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What is TDS? - A Complete Overview
TDS or Tax Deducted at Source can be defined as the amount of money deducted when someone is making a payment or crediting to your account. This amount is then deposited into the account of the Tax department on his/her behalf. The TDS rates vary for each individual and are set on the basis of your annual income as well as the age bracket you fall under.
What Is TDS in Tax?
TDS or tax deducted at source was primarily introduced with the aim to collect tax at the time the income is generated to minimize tax evasion. TDS is applicable on several types of payments including salary, commission earned, rent, interest payments, etc. Moreover, there is a provision where you can even claim a TDS refund if the amount that has been collected is more than what you owe. Sounds confusing? Well, we have broken it down further to help you understand it more easily.
If the nature of your payment is professional, then the specified tax rate is supposed to be around 10%. So, if you have to make a payment of ₹20000, then the tax will be ₹ 2000 and you will be needed to make a net payment of ₹18000. You would then have to pay ₹2000 directly to the government.
The rate mentioned above varies based on the different types of payments, different circumstances as well as the category of the taxpayer. To learn more about it, you can refer to the categories mentioned below:
TDS on Salary
Salary is one of the most common types of payments that is paid by an organization to all its employees. The TDS rate on salary is dictated by the tax slab that a particular individual comes under. This is the primary reason as to why individuals are asked to produce investment declarations at the beginning of the year and the investment proofs at the end. For example, if your slab rate is 30%, you are liable to pay a tax of 30%.
TDS on Interest Income
The interest you get on any fixed deposits is liable to be considered for tax deduction under section 194A of the Income Tax Act. As per the act, the person is supposed to deduct tax from anyone whose interest from a single FD exceeds ₹10000. In cases where the account holder has not updated their PAN, the bank can deduct 20% on the interest earned. Therefore, it is emphasised that all taxpayers ensure that their bank account meets all the KYC guidelines.
TDS on Interest Received from Bonds
As per section 193 of Income Tax Act, 1961, 10% tax is supposed to be levied on interest received from bonds. This category also contains government issued bonds. With that said, in cases of tax-free bonds, this condition does not apply. But what exactly are tax-free bonds? These are bonds issued by a government organization or an enterprise to help them raise funds for specific purposes.
TDS on Insurance Commission
Individuals and HUF who receive insurance commission are liable to get tax deducted under Section 194D of the Income Tax Act, 1961. The rate of deduction is different for different categories. For example, if you are someone whose commission is less than ₹15000 per annum, then TDS is not liable on it. Likewise, if you have not provided your PAN details, then the TDS rate is 20%.
TDS on Interest on Deposits in Savings Accounts
As per Section 194A of Income Tax Act, 1961, no TDS is to be deducted on interest incurred on deposits in savings accounts. As a matter of fact, the interest incurred on the savings account is available as a deduction under Section 80TTA. Furthermore, under section 80TTB, deduction is available up to ₹50000 for every kind of deposit in case of senior citizen.
TDS on Rent
In case of rent, a TDS of 10% is supposed to be deducted only if the rent amount payable exceeds ₹240000. If you are paying rent for any machinery, plant or equipment, then the rate of deduction is 2%. On the other hand, for cases where rent is to be paid for any land, building and furniture or fittings, the rate of deduction is 10%. For both cases, the TDS is liable only if the rent exceeds ₹2.4 lakhs in a fiscal year.
TDS on Property
When purchasing a property, there are several taxes that are to be levied. TDS is one among them. As per Section 194IA, the person buying an immovable property should deduct tax at 1% on the sum paid/credited or even the stamp duty value of it, whichever is higher. Here too, the rate may differ if certain conditions are not met. For example, if the seller has not provided his/her PAN details, tax will be deducted at 20%.
The amount deducted is to be paid by the buyer within a period of 30 days from the end of the month in which the deduction is done. This would be accompanied by a challan-cum-statement (Form 26 QB). The person deducting the amount is liable to produce the tax deduction certificate to the landlord within 15 days along with form 26QB.
How to File TDS Return Online?
TDS return is supposed to be filed every quarter. In case you file it later than the due date, you are liable to pay a fine of ₹200 per day. Filing TDS returns online can seem like a daunting task, especially if you are confused about the exact process.
And so, we have detailed the entire process to help you.:
Firstly, ensure that you have a valid TAN (Tax Deduction and Collection Account Number). Also, make sure that it is registered for e-filing.
Prepare your TDS statement using any of the available online portals. You can use Return Preparation Utility to create and File Validation Utility to validate it.
Once that is done, you can also ensure that you have a valid Digital Signature Certificate registered for e-Filing that can be used in case you want to upload your returns using DSC.
If you want to upload your returns using Electronic Verification Code, you will either have to provide the demat account details or the bank account details of your principal contact. Apart from that, you can also make sure that your principal contact’s Aadhar is linked with PAN.
What Are the Different Steps to Upload TDS Statements?
- Visit the official website of the Income Tax Department, i.e.,⦁ https://www.incometax.gov.in/iec/foportal/. On the page, you will find an option to login, if you are a registered user. If you are not, you will have to create an account and register it. Your TAN would be your user ID.
- Once logged in, you can locate the ‘TDS’ option and in drop down the menu, select ‘Upload TDS’.
- After you do that, a form will appear and you have to select the right details, following which you should click on the ‘Validate’ option.
- You can validate your returns with the help of either DSC (Digital Signature Certificate) or EVC (Electronic Verification Code).
- You can also generate a TDS challan by logging in to the website incometaxindia.gov.in.
How to Check TDS Deduction Status?
- Checkout the official website of the Income Tax Department.
- Login to the website by providing your personal details.
- Hover over to the ‘My Accounts’ tab and click on the ‘View Form 26AS’ option.
- Once done, select the year and PDF format to download the file.
- This form is password protected. The password would be the date of birth mentioned on your PAN card. For example, if your date of birth is 22nd October 1999, then the password would be 22101999.
- You can then view all the details related to your TDS reduction.
- If your PAN is linked to your bank account, you can even check whether the TDS has been deducted using your bank’s net banking facility.
How to Claim TDS Refund?
If excess tax has been deducted, you can claim a refund in your ITR (Income Tax Return). The last date for claiming a refund on your income tax is 31st July for most individuals. You can claim the refund on the official Income Tax website.
Once you have filed your ITR, the refund would be processed by the Income Tax Department. Generally, the amount would be credited in your bank account within six months. There is also a provision for checking the status of your refund on the Income Tax website.
Is There Any Penalty for Late Filing TDS Return?
Yes, there is a heavy penalty applicable if you file your TDS return post the due date. The person has to pay late filing fees under section 234E and penalty under section 271H. The fine of ₹200 per day until the TDS is filed would be applicable.
What Is a TDS Certificate?
A TDS certificate can be defined as a form, specifically Form 16/16A, that is issued on deduction of tax by the employer on the behalf of the employees. These certificates majorly provide details of TDS/TCS of all the different transactions between deductor and deductee. While Form 16 is for salaried individuals, 16A is for non-salaried persons.
We hope that this blog has helped clear all the questions and confusions you probably had on TDS. If you still have any questions, you can check out our FAQ section or even reach out to us.
What Is the Full Form of TDS?
The full form of TDS is Tax Deduction at Source. TDS was introduced in India by the Income Tax Act in 1961. Although TDS now covers multiple sources of income, initially, only four were covered under it.
Is PAN Required for Payment of TDS?
Yes, in simple words, a PAN (Permanent Account Number) is required for payment of TDS as per section 139 (5A) of Income-Tax Act, 1961. With that said, if for any reason, a declaration is made without the taxpayer’s PAN, then the TDS will be deduced at a higher rate, generally 20%.
What Is the Penalty for a Company that Fails to Deduct TDS on Time?
All companies, regardless of whether it is private or government, are supposed to deduct TDS for all its employees. If for any reason, there is a delay in deducting TDS, the company is liable to bear a penalty of ₹200 per day. However, the penalty will never exceed the amount of TDS for which the statement is to be filled.
Is TDS Required to be Paid Only by Salaried Individuals?
No, on the contrary, TDS is not to be paid only by salaried individuals. Any individual with an annual income of over ₹ 2.5 lakhs is liable to pay taxes.
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