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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.
What is a TDS certificate?
A TDS certificate is issued by the deductor and given to the deductee while making a payment. Here are some examples of TDS certificates.
When should TDS be deducted and by whom?
TDS is deducted when a payment is due or when it is made under the Income Tax Act. TDS can be deducted by
- Employers in the case of private employment
- Employees if they are making the payment on behalf of the employer
- Local authorities or companies if there is any interest on securities
- Drawing and disbursing officers in the case of government employment
If the person making the payment is an individual or Hindu Undivided Family (HUF), and is not obliged to have their books audited, then there is no TDS deducted.
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|
|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%|
|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|
|Income type||TDS rate|
|Fixed deposit interest||10%|
|Professional or technical services||10%|
|Shares and mutual funds||None|
|Savings account interest||None|
|NCDs listed on exchange/td>||None|
TDS Rate Chart for FY 2020-21
|Section||Type Of Payment||Limit||Resident Indian||Non-Resident Indian|
|192||Salaries||N/A||Normal Slab Rate||Normal Slab Rate|
|192A||Premature withdrawal from EPF||50000||10||10|
|193||Interest on securities - 8% Savings (Taxable) Bonds, 2003 or 7.75% Savings (Taxable) Bonds, 2018 during the financial year||10000||7.5||N/A|
|193||Interest on securities - Interest on securities for money issued by or on behalf of any local authority/statutory corporation, listed debentures of a company(other than Demat form), any other interest on securities||5000||7.5||N/A|
|194A||Interest (Banking co., co-operative society engaged in banking, post office)||40000||7.5||N/A|
|194A||Interest (Any other person)||5000||7.5||N/A|
|194B||Winning from lotteries||10000||30||30|
|194BB||Winning from Horse race||10000||30||30|
|194C||Contractor – Consolidated Payment During the F.Y.
- Other than Company
|194DA||Maturity of Life insurance policy||100000||3.75||N/A|
|194E||Non-resident sportsmen or sports association||N/A||N/A||20|
|194F||Repurchase units by MFs||N/A||15||20|
- Plant/Machinery /Equipment
- Land and Building/Furniture & Fixture
|194IA||Transfer of certain immovable property other than agriculture land||50 lakh||0.75||N/A|
|194IB||Rent by Individual/HUF||50000 per month||3.75||N/A|
|194IC||Payment under Joint Development Agreements to Individual/HUF||N/A||7.5||N/A|
|194J||Technical Fees (w.e.f. 01.04.2020)||30000||1.5||N/A|
|194J||Payment to call centre operator (w.e.f. 01.06.2017)||30000||1.5||N/A|
|194K||Payment of any income in respect of
|194LA||Compensation on transfer of certain immovable property other than agriculture land (TDS exempted if covered under RFCTLARR Act w.e.f. 01.04.2017)||250000||7.5||N/A|
|194LB||Income by way of interest from infrastructure debt fund||N/A||N/A||5|
Income from units of business trust
Distribution of rental income to unitholders
Income in respect of units of investment fund
Income in respect of investment in securitization fund
|194LC||Income by way of interest by an Indian specified company to a non-resident/foreign company on foreign currency approved loan / long-term infrastructure bonds from outside India||N/A||N/A||5|
|194LC||Income by way of interest by an Indian specified company on a rupee-denominated bond / any long-term bonds from outside India, which is listed only on a recognized stock exchange located in any International Financial Services Centre||N/A||N/A||4|
|194LD||Interest on certain bonds from Govt. securities||N/A||N/A||5|
|194M||Certain payments by Individual/HUF||50 lakh||3.75||N/A|
|194N||Payment of certain amount in cash||1 Crore||2||2|
Payment of certain amount in cash (first proviso of section 194N)if-
|194-O||Applicable for e-commerce operator for the sale of goods or provision of services facilitated by it through its digital or electronic facility or platform (Applicable from 01.10.2020)||N/A||0.75||N/A|
|195||Income of Investment made by an NRI||N/A||N/A||20|
Long-term capital gain
|195||Short-term capital gain - 111A||N/A||N/A||15|
|195||Fees for technical services||N/A||N/A||10|
|195||Interest income payable by Govt./Indian concern (other than section 194LB or 194LC)||N/A||N/A||20|
|195||Any Other Income - Other than Company - Company||N/A||
Income in respect –
|196B||Income from units to an offshore fund||N/A||N/A||10|
|196C||Income from foreign currency bonds or GDR of an Indian company||N/A||N/A||10|
|196D||Income of foreign Institutional Investors from securities (not being dividend or capital gain)||N/A||N/A||20|
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.
How and when to file TDS returns?
Anybody who has deducted TDS must file a TDS return. While filing the TDS return, you need details of the TAN of the deductor, the total amount of TDS, the PAN of the deductee, etc.
Depending on the type and reason of the TDS, you can file TDS returns using one of the following forms:
TDS on sale on property and rent must be filed within 30 days from the end of the month in which the TDS was charged. TDS on salary and other payments is charged quarterly. The due date for each quarter is as follows:
TDS credits in Form 26AS
The Ministry of Finance has recently extended the deadline for filing tax returns for individuals from July 31st, 2019 to August 31st, 2019.
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.
Tax liability in a case where TDS is already deducted from Income
When you file your income tax return (ITR), you may receive a refund or have to pay the tax due depending on your investments and the total income charged for the year. TDS is not deducted as per your total income in a year. Therefore there may be instances of lower or higher tax deducted at times. Hence, it is crucial to file an ITR.
SMS Alerts for Higher Transparency
In order to create a higher level of transparency, the income tax department sends an SMS to all taxpayers to inform them of the TDS linked to their PAN. The SMS is sent from VK-ITDEFL every quarter. You can compare the amount mentioned in the SMS with the one mentioned on the Form 26AS to check for any discrepancies.
1. What is the due date for depositing the TDS to the government?
The TDS deducted in the present month must be reported to the government by the 7th of the next month. In case of rent, the TDS must be deposited within 30 days from the end of the month when the TDS was deducted.
2. How to deposit TDS?
In order to deposit TDS, the Challan ITNS-281 has to be filled. This challan can be found on the government’s income tax website.
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