Firstly, let us take a look at what is TDS? TDS (abbreviation for Tax Deduction at Source) is the amount of money that is reduced as income tax from money that is paid as rent, professional fees, interest, commission, salary etc by the person making said payments.

In most cases, the person(s) receiving this money is supposed to be paying tax, and TDS is the mechanism that governments use via their Income Tax Departments to ensure this income tax amount is deducted at an earlier date via the money that is being given made by the receiver. Hence the name, as it implies that tax is deducted right at the source.

For a better understanding, here’s an example. The owner of a property rents it out to Evergreen Pvt Ltd for use as their office space, with monthly rent for the same being Rs 80,000. TDS to be cut is 10 percent, therefore Evergreen Pvt Ltd has to deduct Rs 8000 worth of TDS and pay Rs 72,000 of the balance to the owner as rent. As a result, the owner of this property gets a net amount of Rs 72,000 after deduction of tax at source. The remaining Rs 8,000 she will add as the gross amount to her income, after which she can take credit for the deducted amount (Rs 8,000) against her final tax liability.

Thus, the recipient of the income, the property owner, in this case, has had a part of her income deducted as tax at source, something which she can claim later when she files her tax returns.

Know Your TAN

Tax Deduction Account Number (TAN) is a 10-digit alphanumeric account number that has to be procured by all people who have the responsibility of collecting or deducting tax. Quotation of Tax Deduction Account Number that is allotted by the Income Tax Department is mandatory on all TDS returns as per Section 230A of the Income Tax Act, 1961. It is relatively simple to apply for a TAN number, and there is an online procedure are well to do the same, via filling up of Form 49B.

TDS Certificate? What is That You Ask?

The deductor (someone cutting your tax) is supposed to issue TDS certificates to the deductee (someone whose tax payments are being deducted), and there are two types of TDS certificates that can be issued by the deductor:

  • Form 16
    This form is issued by the employer to every employee, and it lists all details of taxes deducted by the former on those working for him/her throughout the year
  • Form 16A
    This form is issued in every case that is not a salary-based process.

Let us have a look at another example. Rohit Kohli is working as a salaried employee at Shine Pvt Ltd, and the tax at source deducted from his salary is 15 percent. Hence, when required, his employers will provide him with a copy of Form 16 that will have details regarding the amount of salary paid and tax deducted on this salary.

In case Mr. Kohli was working as a professional and was being paid professional fees from a company which is supposed to deduct TDS from employees, he will be provided with Form 16A for the same.

When Should TDS be Deducted?

Anyone making payments that are specified under the Income Tax Act must make sure she makes such a payment reduced TDS when making said payment. However, tax at source does not have to be cut if the person making the payment is an individual or Hindu Undivided Family (HUF) who’s final statements are not required to be audited.

Even in this case, there is an exception. If the person or HUF pays a rent amount that exceeds Rs 50,000 per month, they have to deduct a 5 percent tax at source even if they are not liable for any kind of tax audit. Also, to be remembered is that such individuals/HUFs who are liable to pay this 5 percent TDS do not have to apply for TAN.

Let us take a look at a set of scenarios to better understand this process.

Ranbaxy Ltd needs to pay Mrs. Rani Kumar Rs 50,000 for the professional services she provided.

Scenario 1

Mrs. Kumar was paid an advance of Rs 30,000 on July 15, and she raised an invoice for the same after work completed on July 31, with rest of the payment yet to be made. In such a case, the company has to deduct tax in the following manner:

On July 15: Rs 3,000 (10 percent on the advance of Rs 30,000)

On July 31: Rs 2,000 (10 percent of the total amount on the invoice as cut by a tax that already been deducted — which is Rs 5,000 — and deducting Rs 3,00 from this amount)

Scenario 2

Mrs. Kumar raised the invoice on July 15 and hence was paid the whole amount at one go on July 31. In this case, the whole amount of Rs 5,000 will be reduced on July 15, since that is the date on which the payment got due, after which a total payment of Rs 45,00 will be made on July 31 to her.

Scenario 3

Mrs. Kumar got the entire payment of Rs 50,000 in advance, much before completion of the assignment. In this case, Rs 5,000 has to be reduced exactly at the time of payment of advance, while no tax should be deducted when an entry for the bill due is being entered.

Is There A Deposit Date?

And TDS that has been deducted must be deposited with the government by the 7th of the succeeding month. For example, TDS that was deducted in June needs to be cleared to the government by the 7th of July. In a special case, since it entails the end of the financial year, TDS deducted in March can be deposited with the government till April 30.

Also, for tax at the source that was cut on rent and property purchase, the due date is 30 days from the end of the month during which TDS was deducted.

How Can One Deposit TDS?

Tax at the source can be deposited with the help of Challan ITNS-281 on the government’s portal.

How and When Should One File TDS Returns?

Filing of TDS return is compulsory for anyone who has deducted tax at source. TDS return needs to be submitted on a quarterly basis, and various details like TAN, TDS amount deducted, type of payment and PAN number of the deductee need to be furnished. It is to be remembered that there are different forms that are prescribed for filing returns, depending on why the TDS was cut. Let’s take a look at these forms:

  • +Form 24Q
    Transaction reported in the return: TDS on salary
    Due dates: Q1 – 31st July; Q2 – 31st October; Q3 – 31st January; Q4 – 31st May
  • +Form 26Q
    Transaction reported in the return: TDS on all payments apart from salary
    Due dates: Q1 – 31st July; Q2 – 31st October; Q3 – 31st January; Q4 – 31st May
  • +Form 26QB
    Transaction reported in the return: TDS on sale of property
    Due dates: 30 days from the end of the month in which tax on source was deducted
  • +Form 26QC
    Transaction reported in the return: TDS on rent
    Due dates: 30 days from the end of the month in which tax on source was deducted
  • +Form 27Q
    Transaction reported in the return: TDS on NRIs
    Due dates: 30 days from the end of the month in which tax on source was deducted

How to Calculate Tax to be Deducted From Salary

Those who are tasked with paying salaries have a responsibility to cut the tax on estimated pay at a pre-meditated rate of 15 percent subject to the following:

  • +Exemption limit
    Deduction of tax at source is not required unless estimated salary crosses basic exemption limit
  • +Exempt allowances
    Allowances like House Rent Allowance (HRA), conveyance, Leave Travel Concession (LTC) and travelling that are exempt according to prescribed limits and other rules and which don’t form part of salary being paid must be reduced from total salary when arriving at taxable salary.
  • +Other deductions
    Various other cuts like deductions under Sections 80C, 80CCC, 80CCD, 80CCG, 80D, 80DD, 80DDB, 80E, and 80EE must be taken into consideration before calculating tax on salary.

What is the Minimum Salary One Must Have for TDS to be Cut?

Post thorough calculation of allowable allowances, deductions under Chapter VI-A and taxable points, if the income from salary head is more than a certain exemption limit, it means that tax has to be cut by the employer at 15 percent on the amount that over and above said basic exemption limit.

For example, if the salary of Mrs. Jane Jackson comes up to Rs 2,80,000 after accommodation of every allowance, deduction, and prerequisite, then tax at 15 percent on Rs 30,000 (Rs 2,80,000-Rs 2,50,000) has to be deducted by the employer. Therefore, TDS shall only come into play if minimum salary exceeds the basic exemption limit.

Everything You Need to Know About TDS

Firstly, let us take a look at what is TDS? TDS (abbreviation for Tax Deduction at Source) is the amount of money that is reduced as income tax from money that is paid as rent, professional fees, interest, commission, salary etc by the person making said payments.

In most cases, the person(s) receiving this money is supposed to be paying tax, and TDS is the mechanism that governments use via their Income Tax Departments to ensure this income tax amount is deducted at an earlier date via the money that is being given made by the receiver. Hence the name, as it implies that tax is deducted right at the source.

For a better understanding, here’s an example. The owner of a property rents it out to Evergreen Pvt Ltd for use as their office space, with monthly rent for the same being Rs 80,000. TDS to be cut is 10 percent, therefore Evergreen Pvt Ltd has to deduct Rs 8000 worth of TDS and pay Rs 72,000 of the balance to the owner as rent. As a result, the owner of this property gets a net amount of Rs 72,000 after deduction of tax at source. The remaining Rs 8,000 she will add as the gross amount to her income, after which she can take credit for the deducted amount (Rs 8,000) against her final tax liability.

Thus, the recipient of the income, the property owner, in this case, has had a part of her income deducted as tax at source, something which she can claim later when she files her tax returns.

Know Your TAN

Tax Deduction Account Number (TAN) is a 10-digit alphanumeric account number that has to be procured by all people who have the responsibility of collecting or deducting tax. Quotation of Tax Deduction Account Number that is allotted by the Income Tax Department is mandatory on all TDS returns as per Section 230A of the Income Tax Act, 1961. It is relatively simple to apply for a TAN number, and there is an online procedure are well to do the same, via filling up of Form 49B.

TDS Certificate? What is That You Ask?

The deductor (someone cutting your tax) is supposed to issue TDS certificates to the deductee (someone whose tax payments are being deducted), and there are two types of TDS certificates that can be issued by the deductor:

  • +Form 16
    This form is issued by the employer to every employee, and it lists all details of taxes deducted by the former on those working for him/her throughout the year
  • +Form 16A
    This form is issued in every case that is not a salary-based process.

Let us have a look at another example. Rohit Kohli is working as a salaried employee at Shine Pvt Ltd, and the tax at source deducted from his salary is 15 percent. Hence, when required, his employers will provide him with a copy of Form 16 that will have details regarding the amount of salary paid and tax deducted on this salary.

In case Mr. Kohli was working as a professional and was being paid professional fees from a company which is supposed to deduct TDS from employees, he will be provided with Form 16A for the same.

When Should TDS be Deducted?

Anyone making payments that are specified under the Income Tax Act must make sure she makes such a payment reduced TDS when making said payment. However, tax at source does not have to be cut if the person making the payment is an individual or Hindu Undivided Family (HUF) who’s final statements are not required to be audited.

Even in this case, there is an exception. If the person or HUF pays a rent amount that exceeds Rs 50,000 per month, they have to deduct a 5 percent tax at source even if they are not liable for any kind of tax audit. Also, to be remembered is that such individuals/HUFs who are liable to pay this 5 percent TDS do not have to apply for TAN.

Let us take a look at a set of scenarios to better understand this process.

Ranbaxy Ltd needs to pay Mrs. Rani Kumar Rs 50,000 for the professional services she provided.

Scenario 1

Mrs. Kumar was paid an advance of Rs 30,000 on July 15, and she raised an invoice for the same after work completed on July 31, with rest of the payment yet to be made. In such a case, the company has to deduct tax in the following manner:

On July 15: Rs 3,000 (10 percent on the advance of Rs 30,000)

On July 31: Rs 2,000 (10 percent of the total amount on the invoice as cut by a tax that already been deducted — which is Rs 5,000 — and deducting Rs 3,00 from this amount)

Scenario 2

Mrs. Kumar raised the invoice on July 15 and hence was paid the whole amount at one go on July 31. In this case, the whole amount of Rs 5,000 will be reduced on July 15, since that is the date on which the payment got due, after which a total payment of Rs 45,00 will be made on July 31 to her.

Scenario 3

Mrs. Kumar got the entire payment of Rs 50,000 in advance, much before completion of the assignment. In this case, Rs 5,000 has to be reduced exactly at the time of payment of advance, while no tax should be deducted when an entry for the bill due is being entered.

Is There A Deposit Date?

And TDS that has been deducted must be deposited with the government by the 7th of the succeeding month. For example, TDS that was deducted in June needs to be cleared to the government by the 7th of July. In a special case, since it entails the end of the financial year, TDS deducted in March can be deposited with the government till April 30. Also, for tax at the source that was cut on rent and property purchase, the due date is 30 days from the end of the month during which TDS was deducted.

How Can One Deposit TDS?

Tax at the source can be deposited with the help of Challan ITNS-281 on the government’s portal.

How and When Should One File TDS Returns?

Filing of TDS return is compulsory for anyone who has deducted tax at source. TDS return needs to be submitted on a quarterly basis, and various details like TAN, TDS amount deducted, type of payment and PAN number of the deductee need to be furnished. It is to be remembered that there are different forms that are prescribed for filing returns, depending on why the TDS was cut. Let’s take a look at these forms:

  • +Form 24Q
    Transaction reported in the return: TDS on salary
    Due dates: Q1 – 31st July; Q2 – 31st October; Q3 – 31st January; Q4 – 31st May
  • +Form 26Q
    Transaction reported in the return: TDS on all payments apart from salary
    Due dates: Q1 – 31st July; Q2 – 31st October; Q3 – 31st January; Q4 – 31st May
  • +Form 26QB
    Transaction reported in the return: TDS on sale of property
    Due dates: 30 days from the end of the month in which tax on source was deducted
  • +Form 26QC
    Transaction reported in the return: TDS on rent
    Due dates: 30 days from the end of the month in which tax on source was deducted
  • +Form 27Q
    Transaction reported in the return: TDS on NRIs
    Due dates: 30 days from the end of the month in which tax on source was deducted

How to Calculate Tax to be Deducted From Salary

Those who are tasked with paying salaries have a responsibility to cut the tax on estimated pay at a pre-meditated rate of 15 percent subject to the following:

  • +Exemption limit
    Deduction of tax at source is not required unless estimated salary crosses basic exemption limit
  • +Exempt allowances
    Allowances like House Rent Allowance (HRA), conveyance, Leave Travel Concession (LTC) and travelling that are exempt according to prescribed limits and other rules and which don’t form part of salary being paid must be reduced from total salary when arriving at taxable salary.
  • +Other deductions
    Various other cuts like deductions under Sections 80C, 80CCC, 80CCD, 80CCG, 80D, 80DD, 80DDB, 80E, and 80EE must be taken into consideration before calculating tax on salary.

What is the Minimum Salary One Must Have for TDS to be Cut?

Post thorough calculation of allowable allowances, deductions under Chapter VI-A and taxable points, if the income from salary head is more than a certain exemption limit, it means that tax has to be cut by the employer at 15 percent on the amount that over and above said basic exemption limit.

For example, if the salary of Mrs. Jane Jackson comes up to Rs 2,80,000 after accommodation of every allowance, deduction, and prerequisite, then tax at 15 percent on Rs 30,000 (Rs 2,80,000-Rs 2,50,000) has to be deducted by the employer. Therefore, TDS shall only come into play if minimum salary exceeds the basic exemption limit.

Section Nature of payment Rate of TDS
192 Salary 15% (education cess at 2% and higher education cess at 1% in case salary exceeds Rs 1 crore)
194 Deemed Dividend u/s 2(22)(e) 10%
194A Interest other than that on securities 10%
194C Payment made to a resident contractor/sub-contractor 1% (in case of individuals and HUF)

2% (in others cases)

194D Commission from Insurance 5% (in case of individuals and HUF)

10% (in others cases)

194G Commission via the sale of lottery tickets 10%
194H Commission/brokerage 10%
194I Rent 2% (in case plant and machinery were rented)

10% (in case of land, building, furniture or fixtures were rented)

194IA Consideration payment for transfer of immovable property (apart from rural agricultural land) 1%
194J Professional/technical fees, salary to a director or royalty 10%
194LA Compensation paid on acquisition of certain immovable property 10%

Due Dates for TDS

Even after getting through so many of these details, people are not sure of the difference of deducting TDs and applying for the return of TDS. These are two separate processes, and due dates are applicable to non-governmental assesses and governmental assesses (who deposit tax using the challan mentioned earlier in the article).

If the governmental assesses do not use challan to make TDS payments, then due date for payment of tax at source will equate to the same day that the amount is cut.

How to Know TDS Status?

It is fairly simple to find out if TDS has been deducted or not, and whether it has been credited to the person. This procedure can also be followed to find out status:

  • Log onto the Income tax India e-filing website and select the “Register Yourself” tab
  • Enter details as given on your PAN card and create a password
  • Once logged in, one can view status by clicking on the “View Tax Credit Statement (26 AS)” option
  • You will then be redirected to another website known as TRACES (TDS Reconciliation Analysis and Correction Enabling System), and you can view all details regarding tax deducted at source, advance tax paid and other relevant details.

How Can One Apply for TDS Refund?

While it is a common misconception that refund for surplus TDS (mistakenly known as TDS refund) differs from income tax refund, it is not the case. There is only one kind of refund possible when claiming returns on income tax. It is compulsory nowadays to fill in band details like account number and IFSC code when filing a return, and not entering these details will lead to failure to generate the required file.

Hence, in case someone has deducted more tax than should be, then it will mean an income tax return has been borne out, and this can be claimed when filing the annual income tax returns.

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