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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 which Government of India levies on a periodic basis. The overall deducted TDS is claimed as tax refund after a taxpayer files the Income Tax Return.

When is TDS Deducted?

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

  • 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.

Who can Deduct TDS?

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

Types of Payments and Applicable TDS

A payee 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 sectionNature of payment madePayerPayeeApplicable rateExemption limit (threshold till which no TDS will be applicable)
Section 192TDS on salaryAny salaried individualEmployerAccording to the applicable Income Tax slabBasic 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 192ATDS on premature withdrawal of provident fundsAny individualEmployee10% of the total sumIf the amount is less than Rs.50,000
Section 193TDS on the interest earned from securitiesAny individualAny resident individual10%If the invested amount is in debentures, one can apply for an exemption of up to Rs.5,000 during a financial year.
Section 194TDS on dividendsDomestic companiesResident individual10%Up to Rs.2,500 during one financial year.
Section 194ATDS on interest earned from investment assets other than securitiesIndividuals except taxpayers and Hindu Undivided Families liable to tax audit during last FYResident individual10%Up to Rs.10,000 for earnings from banks and post office deposits and up to Rs.5,000 for other cases.
Section 194BTDS applicable on money earned on lottery or similar competitionAny individualAny individual30%Up to Rs.10,000
Section 194BBTDS on winning from race horsesAny individualAny individual30%Up to Rs.10,000
Section 194CTDS on payments made towards contractorsAny individual other than taxpayers and Hindu Undivided Families eligible for tax audit during last FYAny resident person1% for individuals and Hindu Undivided Family, 2% for other type of taxpayersUp to Rs.30,000 for sectional payments and up to Rs.1,00,000 for total payment during an FY.
Section 194DTDS on insurance commissionInsurance aggregatorResident agent5% for individuals and HUF and 10% for other agentsUp to Rs.15,000 during one FY
Section 194DATDS on payment made towards life insurance policyAny individualAny resident person1%Less than Rs.1,00,000 during one FY
Section 194ETDS on payments made towards non-residential sportsperson or associationAny individualSportsperson, association20%No exemption applicable
Section 194EETDS on payments made towards deposit under NSSAny individualAny individual10%Up to Rs.2,500 during one FY
Section 194GTDS payable from commission earned from the sale of lottery ticketAny individualAny individual5%Up to Rs.15,000
Section 194HTDS on commission or brokerage earnedAny individual except taxpayers and Hindu Undivided Family liable for tax auditAny resident individual5%Up to Rs.15,000
Section 194ITDS on rentAny individual except taxpayers and Hindu Undivided Families liable for tax auditAny resident individual2%Up to Rs.1,80,000 during one FY
Section 194IATDS on funds earned for transfer of immovable asset (except agricultural land)Any individualAny resident individual1%Less than Rs.50,00,000
Section 194IBTDS on payment of rent by certain individuals and Hindu Undivided FamiliesAny individuals and Hindu Undivided FamiliesAny resident individual5%Up to Rs.50,000 every month.
Section 194ICTDS on payment made towards specified agreementAny personAny resident individual10%No exemption applicable
Section 194JTDS on payments made towards any professional or technical servicesAny individual except taxpayers and Hindu Undivided Families not liable for tax audit during last FYAny resident individual10% (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 194LATDS on payment of compensation because of acquisition of certain immovable assetAny individualAny residential individual10%Up to Rs.2,50,000
Section 194LBTDS paid towards income earned from infrastructure debt fund interestInfrastructure debt fundsNational or international organisation5%No exemption applicable
Section 194LBATDS on income from units of a business trustBusiness trustsUnit holder, both resident and non-resident individual10% for resident individuals and 5% for non-residentsNo exemption applicable
Section 194LBBTDS on income earned from units of investment fundsInvestment fundsUnit holders, both resident and non-residents10% for resident individuals. For non-resident individuals, the tax rates will be calculated as per the current rateNo exemptions applicable
Section 194 LBCTDS on income earned from investments of securitisation trustsSecuritisation trustsInvestors, both residents and non-residents25% for individuals and Hindu Undivided Family and 30% for any other type of investorNo exemptions applicable
Section 194LCTDS on income earned from an Indian companyIndian companies and business trustsNon-residents5%No exemptions applicable
Section 194LDTDS on income earned from certain Government security and bond’s interestAny individualForeign institutional investor or qualified foreign investor5%No exemptions applicable
Section 195TDS on other types of payment made towards non-organisational entity or foreign companyAny individualSpecified bodyAs specified by DTAA or Income Tax ActNo 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 numberSignificanceFrequency of submission
Form 24QStatement containing details of TDS deducted from salaryQuarterly
Form 26QStatement containing details of TDS deducted from earning except salaryQuarterly
Form 26QBStatement 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 26QCStatement containing details of TDS deducted from payment of rentShould be submitted within 30 days from the end of a particular month when the deduction is made.
Form 27QStatement containing details of TDS deducted on incomes earned from interest, dividend, or other sum payableQuarterly

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 certificateRespective TDS return formDue dateFrequency of issue
Form 16Form 24QWithin 15th June of a Financial Year which succeeds a Financial Year when the tax is deductedAnnually
Form 16AForm 26QWithin 15 days of submitting Form 26QOnce every quarter
Form 16BForm 26QBWithin 15 days of submitting Form 26QBMonthly
Form 16CForm 26QCWithin 15 days of submitting Form 26QCMonthly

Due Dates of Different Forms

Taxpayers are liable to submit Forms containing TDS deduction details according to different due dates and quarters. For Financial Year 2019-2020, the dates are the following –

QuarterQuarter periodLast date of filing
1st quarter1st April to 30th June31st July, 2019
2nd quarter1st July to 30th September31st October, 2019
3rd quarter1st October to 31st December31st January, 2020
4th quarter1st January to 31st March31st May, 2020

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 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 follow –

  • Step 1 – Navigate to the official website of 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 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 details to adhere to the regulations of the Income Tax Department of India.

Frequently Asked Questions

  • Is it possible to file a NIL TDS return while filing Tax Deducted at Source for the first time?

Ans – An individual is not mandated by law to file NIL TDS return, however, they can file the same during the relevant quarter if their employer requires so.

  • Will TDS be applicable on the bill for material and labour?

Ans – TDS will be deducted for the sum paid for labour only in this case.

  • Is there any provision for TDS against freight and transportation charges?

Ans – TDS will be deducted against the amount paid in case there is more than 10 goods carriers owned by the taxpayer at any time during the previous year.

  • Is a taxpayer eligible to pay TDS against the purchase of a flat?

Ans – Flats costing more than Rs.50 lakh will attract TDS at 1% under Section 194IA.

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