When it comes to tax deduction at source, there are a lot of confusions. The first question is, what exactly is TDS? And when we understand that, the next question which pops up is, how many times do I have to pay tax? Why is TDS deducted from my salary? When is the TDS deducted? How the amount of TDS deduction on salary is calculated? What is the need for TDS the list is literally endless!
So, to clear all your queries and provide you with all the possible solutions, we bring you a series on Tax Deducted at Source or TDS. This series will explain all the income tax laws related to TDS, which hits our life daily.
But before that, let us beat the heat out of some TDS basics!
Budget 2024 Update
The TDS rates in budget 2024 has been revised. The new revised TDS rates under different sections are given in the below table.
Rationalisation of TDS Rates:
| Section | Current TDS Rate | Proposed TDS Rate |
|---|---|---|
| Section 194D | 5% | 2% |
| Section 194DA | 5% | 2% |
| Section 194G | 5% | 2% |
| Section 194H | 5% | 2% |
| Section 194IB | 5% | 2% |
| Section 194M | 5% | 2% |
| Section 194O | 1% | 0.1% |
| Section 194F | Proposed to be omitted | |
TDS stands for Tax Deducted at Source. It is a system implemented by the government to collect taxes at the source of income itself. Under this system, a person or entity making certain specified payments is required to deduct a certain percentage of tax before making the payment to the recipient. The deducted tax amount is then directly deposited with the government.
TDS serves two primary purposes:
TDS is applicable to various types of payments such as salary, interest, rent, professional fees, commission, contractual payments, dividends, etc. The rates at which TDS is deducted can vary based on the nature of the payment and the provisions of the Income Tax Act.
The deductor is responsible for deducting the TDS, issuing a TDS certificate to the deductee, and depositing the deducted tax amount to the government within the specified due dates. The deductee can then claim the TDS amount as a credit while filing their income tax return, and it is adjusted against their total tax liability.
Further, it is to be noted that TDS doesn’t exempt you from the requirement of filing of ITR. If your income exceeds the basic exemption limit, then irrespective of the fact whether TDS has been deducted or not, you have to file ITR. Let us understand it with the help of the below example, where TDS is calculated on salary income.
For e.g. Let’s say you earn a total salary of Rs.6,00,000 (i.e. Rs.50,000 per month) and have no other income in F.Y 2022-23. Now, as your GTI exceeds the basic exemption limit (of Rs.2,50,000), tax liability will occur at the time of filing your return. To understand the concept of TDS, we will consider 2 cases: One when TDS is deducted and one without TDS u/s 192.
Note: Since, the income source is “Salary, “ so in this case, TDS will be deducted under Section 192. Further, Tax Calculation is done without giving the benefit of standard deduction of Rs. 50000.
In Situation 2 (when TDS is deducted), your employer will deduct the TDS as Rs.33800/12 months, which comes to Rs.2817 (round-off) per month. This is how TDS is calculated on salary. So, every month Rs. 2817 is deducted from your salary income and deposited to the government as tax by your employer.
So from the above example, you can easily understand how TDS helped to evenly spread your total income tax liability during the year. And even in some cases, makes you eligible for a refund.
The need for implementing the system of TDS is because of the various benefits it possesses. They have been summarized below:
There are basically two parties involved in any transaction, one is the person making the payment and the other is the person receiving the payment. The government has covered certain categories of persons making the payment under the TDS Scheme. As per this scheme, the person making the payment is liable to deduct the tax at a specified rate and deposit it with the government.
So we can say –
Now, as per the Income Tax Act, Person means Individual or HUF Firm or AOP or BOI or Company Corporation, Government or any local authority or Non-Resident, etc. The deductor/deductee can be any of the persons depending on the section and rules applicable to that transaction.
There are various types of payments defined under the Income Tax Act on which tax deduction provisions are attracted like salary payments (to residents/non-residents), other than salary payments like interest, dividends, rent, commission, lottery winnings, royalty etc.
For your better understanding, we have made a summary table of all the sections with their number, name, rate of tax deduction and the threshold limit (which simply means that upto this limit there is no requirement for deducting TDS).
In the below table, you can simply click on the relevant section to know more about it in-detail.
Brief Overview of all the TDS Provisions for F.Y 2022-23 (2023-24)
| S.No. | TDS Section | Nature of Payment | Payer (Deductor) | Payee (Deductee) | Rate of TDS | Exemption Limit (No TDS to be Deducted upto threshold limit mentioned) |
|---|---|---|---|---|---|---|
| 1 | Section 192 | TDS on Salary | Any Person | Employee(R or NR) | Applicable Income Tax Slab Rates | Basic GTI exemption limit of Rs.250000 or Rs.300000 or Rs.500000 as the case may be. |
| 2 | Section 192A | TDS on Premature Withdrawal from Provident Fund | Any Person | Employee | 10% (If no PAN then MMR i.e. 35.535%) | Amount is less than Rs.50000 |
| 3 | Section 193 | TDS on Interest on Securities | Any Person | Any Resident Person | 10% | Upto Rs.5000 in a financial year (FY) for Individual/HUF in the case of Debentures. |
| 4 | Section 194 | TDS on Dividends | Domestic Company | Resident Person | 10% | Upto Rs.2500 in a FY (for Individual) |
| 5 | Section 194A | TDS on Interest (Other than Interest on Securities) | Any Person(Other than Individual/HUF not liable to tax audit in last PY) | Resident Person | 10% | Up to Rs.10,000 (for payments made by banks, cooperative banks or on post office deposits) and up to Rs.5000 (for other cases). [In case of a senior citizen, the limit of Rs 10,000 shall increase to Rs. 50,000 w.e.f. 1.4.2018] |
| 6 | Section 194B | TDS on Winnings from Lottery or Crossword Puzzles | Any Person | Any Person | 30% | Up to Rs.10000 |
| 7 | Section 194BB | TDS on Winnings from Race Horses | Any Person | Any Person | 30% | Up to Rs.10000 |
| 8 | Section 194C | TDS on Payment to Contractors | Any Person(Other than Individual/HUF not liable to tax audit in last PY) | Any Resident Person | 1% (for Individual/HUF) 2% (other person) | Up to Rs.30000 for individual payment. Up to Rs.100000 for total amount during a FY. |
| 9 | Section 194D | TDS on Insurance Commission | Insurance Company | Resident Agent | 10% (if deductor is company) 5% (if deductor is resident person other than company) | Up to Rs.15000 during FY |
| 10 | Section 194DA | TDS on Payment in Respect of Life Insurance Policy | Any Person | Any Resident Person | 1% | up to Rs.100000 |
| 11 | Section 194E | TDS on Payments to Non-Resident Sportsmen or Sports Association | Any Person | NR- -Sportsmen -Sports Association -Entertainer | 20% | No exemption limit. |
| 12 | Section 194EE | TDS on Payment for Deposit Under NSS | Any Person | Any Person | 10% | Upto Rs.2500 |
| 13 | Section 194G | TDS on Commission on Sale of Lottery Tickets | Any Person | Any Person | 5% | Upto Rs.15000 |
| 14 | Section 194H | TDS on Commission or Brokerage | Any Person(Other than Individual/HUF not liable to tax audit in last PY) | Any Resident Person | 5% | Up to Rs.15000 |
| 15 | Section 194I | TDS on Rent | Any Person(Other than Individual/HUF not liable to tax audit in last PY) | Any Resident Person | 2% (on rent paid for use of machinery, plant or equipment) 10% (other cases) | Up to Rs. 240000 during the FY |
| 16 | Section 194IA | TDS on Payment on Transfer of Immovable Property (Not Being an Agricultural Land) | Any Person (Other than person referred to in section-194LA) | Any Resident Person | 1% | Less than Rs.50,00,000 |
| 17 | Section 194IB | TDS on Payment of Rent by Certain Individuals or HUF | Individual & HUF(Other than covered u/s 194 I) | Any Resident Person | 5% | Upto Rs.50000 per month |
| 18 | Section 194 IC | TDS on Payment Made Under Specified Agreement | Any Person | Any Resident Person | 10% | No exemption limit |
| 19 | Section 194J | TDS on Fees for Professional or Technical Services | Any Person(Other than Individual/HUF not liable to tax audit in last PY) | Any Resident Person | 10% 2% (in case of payment of fees for technical service or made to the business of operating a call centre or royalty paid for sale, distribution, or exhibition of cinematographic films. | Up to Rs.30000 during FY (the separate limit for each kind of payment) |
| 20 | Section 194LA | TDS on Payment of Compensation on Acquisition of Certain Immovable Property | Any Person | Any Resident Person | 10% | Upto Rs. 2,50,000 |
| 21 | Section 195 | TDS on Other Payments Made to NR (Not Company) or Foreign Company | Any Person | NR or Foreign Company | Rate as specified in Act or DTAA | No exemption limit |
| 22 | Section 194O | TDS on Payments Made to e-commerce Participants | An e-Commerce operator | An e-Commerce participant | 5% | Rs 5 lakh is set only for resident individuals and HUF, who has furnished PAN or Aadhaar to e-commerce operator. |
**Note: In the above table, unless other rate like MMR is specified, if PAN is not available then TDS rate will become 20%.
Also, now you can easily compute actual TDS for many sections using our Online TDS Calculator Tool, that too for FREE.
As soon as your TDS is deducted, an entire chain of process starts which is described briefly below:
Which ultimately reduces his total tax liability to be paid via income tax return (and in some cases result in tax refund/TDS refund as well).
Now you must be having many question regarding the process discussed above. Just relax! The next set of questions will solve all your queries.
After deducting the TDS amount, the deductor is required to deposit this amount with the government within a specified time and this is called making TDS payment.
The amount of TDS is deposited by using TDS Challan No. 281. You can visit the link to see where this payment is made.
The due dates for depositing TDS (or making TDS payment) are as follows:
| Month of Deduction | Due Date for Making Payment Through Challan for both Government or any other deductor |
|---|---|
| April | 7th May |
| May | 7th June |
| June | 7th July |
| July | 7th August |
| August | 7th September |
| September | 7th October |
| October | 7th November |
| November | 7th December |
| December | 7th January |
| January | 7th February |
| February | 7th March |
| March | 30th April for deductors other than government and 7th April for government deductors. |
The procedure for payment of TDS is almost same as payment of income tax with some minor changes. To know the process click here. The TDS amount is required to be paid online through Challan No. 281 at the Online e Tax website. Click here to visit.
Now, when the deductor does not comply with the above provisions of TDS payment, some penalties are levied on him/her which are discussed as below:
Interest- late deposit interest @ 1% per month or part of month is levied on the TDS amount from the date when tax was required to be deducted till the date of actual deduction.[Section 201(1A)(i)]
For example Date of:
the interest would be payable for 9 months i.e. from 16.08.2017 to 30.04.2018 @ 1% pm.
Interest- Interest will imposed @ 1.5% for each month or part of the month
then interest would be payable for 12 months i.e. from 16.08.2017 to 31.07.2018 @ 1.5% pm.
Prosecution under Section 276B
As per this section, any person who fails to deduct/collect TDS or does not deposit to the government after deducting. The IT Officer can punish the defaulter with an imprisonment of minimum 3 months or maximum 7 year along with fine.
A person who deducts tax (TDS) is required to issue an acknowledgement( ‘form’ )to the person whose TDS is being deducted(deductee) that tax has been deducted and deposited with the government by him.This Form/Acknowledgement is known as TDS certificate.It contains the particulars of payment,deductor , deductee details, the date of tax deduction and the date of its credit to the government . Form 16, Form 16A, Form 16 B and Form 16 C are all TDS certificates.
Using this certificate, the taxpayer (or deductee) can claim the credit or the refund (if any) of taxes while filing his/her income tax return.
There are different TDS return forms that have different TDS certificates which are as follows:
| Respective TDS Certificate | TDS Return Form No | Due Date | Time of Issue |
|---|---|---|---|
| Form 16 (For TDS on Salary) | Form 24Q | By 15th June 31st May of the F.Y immediately following the F.Y in which tax is deducted. | Annually |
| Form 16A (For TDS on other income) | Form 26Q | Within 15 days of furnishing Form 26Q | Quarterly |
| Form 16B (For TDS on purchase of immovable property) | Form 26QB | Within 15 days of furnishing Form 26QB | MonthlyEvery transaction |
| Form 16C (For TDS on payment of rent) | Form 26QC | Within 15 days of furnishing Form 26QC | MonthlyEvery transaction |
Form 26AS is simply a summarized annual statement which contains tax credit information of each taxpayer against his PAN. This form is maintained and updated by the income tax department.
If you have paid any tax (like self assessment tax, advance tax) or any tax has which has been deducted and deposited with government on your behalf (like various TDS) then all such details will be available on Form 26AS.
This form helps you to claim credit of all the taxes you have paid (plus paid on your behalf-TDS ) while filing income tax return. Therefore, it becomes very important that details mentioned here are correct and they match with relevant TDS certificates.
If you want to about Form 26AS further in detail like how to download? It’s importance? etc then you can refer to our detailed guide.
As we said above that it’s important for Form 26AS details to match with the actual TDS deducted, the reason being, in case of any mismatch you will not be able to claim benefit of taxes paid or you may claim excess credit which will lead to penalty being imposed you. So what to do in such case?
Well, the biggest reason for such mistakes is the wrong updation of information in the TDS return forms by the deductor. As information in Form 26AS is updated by ITD using the filed TDS return, so wrong information at that place impacts your 26AS which in turn will impact your ITR.
Hence, in such case, you need get in touch with the TDS deductor and get all the corrections/updations done and then file ITR (or revised in some cases).
It is very simple to claim the benefit of TDS while filing Income Tax Return. Simply download your Form 26AS, consider all the details which it shows and update them in your return and this will reduce your total tax liability (and it may also make you eligible for the income tax refund, if your TDS, advance tax etc exceeds total tax liability).
Well, the liability for TDS can be avoided only when your income is below the basic exemption limit. There are 2 forms which can help a resident citizen to avoid TDS liability on interest income. These are:
You need to use these forms when although a particular income is exceeding than the threshold limit specified in individual section but your overall limit is within basic exemption limit. To know about these forms in detail, refer to our guide.
Further, if the income of non-residents is also less than the basic exemption limit then for avoiding the TDS liability they need to file an application u/s 195(3) of the IT Act to the jurisdictional tax officer to obtain a certificate of non-deduction or lower deduction of taxes.
If the sale price exceeds INR 50 lakh , then TDS @ 1%of consideration or SDV (whichever is higher) should be deducted under section 194IA.
As it is not mandatory to file Nil TDS return. But assessee can file Nil TDS return if no TDS is deducted by the assessee during the relevant quarter.
Yes, the tax deducted can be claimed as a refund if eligible
In case premium is less than 10% of the sum assured than maturity amount will be exempt u/s 10(10D). Hence not liable to deduct TDS.
Self assessment tax can be paid in case not deducted by the employer.
In case of salaried persons, TDS will be deducted if total income exceeds the basic exemption limit. However, assessee can directly pay tax on their income in case not deducted by the employer.
TDS is not required to be deducted on toll tax as it is the reimbursement of expenses provided, supporting of toll tax should be there.
As per section 194C, No TDS shall be deducted on the amount paid to the transporter in case he owns 10 or less goods carriages at any time during the previous year and who furnishes a declaration to this effect along with his PAN
