TDS - Tax Deducted at Source

TDS, or Tax Deducted at Source, is a certain percentage of one’s monthly income which is taxed from the point of payment. According to the Income Tax Act, 1961, every individual or organisation is liable to pay taxes if their income is above a certain threshold. 

TDS deduction is applicable to multiple types of payments, including – 

  • Salary
  • Commission earned.
  • Rent
  • Interest payment by banks.
  • Professional or consultant fees.

Tax Deducted at Source is a type of advance tax that the Government of India levies on a periodic basis. The overall deducted TDS is claimed as a tax refund after a taxpayer files the Income Tax Return.

What is Tax Deducted at Source?

TDS deduction rules necessitate tax payment when a taxpayer gets payment due, or receives actual payment (whichever is earlier). Let’s look at a few examples where TDS will apply. 

  • Example 1 – 

Assume Mr. Paul is a self-employed professional who got paid Rs.40,000 as advance and received another Rs.20,000 after completion of work. In this scenario, the payee will deduct TDS from the advance (Rs.4,000, 10% of Rs.40,000) and the rest (Rs.2,000, 10% of Rs.20,000). The total payable taxable amount will be Rs.6,000. 

  • Example 2 – 

Mr. Paul receives the complete payment after the completion of his work. In this case, he will be taxed Rs.6,000 from the total sum by his payee, and Rs.54,000 will be paid to him for his work.

How TDS Works and Who Can Deduct It?

The person making the payment is liable for a TDS deduction. That individual or organisation is liable to deduct the sum at a specified rate and deposit it to the Government within every financial year is liable to levy Tax Deducted at Source at the following rate.

Note, the absence of PAN will attract TDS at a rate of 20%, unless any specific rate (like MMR) is mentioned. – 

TDS according to section

Nature of payment made

Payer

Payee

Applicable rate

Exemption limit (threshold till which no TDS will be applicable)

Section 192

TDS on salary

Any salaried individual

Employer

According to the applicable Income Tax slab

Basic Gross Total Income exemption limit – up to Rs.2.5 lakh for taxpayers below the age of 60, Rs.3 lakh for individuals between the age of 60 to 80 years, and Rs.5 lakh for individuals above 80 years of age.

Section 192A

TDS on premature withdrawal of provident funds

Any individual

Employee

10% of the total sum

If the amount is less than Rs.50,000

section 193

TDS on the interest earned from securities

Any individual

Any resident individual

10%

If the invested amount is in debentures, one can apply for an exemption of up to Rs.5,000 during a financial year.

Section 194

TDS on dividends

Domestic companies

Resident individual

10%

Up to Rs.2,500 during one financial year.

Section 194A

TDS on interest earned from investment assets other than securities

Individuals except taxpayers and Hindu Undivided Families liable to tax audit during last FY

Resident individual

10%

Up to Rs.10,000 for earnings from banks and post office deposits and up to Rs.5,000 for other cases. 

Section 194B

TDS applicable on money earned on lottery or similar competition

Any individual 

Any individual

30%

Up to Rs.10,000

Section 194BB

TDS on winning from race horses

Any individual

Any individual

30%

Up to Rs.10,000

Section 194C

TDS on payments made towards contractors

Any individual other than taxpayers and Hindu Undivided Families eligible for tax audit during last FY

Any resident person

1% for individuals and Hindu Undivided Family, 2% for other type of taxpayers

Up to Rs.30,000 for sectional payments and up to Rs.1,00,000 for total payment during an FY. 

Section 194D

TDS on insurance commission

Insurance aggregator

Resident agent

5% for individuals and HUF and 10% for other agents

Up to Rs.15,000 during one FY

Section 194DA

TDS on payment made towards life insurance policy

Any individual

Any resident person

1% 

Less than Rs.1,00,000 during one FY

Section 194E

TDS on payments made towards non-residential sportsperson or association

Any individual

Sportsperson, association

20%

No exemption applicable

Section 194EE

TDS on payments made towards deposit under NSS

Any individual

Any individual

10% 

Up to Rs.2,500 during one FY

Section 194G

TDS payable from commission earned from the sale of lottery ticket

Any individual

Any individual

5%

Up to Rs.15,000

Section 194H

TDS on commission or brokerage earned

Any individual except taxpayers and Hindu Undivided Family liable for tax audit

Any resident individual

5%

Up to Rs.15,000

Section 194I

TDS on rent

Any individual except taxpayers and Hindu Undivided Families liable for tax audit

Any resident individual

2%

Up to Rs.1,80,000 during one FY

Section 194IA

TDS on funds earned for transfer of immovable asset (except agricultural land)

Any individual 

Any resident individual

1%

Less than Rs.50,00,000

Section 194IB

TDS on payment of rent by certain individuals and Hindu Undivided Families

Any individuals and Hindu Undivided Families

Any resident individual

5%

Up to Rs.50,000 every month.

Section 194IC

TDS on payment made towards specified agreement

Any person

Any resident individual

10%

No exemption applicable

Section 194J

TDS on payments made towards any professional or technical services

Any individual except taxpayers and Hindu Undivided Families not liable for tax audit during last FY

Any resident individual

10% (2% taxes will be charged is the payment is made to a business that operates a call centre)

Up to Rs.30,000 during one FY 

Section 194LA

TDS on payment of compensation because of acquisition of certain immovable asset

Any individual

Any residential individual

10%

Up to Rs.2,50,000

Section 194LB

TDS paid towards income earned from infrastructure debt fund interest

Infrastructure debt funds

National or international organisation

5%

No exemption applicable

Section 194LBA

TDS on income from units of a business trust

Business trusts

Unit holder, both resident and non-resident individual

10% for resident individuals and 5% for non-residents

No exemption applicable

Section 194LBB

TDS on income earned from units of investment funds

Investment funds

Unit holders, both resident and non-residents

10% for resident individuals. For non-resident individuals, the tax rates will be calculated as per the current rate

No exemptions applicable

Section 194 LBC

TDS on income earned from investments of securitisation trusts

Securitisation trusts

Investors, both residents and non-residents

25% for individuals and Hindu Undivided Family and 30% for any other type of investor

No exemptions applicable

Section 194LC

TDS on income earned from an Indian company

Indian companies and business trusts

Non-residents

5%

No exemptions applicable

Section 194LD

TDS on income earned from certain Government security and bond’s interest

Any individual

Foreign institutional investor or qualified foreign investor

5%

No exemptions applicable

Section 195

TDS on other types of payment made towards non-organisational entity or foreign company

Any individual

Specified body

As specified by DTAA or Income Tax Act

No exemptions applicable.

TDS Return and the Associated Forms 

TDS return is a statement issued after successful payment of the taxes, containing all the transactions mentioned towards TDS deduction made during a quarter. It is issued by the payer, submitted to the Income Tax Department of India.

Tax returns contain all TDS deduction details collected by the payer, as well as other essential information like the Permanent Account Number of the payer and payee and other particulars regarding the payment made to the Government of India. It also collects TDS challan information.

There are several forms associated with TDS returns; the following table contains its relevant details. 

Form Number

Significance  

Frequency of submission

Form 24Q

Statement containing details of TDS deducted from salary

Quarterly

Form 26Q

Statement containing details of TDS deducted from earning except salary

Quarterly

Form 26QB

Statement containing details of TDS deducted on income from the transfer of immovable asset (except agricultural land)

Should be submitted within 30 days from the end of the month when the deduction is made.

Form 26QC

Statement containing details of TDS deducted from payment of rent

Should be submitted within 30 days from the end of a particular month when the deduction is made.

Form 27Q

Statement containing details of TDS deducted on incomes earned from interest, dividend, or other sum payable

Quarterly

The person deducting TDS is also liable to provide an acknowledgement form to the taxpayer. It acts as proof that the necessary taxes have been paid and deposited to the Government.

This certificate contains details like the particulars of payment, payee and payer details, date of tax deduction and date of credit submission. TDS certificate is necessary to claim tax credit or refund (if any) while filing Income Tax Return.

Different TDS certificates are issued against different TDS forms. These include – 

TDS Certificate

Respective TDS return form

Due date

Frequency of issue

Form 16

Form 24Q

Within 15th June of a Financial Year which succeeds a Financial Year when the tax is deducted

Annually

Form 16A

Form 26Q

Within 15 days of submitting Form 26Q

Once every quarter

Form 16B

Form 26QB

Within 15 days of submitting Form 26QB

Monthly 

Form 16C

Form 26QC

Within 15 days of submitting Form 26QC

Monthly

Due Dates of Different Forms

Taxpayers are liable to submit Forms containing TDS deduction details according to different due dates and quarters. 

Quarter

Quarter Period

Last Date of Filing

1st quarter

1st April to 30th June

31st July

2nd quarter

1st July to 30th September

31st October

3rd quarter

1st October to 31st December

31st January

4th quarter

1st January to 31st March

31st May

Penalty Provision

Any taxpayer not complying with the TDS deduction rules will be liable to pay penalties, usually in the form of fees and interest levied on the principal taxable amount. There are multiple types of penalties levied; for example –

  • Regulation Regarding Tax Deduction

Levied tax will be deducted when the actual payment is being paid. Any delay in tax deduction will be subjected to a penalty at 1% interest/month until the sum is deducted.

In case the person responsible for TDS deduction fails to do so, they are likely to be restricted from ascertaining the taxable profit from the total expenditure. 

  • Regulations Regarding TDS Payment

Taxpayers are required to pay the taxable sum to the Government of India by the 7th day of the month which succeeds the tax filing.

Incidents of none or late payment will attract a penalty at 1.5% per month (on the total payable sum) till the sum is deposited.

  • Regulations Regarding TDS Return Filing

TDS returns should be filed on the 31st day of January, May, July, and October of every financial year.

Non-filing or late filing of return will attract a penalty of Rs.200 every day (according to Section 234E of the Income Tax Act of India) till the return is filed. However, the penalty should not exceed the total sum of tax levied.

How to Know the Deducted TDS amount?

The process to find whether TDS has been deducted or not and whether it has been credited to a particular taxpayer’s account can be completed online. The steps are as follows – 

  • Step 1 – Navigate to the official website of the Income Tax Department of India and select the option to register as a new user. 
  • Step 2 – Enter details of the Permanent Account Number and generate a password.
  • Step 3 – After logging in with the registered ID and password, select the option to view the tax credit statement, or Form 26AS.

    26AS is a tax credit statement that carries a detailed report of TDS deducted during a financial year. 
  • Step 4 – The website will redirect to the page for TDS Reconciliation Analysis and Correction Enabling System, which will show all the details of a taxpayer’s tax liabilities, including details of Tax Deducted at Source, advance tax paid, and other information.

TDS Refund and Non-reduction of the Applicable Tax

If a taxpayer pays more tax than what he or she is legally obligated to pay,  will be able to file a claim regarding tax refund. Taxpayers can file the same with their annual income tax return, and the refund amount will be disbursed along with the Income Tax Return. 

For example, suppose Mr. Paul presented an invoice of Rs.40,000, against which he received a total of Rs.39,200 after deducting 2% (Rs.800) TDS. However, under Section 194C, he is liable for taxation at 1% (or Rs.400). The balance amount will arise as a refund when Mr. Paul files his Income Tax Return.

If an individual’s annual income does not fall under taxable threshold, they can request for zero deduction on their income as well. It can be completed via 2 different methods – 

  • Declaring income below the basic exemption limit in the Form 15G or 15H will exempt an individual from TDS. These Forms have to be submitted every year, otherwise the applicant may be subjected to tax deduction.

  • Applying for a certificate for deduction of tax at a lower or NIL rate via Form 13 will also register as zero TDS under this clause.

Tax Deducted at Source is an essential clause under Income Tax Act, 1961. Every taxpayer should be thoroughly aware of the taxation limit, forms, etc. in detail to adhere to the regulations of the Income Tax Department of India.

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