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 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. 

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 – 

Due Dates of Different Forms

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

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.