Check out the following list:

• TDS will be reduced from any income that comes under the Income Tax Act. However, if you are an individual or a Hindu Undivided Family (HUF), then no TDS will be reduced and records will not be audited.
• Based on the applicable income tax slab rates, your employer will deduct Tax deduction at source. Further, it will be deducted at a rate of 10% by the bank with whom you have a working account. If you do not have your PAN details, then TDS at a rate of 20% will be deducted.
• If you present your investment proofs to your employer and your total taxable income is less than the total taxable threshold.Then, you will not be obliged to pay any tax. Consequently, tax deduction at source will not be reduced in this scenario.

Note that, if your total taxable income is less than the total taxable limit, you can also submit Form 15G and Form 15H to the bank. In this instance, the bank will not collect any tax deduction at source from your interest earnings.

• If you neglected to present your employer with the investment proof and the bank deducted the TDS. Then, you can file a return and get a refund if your total taxable income is less than the total taxable limit.

Tax Deduction at Source Rates

Following is the table on Tax deduction at source rates for salaried and non-salaried payments, which is applicable from April 1. Check out:

How to File TDS?

Here is the list of things that you must consider to file Tax deduction at source online. It follows:

• Make sure to have a valid Tax Deduction and Collection Account Number (TAN) registered for e-filing.
• Use the Return Preparation Utility to prepare your Tax deduction at source statements. Also, it should be done before verifying them with the File Validation Utility.
• You must have a valid Digital Signature Certificate (DSC) registered for e-Filing to upload your returns  .
• If you want to upload your returns using Electronic Verification Code, provide the Demat account or bank account data. Also, make sure to link your PAN to Aadhaar.

When and How to File TDS Returns?

All people who have deducted TDS need to file the income tax returns. Further, TDS returns must be filed quarterly and include some crucial information. It includes the deductee's TAN, the number of TDS deducted, the type of payment, and the deductee's PAN.

Check this table referring to certain types of Tax deduction at source Return forms:

Method to Upload TDS Statement

The following is list of instructions that will help you to upload your Tax deduction at source statements directly to the Income Tax Department official website:

• Go to https://www.incometaxindiaefiling.gov.in/home. Further, you will see ‘Registered User?’ on the right side of the page, followed by the ‘Login Here' option.
• Before clicking on ‘Login,' click on the aforementioned option and fill in your login details. Also, TAN will be your user ID.
• After you've logged in, go to the 'TDS' drop-down menu and select 'Upload TDS.'
• A form will display, and you must fill in the appropriate information before clicking ‘Validate.'
• After that, you must authenticate your results using DSC or EVC.

TDS Due Dates for Return Filing (FY 2021-22)

Late Filing TDS Return

For failure to submit or defaults in filing your Tax deduction at source return/statements, the Income Tax Department imposes the following penalties:

Step-by-Step to Check Status of TDS Deduction

To verify their tax deduction at source status, one must follow the steps outlined below.

1. Visit the Income Tax Department’s official website.
2. Fill up your information and log in to the portal.
3. Click on ‘View Form 26AS (Tax Credit)' under the ‘My Accounts' option.
4. To download the material, choose the year and the PDF format.
5. Your PDF file (password-protected) will get downloaded. The password will be your PAN number plus your date of birth. For instance, if your birthday is March 5, 2000, your password will be 05032000.
6. You can then see all of the information about the tax deduction at source.
7. You can verify TDS deduction by linking PAN to the bank's netbanking service.

How Can You Claim TDS Refund?

Individuals can apply for a TDS refund on the Income Tax Department website. However, Income Tax Returns must be filed, including the Tax deduction at source refund.

Once the ITR is filed, the TDS refund will be credited to the bank account within 6 months, which is processed by the Income Tax Department.

In addition, Individuals can also check the status of their refund on the Tax Department’s official website.

Due Dates of Depositing TDS to Indian Government?

The 7th of next month is the deadline for TDS deposits. To put it another way, if a person deducts TDS in July, he must deposit till the 7th of August.

On the other hand, TDS deducted in March can be deposited until April 30th.

Furthermore, the due period for TDS deducted on rent and property purchases is 30 days from the end of the month in which the TDS or Tax deducted at source was deducted.

How Can You Avoid TDS?

An individual can request not to deduct the TDS by sending Form 15G/15H to the payer. Though, if the person expects his total payroll in a fiscal year to be less than the exemption level, then the request can be processed.

Moreover, to avoid tax deduction at the higher rates, the deductee must disclose his PAN details while receiving payment that is subject to TDS.

Benefits of TDS Deduction at Source

Tax deduction at source has a number of advantages, including:

• It prevents people from avoiding paying their taxes.
• Tax deduction at source provides the government with a consistent source of money.
• It is considerably more convenient for the deductee as the due tax amount gets automatically deducted .
• The load of collecting on tax collection agencies is greatly reduced.

Frequently Asked Questions (FAQs)

1. Is TDS deducted at the same rate from all types of taxable income?

No, TDS is not deducted at the same rate from all TDS-eligible earnings. Moreover, different Tax deductions at source rates apply to different forms of income.

2. What is the usage of a TDS challan?

The main purpose of a tax deduction at source challan is to deposit tax deducted at source with the government.

3. TDS payments online require TAN?

All TDS returns, including all payment challans and certificates, must include the Tax Deduction Account Number (TAN) as required by section 203A of the Income Tax Act, 1961. Further, the Internal Revenue issues the TAN. Also, you can obtain it by filing Form 49B.

4. TDS payment requires PAN?

Yes, to pay Tax deduction at source, you need PAN information.

5. What exactly is the PAN and TAN?

The letters PAN and TAN stand for Permanent Account Number and Tax Deduction Account Number, respectively.

PAN is a 10-digit identification number. It is required by the Income Tax Department for those who conduct financial transactions or pay taxes.

On the other hand, the person responsible for deducting tax, i.e. the deductor, must obtain a TAN. One must include his TAN in all TDS-related documents and correspondence with the Income-tax Department.

6. Would there be any ramifications if I used TDS for personal use instead of depositing it in the government's account?

Yes, failure to remit tax deducted by you in the government's account within the time limit will result in interest, a penalty, and up to seven years in prison.

7. Is it necessary to deduct Tax deduction at source on payments made to the government?

There is no requirement that any tax be deducted from any money payable to

• the authorities, or
• India's Reserve Bank (RBI), or
• a corporation founded by or under a Central Act that is free from income tax on its earnings under any law in place at the time, or
• a Mutual Fund as defined in section 10 clause (23D).

8. What is the best way to deposit Tax deductions at source?

By using Challan ITNS-281, you can deposit Tax Deductions at Source on the government portal.

9. What happens if the deductor fails to deposit TDS?

Employers sometimes fail to deduct Tax deduction at source from employees' pay. Further, it may result in a mismatch in the tax liability of the employees, generating uncertainty.

10. TDS amount for NRI if they own a property?

Yes, according to section 195. You can file an application with the officer in charge of non-resident taxation if you have any doubts about the TDS deducted amount.

Alternatively, if the recipient believes the TDS is excessive, he may file a non-deduction application with his Assessing Officer. ​

How can Deskera make Filing Easy for You?

Deskera People helps digitalize and automate HR processes like hiring, payroll, leave, attendance, expenses, and more.

Simplify payroll management and generate payslips in minutes for your employees.

In addition to a powerful HRMS, Deskera offers integrated Accounting, CRM & HR Software for driving business growth.

Do not forget to check out our articles on running payroll for India and best practices in HR.

Key Takeaways

Eventually, you have reached the end of this guide. Let’s cover what we have learned so far.

• TDS stands for Tax Deducted at Source is tax levied on any income or profit on periodic intervals by the Indian authorities.
• Two parties involved in the Income Tax collection— Payer or Deductor, Payee or Deductee.
• TDS is applicable to certain payments—  brokerage, salary, interest, professional fees, contract payments, royalty, etc.
• TDS certifications include Form 16, Form 16A, Form 16 B, and Form 16C.
• Individuals can apply for a TDS refund on the Income Tax Department website.
• Once the ITR is filed, the TDS refund will be credited to the bank account within 6 months
• You can file an application with the officer in charge of non-resident taxation if you have any doubts about the TDS deducted amount.