What is Tax Deducted at Source (TDS)

TDS stands for tax deducted at source. As per the Income Tax Act, any company or person making a payment is required to deduct tax at source if the payment exceeds certain threshold limits. TDS has to be deducted at the rates prescribed by the tax department.

TDS stands for tax deducted at source. As per the Income Tax Act, any company or person making a payment is required to deduct tax at source if the payment exceeds certain threshold limits. TDS has to be deducted at the rates prescribed by the tax department.

TDS is deducted on the following types of payments:
  • Salaries
  • Interest payments by banks
  • Commission payments
  • Rent payments
  • Consultation fees
  • Professional fees

However, individuals are not required to deduct TDS when they make rent payments or pay fees to professionals like lawyers and doctors.

TDS is one kind of advance tax. It is tax that is to be deposited with the government periodically and the onus of the doing the same on time lies with the deductor. For the deductee, the deducted TDS can be claimed in the form of a tax refund after they file their income tax return.

What is TDS?

TDS is simply Tax Deducted at Source. As per the Income Tax Act – persons responsible for making payments are required to deduct tax at source at prescribed rates. Instead of receiving tax on your income from you at a later date, the govt wants the payers to deduct tax before hand and deposit it with the govt.

The recipient of income receives the net amount (after deducted of tax at source). The recipient will add the gross amount to his income and the amount deducted at source is adjusted against his final tax liability. Basically take credit of the amount already deducted and paid on his behalf.

TDS is deducted at the time of payment in cash or cheque or credit to the payee’s account whichever happens earlier

TDS is deducted on salaries, interest payment by banks, payment of commission, while paying rent, payments made to consultants, payments to lawyers or freelancers. (Some of these requirements to deduct tax are not applicable to individuals – for e.g. individuals are not expected to deduct TDS while paying rent or while paying fees to doctors or lawyers).

Your employer deducts TDS at the income tax slab rates applicable. Banks deduct TDS @10%. Or they may deduct @ 20% if they do not have your PAN information. For most payments rates of TDS are set in the income tax act and TDS is deducted by payer basis these specified rates.

If you submit investment proofs (for claiming deductions) to your employer and your total taxable income is below the taxable limit – you do not have to pay any tax. And therefore no TDS should be deducted on your income. Similarly you can submit Form 15G and Form 15H to the bank if your total income is below taxable limit so that they don’t deduct TDS on your interest income.

In case you have not been able to submit proofs to your employer or if your employer or bank has already deducted TDS and your total income is below the taxable limit) – you can file a Return and claim a refund of this TDS

Late Filing Fee

Under Section 234E, you will have to pay a fine of Rs 200 per day (two hundred) until your return is filed. You have to pay this for every day of delay until the fine amount is equal to the amount you are supposed to pay as TDS.

In case you have not deposited TDS by the correct date, the following penalties are applicable:
  1. Late filing fee (if you do not file by the deadline)
  2. Interest (if you do not deposit the TDS amount in time)
  3. Penalty (if TDS is not filed within one year of the due date)
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