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Understanding TDS: A Guide to Tax Deducted at Source

Publish Date: June 26, 2024

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TDS – Tax Deducted at Source

 

TDS full form stands for Tax Deducted at Source. It is the tax amount deducted by the employer from the taxpayer which is deposited to the IT Department on behalf of the taxpayer. It is a certain percentage of one’s monthly income which is taxed from the point of payment.

According to the Income Tax Act 1961, every individual or organisation is liable to pay taxes if their income is above a certain threshold.

 

What is Tax Deducted at Source (TDS)?

Tax Deducted at Source is a type of advance tax that the Government of India levies on a periodic basis. The overall deducted TDS is claimed as a tax refund after a taxpayer files the Income Tax Return.

 

TDS deduction is applicable to such of the following income sources-

  • Salary
  • Commission earned
  • Rent
  • Interest payment by banks
  • Professional or consultant fees
  • Contractor payments
  • Amount under LIC
  • Compensation on acquiring immovable property
  • Brokerage or Commission
  • Insurance Commission
  • Interest on securities
  • Remuneration paid to the director of a company, etc
  • Winning from games like a crossword puzzle, card, lottery, etc.
  • Interest apart from interest on securities
  • Deemed Dividend
  • Transfer of immovable property

TDS deduction rules necessitate tax payment when a taxpayer gets payment due or receives actual payment (whichever is earlier). Let’s look at a few examples to understand the TDS meaning better with its application-

  • Example 1 – 

Assume Mr Paul is a self-employed professional who got paid Rs.40,000 as advance and received another Rs.20,000 after completion of work.

In this scenario, the payee will deduct TDS from the advance (Rs.4,000, 10% of Rs.40,000) and the rest (Rs.2,000, 10% of Rs.20,000). The total payable taxable amount will be Rs.6,000. 

  • Example 2 – 

Mr Paul receives the complete payment after the completion of his work. In this case, he will be taxed Rs.6,000 from the total sum by his payee, and Rs.54,000 will be paid to him for his work.

 

How TDS Works and Who Can Deduct It?

The person making the payment is liable for a TDS deduction. That individual or organisation is liable to deduct the sum at a specified rate and deposit it to the Government within every financial year and is liable to levy Tax Deducted at Source at the following rate.

Note the absence of PAN will attract TDS at a rate of 20% unless any specific rate (like MMR) is mentioned.

 

TDS Return and the Associated Forms 

TDS return is a statement issued after successful payment of the taxes, containing all the transactions mentioned towards TDS deduction made during a quarter. It is issued by the payer and submitted to the Income Tax Department of India.

Tax returns contain all TDS deduction details collected by the payer, as well as other essential information like the Permanent Account Number of the payer and payee and other particulars regarding the payment made to the Government of India. It also collects TDS challan information.

 

There are several forms associated with TDS returns; the following table contains its relevant details.

Form NumberSignificance  Frequency of submission
Form 24QStatement containing details of TDS deducted from salaryQuarterly
Form 26QStatement containing details of TDS deducted from earning except salaryQuarterly
Form 26QBStatement containing details of TDS deducted on income from the transfer of immovable asset (except agricultural land)Should be submitted within 30 days from the end of the month when the deduction is made.
Form 26QCStatement containing details of TDS deducted from payment of rentShould be submitted within 30 days from the end of a particular month when the deduction is made.
Form 27QStatement containing details of TDS deducted on incomes earned from interest, dividend, or other sum payableQuarterly

The person deducting TDS is also liable to provide an acknowledgement form to the taxpayer. It acts as proof that the necessary taxes have been paid and deposited to the Government.

This certificate contains details like the particulars of payment, payee and payer details, date of tax deduction and date of credit submission. A TDS certificate is necessary to claim a tax credit or refund (if any) while filingIncome Tax Return.

 

Different TDS certificates are issued against different TDS forms. These include –

TDS CertificateRespective TDS return formDue dateFrequency of issue
Form 16Form 24QWithin 15th June of a Financial Year which succeeds a Financial Year when the tax is deductedAnnually
Form 16AForm 26QWithin 15 days of submitting Form 26QOnce every quarter
Form 16BForm 26QBWithin 15 days of submitting Form 26QBMonthly
Form 16CForm 26QCWithin 15 days of submitting Form 26QCMonthly

 

Due Dates of Different Forms

Taxpayers are liable to submit Forms containing TDS deduction details according to different due dates and quarters.

QuarterQuarter PeriodLast Date of Filing
1st quarter1st April to 30th June31st July
2nd quarter1st July to 30th September31st October
3rd quarter1st October to 31st December31st January
4th quarter1st January to 31st March31st May

Penalty Provision

Any taxpayer not complying with the TDS deduction rules will be liable to pay penalties, usually in the form of fees and interest levied on the principal taxable amount.

 

There are multiple types of penalties levied; for example –

  • Regulation Regarding Tax Deduction

Levied tax will be deducted when the actual payment is being paid. Any delay in tax deduction will be subjected to a penalty of 1% interest per month until the sum is deducted.

In case the person responsible for TDS deduction fails to do so, they are likely to be restricted from ascertaining the taxable profit from the total expenditure.

 

  • Regulations Regarding TDS Payment

Taxpayers are required to pay the taxable sum to the Government of India by the 7th day of the month, which succeeds the tax filing.

Incidents of none or late TDS payment will attract a penalty of 1.5% per month (on the total payable sum) till the sum is deposited.

 

  • Regulations Regarding TDS Return Filing

TDS returns should be filed on the 31st day of January, May, July, and October of every financial year.

Non-filing or late filing of returns will attract a penalty of Rs.200 every day (according to Section 234E of the Income Tax Act of India) till the return is filed. However, the penalty should not exceed the total sum of tax levied.

 

How to Know the Deducted TDS Amount

 

The process to find whether TDS has been deducted or not and whether it has been credited to a particular taxpayer’s account can be completed online. The steps to know about TDS online payment are as follows –

  • Step 1 – Navigate to the official website of the Income Tax Department of India and select the option to register as a new user.
  • Step 2 – Enter details of the Permanent Account Number and generate a password.
  • Step 3 – After logging in with the registered ID and password, select the option to view the tax credit statement or Form 26AS.26AS is a tax credit statement that carries a detailed report of TDS deducted during a financial year.
  • Step 4 – The website will redirect to the page for the TDS Reconciliation Analysis and Correction Enabling System, which will show all the details of a taxpayer’s tax liabilities, including details of Tax Deducted at Source, advance tax paid, and other information.

 

TDS Refund and Non-reduction of the Applicable Tax

 

If a taxpayer pays more tax than what he or she is legally obligated to pay,  will be able to file a claim regarding a tax refund. Taxpayers can file the same with their annual income tax return, and the refund amount will be disbursed along with the Income Tax Return.

For example, suppose Mr Paul presented an invoice of Rs.40,000, against which he received a total of Rs 39,200 after deducting 2% (Rs.800) TDS. However, under Section 194C, he is liable for taxation at 1% (or Rs.400). The balance amount will arise as a refund when Mr Paul files his Income Tax Return.

If an individual’s annual income does not fall under the taxable threshold, they can request for zero deduction on their income as well. It can be completed via 2 different methods –

  • Declaring income below the basic exemption limit inForm 15G or 15Hwill exempt an individual from TDS. These Forms have to be submitted every year, otherwise, the applicant may be subjected to a tax deduction.
  • Applying for a certificate for deduction of tax at a lower or NIL rate via Form 13 will also register as zero TDS under this clause.

 

 

Tax Deducted at Source is an essential clause under Income Tax Act, 1961. Every taxpayer should be thoroughly aware of the taxation limit, forms, etc., in detail to adhere to the regulations of the Income Tax Department of India.

For more information connect Laudable Legal Solutionsfor expert guidance.


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