- 1 What is TDS?
- 2 TDS Example
- 3 TDS Significance
- 4 TDS Rates
- 5 Applicability Of TDS
- 6 TDS Certificate
- 7 Due Date for payment of TDS
- 8 Interest on late payment of TDS
- 9 Challan for TDS Payment
- 10 Incomes where TDS is not levied
- 11 TDS Exemption
- 12 Excess TDS Deductions Refund
- 13 Reimbursement of Expenses Related to TDS
- 14 TDS Return
- 15 TDS Return Due Date
- 16 How to file your e-TDS Returns
What is TDS?
TDS or Tax Deducted at Source is a method of collection of tax at the source of the income. The rules regulating the way in which tax deducted at source is levied and calculated in India has been specified in the Income Tax Act, 1961. The concept of this tax goes as follows: Anyone who has to make payments of a specified kind such as salary, commission, professional fees, interest, etc. (called deductor) to any other entity/person (called deductee) will make the payment after deducting the tax. They shall have to forward the same deducted tax in the account of the Central Government.
The Central government has also assured that the deductees whose income has been taxed at the source are eligible to get the credit of the amount that was deducted on the basis of Form 26 AS (Annual Statement). This form contains all the information about yearly TDS, TCS and refund information.
Based on this, deductee can file TDS Return and claim back the tax deducted on his income. The Central Board of Direct Taxes (CBDT) is responsible for handling the management of the TDS.
TDS is also applicable to financial investments like Mutual Funds, Earnings from lotteries, rent income, royalty payment, brokerage, contract payments
Let’s explain with an example, how the concept of TDS works in real life.
Let’s say we have a company named Aditya Private Limited. Aditya Private Limited acquires the expertise and professional help of Mr Musadilal, an expert video developer and editor. Mr Musadilal says he will charge ₹ 50, 000 for his services.
This means the company will have to pay the professional fees of Musadilal at the agreed upon date. While making the payment, the company will have to deduct the TDS at the prescribed rate (Let’s say 10%). By this, the company will deduct 10% tax off ₹50,000 i.e. ₹ 5,000 and make a total payment of ₹45,000 ( 50,000-5,000). The 5,000 deducted by Aditya Private Limited will be deposited directly into the credit of the Central Government.
At the end of the financial year, Mr Musadilal will file his TDS return on the basis of his annual statement and he will get the amount deducted on his payments refunded back to him.
The government collects this TDS in order to keep the revenue source stable for the government throughout the year and it helps to prevent tax evasion from fraudulent individuals. Paying a huge amount of tax annually becomes an issue for many taxpayers and hence the concept of TDS helps taxpayers “pay as you earn”.
TDS is deducted after your annual income starts crossing over a particular threshold. The Income Tax Department has specified income tax slabs and TDS starts getting deducted according to the slabs. TDS has benefits for both the government as well as the taxpayers. Here are some of the advantages of TDS in India:
- Reduces the chances of Tax Evasion
- Becomes a steady source of revenue for the government
- Tax collection base is widened because almost every taxable entity pays TDS in one form or another
- A convenient system as Tax get deducted automatically instead of having to make payments for filing
The government has also initiated an awareness program to inform the general population about the significance and awareness about TDS, with a campaign called TDS Jagrukta. Here is a sneak peek into the same with
Rates for the Assesment Year 2019-20 as specified by the CBDT are as follows :
|Particulars||TDS Rates (%)|
|Section 192: Payment of Salary||As Per Income tax Slab Rate|
|Section 192A: Payment of the accumulated balance of Provident taxable in hands of the employee||10|
|Section 193: Interest on Securities
|Section 194: Dividend other than dividends in section 115-O||10|
|Section 194 A: Income by Interest other than “interest on securities ” from banks and other sources||10|
|Section 194 B: Income by the way of winnings from lotteries, any other games||30|
|Section 194 BB: Income from winnings of Horse Races||30|
|Section 194 C: Payment to contractor/ sub-contractor
|Section 194 D: Insurance Commision||5|
|Section 194 DA: Payment in respect of life insurance policies||1|
|Section 194 EE: Payment in respect of Deposit under National Savings Scheme||10|
|Section 194 F: Payment on account of repurchase of unit by Mutal Fund or Unit Trust of India||20|
|Section 194 G: Commission on the sale of lottery tickets||5|
|Section 194 H: Commision or brokerage||5|
|Section 194 I: Rent
|Section 194-IA: Payment on Transfer of certain immovable property except for agricultural land||1|
|Section 194-IB Payment of rent by individual or HUF not liable to tax audit||5|
|Section 194-IC Payment of monetary considerations under Joint Development Agreements||10|
|Section 194-J Payments for the following:
|Section 194 LA: Payment of compensation on acquisition of immovable property||10|
|Section 194 LBA(1): Business trust should 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 194 LBB Investment Fund paying income which is exempt under Section 10(23 FBB)||10|
|Section 194 LBC: Income in respect of investment made in a securitization trust (Explanation Section 115 TCA)||25% for Individual or HUF 30%|
|Any other Income||10|
Check out our article on TDS and TCS under GST
Applicability Of TDS
Tax deduction from Salary
On the Salary of the Individual the employer deducts TDS on total income of the individual; including income other than his salary after taking into account all deductions and exemptions.
TDS rate on Salary Income is applicable for an individual income and deductions of his total income.
Employers of your company are eligible to deduct the tax on the salary at the prescribed rates (generally 15%) with the following conditions :
- Exemption Limit: There is a threshold limit of ₹ 2,50,000 annually for Tax to be deducted at source from the salary. If the annual salary is below this figure no deductions will be made in the name of TDS from the salary
- Exempt Allowances: In order to calculate the total income that is taxable under the rules of TDS, the allowances issued to the employees such as LTC, HRA, Conveyance, Travel exemptions etc have to be subtracted to arrive at the total taxable salary
- Miscellaneous deductions: In order to calculate the total amount of TDS that will be deducted from the salary other deductions such as deductions under 80C, 80CCC, 80 CCD, 80 CCG, 80D, 80 DD etc. should be taken into consideration as well.
TDS from Salary example:
Varun has an annual salary of ₹ 6,00,00 Per annum (Yearly). All his allowances () combined over the year amount to ₹30,000.
This means his taxable salary is ₹6,00,000 – ₹30,000= ₹5,70,000.
Now, in this ₹5,70,000 we will subtract the threshold limit of ₹2,50,000 on which there is no tax. (Income tax slabs are of ₹ 2,50,000)
This comes out to to be ₹3,20,00(5,70,000-2,50,000).
Now on the remaining ₹3,20,000 tax will be levied as follows:
5% will be levied on 2,50,000 = ₹ 12,500 (Assuming 5% slab rate )
and 20% will be levied on remaining ₹ 70,000= ₹14,000 (Assuming 20% slab rate )
Therefore, total TDS levied is ₹12,500+ 14,000=₹ 26,500
You can also go ahead and check out the article on TDS on salary
TDS is deducted by banks on FDs and RDs if the interest exceeds Rs 10,000 a year. TDS does not end tax liability. Someone in a higher tax slab will need to pay additional tax.
TDS rate on Interest Income is 10% of the income of the individual if PAN is submitted by the individual to the bank, otherwise 20% of his income.
EPF means Employee Provident Fund and if any employee withdraws before five years of service then TDS should be deducted. However, no TDS on EPF deducted on withdrawals of less than Rs 50,000 Earlier limit was Rs.30,000. After 5 Yrs. No TDS will deduct on EPF withdrawals.
TDS rate is 10% of the withdrawal if PAN has been provided. Otherwise, it is 30% of the amount of the employee.
It is not allowed to submit Form 15G and Form 15H for NRIs and TDS is mandatory on all incomes. In a case of resident Indians, TDS strikes only if interest exceeds Rs 10,000 a year. NRIs can file TDS returns via Form 27Q
The section 203 of the Income-tax Act, 1961 specifies the regulations for issuing/ furnishing something called a TDS certificate. This certificate has to be issued by the deductor of the tax to the deductee listing down the details of the tax deductions made in the particular payment. Banks also issue the certificate when they make deductions on the pension payments, capital gains etc.
In general, there are 2 types of TDS certificates that are issued by deductors.
Form 16: Issued by employers to employees listing down the details of the tax deductions made throughout the year.
Form 16A: For all other TDS deductions other than salary.
If Kaabil worked for Fantastic Company LLP, the company will issue him Form 16 detailing the deductions made throughout the year.
However, if Kaabil was working as a freelance professional, and was receiving professional fees from the company, they will furnish the Form 16A.
Form 26AS is a consolidated annual tax credit statement issued under Rule 31AB of Income Tax Rules to PAN holders. This statement with respect to a financial year will include details of:
- All financial transactions involving TDS/TCS.
- Tax payment under Challan 280 for
- Advance Tax paid in quarterly instalments; or
- Self-Assessment tax paid under regular assessment at the time of return filing.
- Details of Refunds and interest thereon paid to the assessee by the Income Tax Department.
- Details of Annual Information Report Transactions.
- TDS deducted on the sale of immovable property (both for buyer & seller)
- Verification of Corporate Identity Number in Non-TDS payments
Due Date for payment of TDS
|Payment made||Due date for Paying TDS|
|Government Office||Without Challan||Same Day|
|With Challan||7th of Next Month|
|Prerequisite opt to be deposited the by the employer||7th of Next Month|
|Others||Month of March||30th April|
|Other Months||7th of Next Month|
Interest on late payment of TDS
|Section||Nature of Default||Interest subject to TDS/TCS amount||Period for which interest is to be paid|
|201A||Non-deduction of tax at source, either in whole or in part||1% per month||From the date on which tax-deductible to the date on which tax is actually deducted|
|After deduction of tax, non-payment of tax either in||After deduction of tax, non-payment of tax either in||From the date of deduction to the date of payment|
Challan for TDS Payment
Challan 281 is basically used for depositing Tax Deducted at Source and Tax Collected at Source by corporate as well as non-corporate entities. TDS is a Procedure introduced by the Government in which the person or a deductor before making the payment of specified nature to the payee shall deduct tax at a specified percentage of such amount payable. TDS amount is deposit to the Income Tax Department.
Filing Procedure for Challan ITNS 281
- Visit the NSDL website or onlineservices.tin.egov-nsdl.com, Select Challan No ITNS 281
- Select Deductee
0020: Company Deductees
0021: Non-Company Deductees
- Select appropriate Assesment Year. For eg. If payment is made in December 2018, (Financial Year 2018-19), Assesment Year will be 2019-20
- TAN: TAN stands for Tax deduction Account Number. It is the 10-digit alphanumeric which everyone responsible for deducting as well as collecting the tax has to obtain. It is mandatory to quote the TAN issued by the Income Tax department while filing for TDS return. Apply TAN online with LegalRaasta’s quick procedure
- Type of Payment:
- 200: Regular TDS/TCS transactions
- 400: Payment made by request/demand raised by the Income Tax Department
- Nature of Payment: Select the section under which TDS/TCS is deducted
- Details: Enter income tax surcharge and late filing fees. Enter with date and bank branch details
- After filing up these details you will be directed to the payment portal page for processing of payment.
To pay the TDS offline, the taxpayer can visit the nearest bank make a cheque or cash payment for the challan. You will be issued a stamped counterfoil/receipt to act as a proof of submission of TDS.
Incomes where TDS is not levied
Certain incomes do not require that TDS deductions to be made. These are as follows:
- The interest which is paid to the central or state financial organization
- Institution defined under no-TDS provisions
- Interest earned on NSC, KVP, or Indian Vikas Patra Scheme
- Interest gained via NRE accounts
- Interest earned from recurring deposits or Savings Account opened in co-operative societies
- UTI, LIC, and other specified societies.
Sometimes, an individual might feel as if their TDS has been deducted unfairly and they are not eligible for TDS deduction. If you feel that under the sections 192,193,194, 194A, 194C, 194D, 194H, 194I, 194J, 194LA, 195 you will need to apply for a tax deducted at source exemption. Following are the steps for applying for the same:
- Apply to the Income Tax Department/ Assessing Officer (AO) in Form 13 to grant permission.
- Assessing Officer is duty bound to unload the applications submitted to him within a time frame of 30 days from the end of the month in which the application was submitted
- The taxpayer should furnish all the details required for the processing of Form 13. If the assessing officer is satisfied with the form, they will expedite the issuance of u/s 197
- A copy of this certificate can be attached to the invoice raised to the client
Excess TDS Deductions Refund
In case there are excess TDS deductions than the taxpayer expected they can make a claim for the refund of excess TDS deduction. The difference between tax deducted and the actual payment made by the deductor is treated as the excess payments.
This amount will be adjusted with any pre-existing tax liabilities of the taxpayer under the Direct Tax Act.
Reimbursement of Expenses Related to TDS
Following reimbursement of expenses can be considered for a TDS deduction:
- Audit Fee is Taxable
- Travelling expenses are non-taxable but they could be taxable if they’re Fee for Technical Services
- Management expenses to parent company are non-taxable
- Infrastructure expenses are non-taxable
- Reimbursement for the visit of a foreign artist is non-taxable
- Relocation expenses for employees are non-taxable
- Management expenses to parent company are non-taxable
- Consultant fees are non-taxable
TDS return is basically a quarterly statement that is to be filed by the deductors to the I-T department (Income Tax Department). The government has made it compulsory for the deductors to submit the TDS returns on time. Here are the details that are necessary for filing the TDS Return:
- PAN of deductor
- PAN of deductee
- Amount of tax paid to the government
- TDS challan information
The government has transferred the burden of filing the returns of the TDS on the deductors. The particular TDS return will be linked to the PAN of the deductee. The deductee can reclaim the TDS through Income Tax Return or ITR.
TDS Return Due Date
|Quarter||Period||TDS Return Due Date|
|1st||1st April to 30th June||July 31st 2017|
|2nd||1st July to 30th September||Oct 31st 2017|
|3rd||1st October to 31st December||Jan 31st 2018|
|4th||1st January to 31st March||May 31st 2018|
How to file your e-TDS Returns
There are various TDS Forms have been set depending on the reason of deduction. Different TDS forms as follows:
|Form 24Q||Statement for Tax Deducted at Source from salaries|
|Form 26Q||Statement for Tax deducted at source on all payments except salaries|
|Form 27Q||Statement for deduction of tax payable to Non-Resident of India|
|Form 27EQ||Statement of the collection of tax at source|
In case you are confused about TDS Return Filing as a deductor, feel free to consult the experts at LegalRaasta. You can get comprehensive assistance with our TDS Return filing software which supports TDS on Salary payments Form 24Q, Rent, Interest, Commission and other Non-salary transactions (Form 26Q), NRI (Form 27Q) and TCS Form27EQ