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.

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.

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:

QuarterPeriodDue Date for filing
Quarter 1April 2020 to 30 June 2020 31 March 2021 
Quarter 2 July 2020 to September 2020 31 March 2021
Quarter 3 October 2020 to December 202031 January 2021
Quarter 4 January 2021 to March 202130 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.

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