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TDS – Tax Deducted at Source and TDS Rates

TDS – Tax Deducted at Source and TDS Rates

What is TDS?

Tax Deducted at Source (TDS) is a tax deduction made by an individual or a company when they are making any payment. The TDS is to be deducted if the payable amount exceeds a certain limit. The deduction is mandated by the Income Tax Act, 1961. The return from fixed deposits, your salary, income from services provided to your customers, and many other sources of income are paid after tax deduction. The payer deducts the tax and pays it to the Income Tax Department for the payee. This is the answer to what is tax deducted at source. However, there is plenty more you should know about TDS.

The payer, who deducts the TDS, is known as a deductor, and the payee is known as the deductee. This income tax deduction deduction is applicable on any mode of payment. Knowing the TDS deduction rules is very important for both parties. It helps them to understand how much tax is to be deducted, how to submit it to the government, and how it can be refunded. From paying salary to an employer and buying property to paying rent, the rules of TDS are applicable to all transactions.

Here is an example to help you understand this concept better:

Imagine that you own a company and have to make a payment of INR 60,000 to a service provider. The applicable TDS income tax is 10% on that amount, which sets the deductible at INR 6,000. However, if you are buying a house for INR 80 lakh, then the TDS applicable on the amount is charged at 1%, which comes to INR 80,000. You have to pay that money directly to the Income Tax Department and not to the seller of the house.

As you can see, different types of payments demand different rates of TDS to be deducted. A TDS rate chart will help you understand this better.

TDS rate chart (TDS on salary)

The TDS on salary is deducted based on the income tax slabs. The slabs for the Assessment Year 2019-20 are given below.

For individuals below 60 years of age:

Income tax slab Tax rate
Up to INR 2,50,000 No Tax
INR 2,50,001 to INR 5,00,000 5% on the income over the INR 2,50,001
INR 5,00,001 to INR 10,00,000 INR 12,500 + 20% of the income over INR 5,00,000
Over INR 10,00,000 INR 1,12,500 + 30% of the income over INR 10,00,000

For senior citizens (aged between 60 and 80 years):

Income tax slab Tax rate
Up to INR 3,00,000 No Tax
INR 3,00,001 to INR 5,00,000 5%
INR 5,00,001 to INR 10,00,000 20%
Over INR 10,00,000 30%

For super senior citizens (aged over 80 years):

Income tax slab Tax rate
Up to INR 5,00,000 No Tax
INR 5,00,000 to INR 10,00,000 20%
Over INR 10,00,000 ₹1,00,000 + 30% of total income exceeding ₹10,00,000

TDS rate chart for the other types of income is

Income type TDS rate
Fixed deposit interest 10%
Bonds 10%
Insurance commissions 5%
Contractor services 1%/2%
Rent 2%/5%/10%
Property 1%
Brokerage 5%
Professional or technical services 10%
Shares and mutual funds None
Savings account interest None
NCDs listed on exchange/td> None

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TDS refund

You can claim a TDS refund if excess tax is deducted on payments made to you by an individual or a company. If you notice that your employer has deducted more tax than payable, this can be corrected when you fill your income tax return. You need to provide your bank details when filing the return so that the Income Tax Department can refund the amount of extra tax paid.

Another important thing to remember is that your bank pays your benefits from a fixed deposit account with the applied TDS. If your total annual income puts you under the non-taxable income slab, you can apply for the refund when filing your tax returns. The amount will be credited to your bank account. If you are a senior citizen, you can submit form 15H to ensure that your bank does not deduct TDS on fixed deposit earnings. These earnings are exempt from tax for senior citizens.

The Ministry of Finance has recently extended the deadline for filing tax returns for individuals from July 31st, 2019 to August 31st, 2019.

TDS payment online

To make the TDS payment online, you must follow the below steps:

1. Login to NSDL tax payment portal

2. Select Challan no/ITNS 281

3. Select the deductee type as applicable, that is, company on non-company

4. Provide information regarding the assessment year and Tax Deduction and Collection Account Number (TAN) to which the payment relates

5. Select if the payment is made by the taxpayer for regular assessment

6. Enter the nature and mode of payment, and press the ‘Submit’ button

7. Make sure that the confirmation screen displays the taxpayer’s name correctly, which happens only if a valid TAN is provided

8. Confirm the data so that you are taken to the net-banking payment page

9. Select your preferred payment mode and complete the online payment process

10. Save the challan generated once the payment is successfully made

Now that you know what is tax deducted at source and what TDS means, you must make sure that TDS on any payment you have made or received in the previous financial year is in order. This way, you can prevent making losses that are easily avoided.

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