What is TDS and When/ How it is Deducted

We all pay taxes, that we know it well. But did you ever wonder what is TDS and how many types of taxes are there? Yes, there exist different kinds of taxes and one of them is TDS that is known as a Tax deduction at source.

So, now the question arises,

What is Tax Deducted at Source (TDS)?

TDS is a term introduced by the Income Tax department, that applies to the various incomes received by a person or individual. Thus, TDS is deducted at the point when that income is generated and not at future date.

Thus, TDS is defined as a method of collecting Income Tax in India, covered in the provisions of the Income Tax Act of 1961. All the management of TDS is done by The Central Board for Direct Taxes (CBDT).

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Different Terms Covered in TDS:

What is the Applicability of TDS?

TDS applies to the various types of income received such as:

  • Salary
  • Commission
  • Brokerage
  • Royalty payments
  • Contract payments
  • Interest earned on several financial investments
  • Earnings from lotteries
  • Rent income and
  • Professional fees etc.

Thus, the basic purpose of TDS is to keep the revenue source stable for the govt. of India. And by following TDS rule, people cannot dodge their taxes.

Incomes on Which TDS is not collected?

There exist various sources and types of income that are not used for TDS purpose. Some of them are mentioned below:

  • The central or the state financial organizations receiving the interest
  • Establishments which are reported under no-TDS.
  • KVP, NSC or Indira Vikas Patra schemes earning interests.
  • NRE accounts earning interests.
  • KVP, NSC or Indira Vikas Patra schemes earning interests.
  • Interest received from Recurring Deposits or Savings Account opened in co-operative societies.
  • Interest grossed from Recurring Deposits or Savings Account opened in co-operative societies.
  • Earning interests from UTI, LIC and other insurance or co-operative societies.

Who is Deductor and Deductee in TDS?

  • TDS Deductor:

The company or person or an individual who makes the payment after deducting TDS is called a deductor.

  • TDS Deductee:

The company or person or an individual who receives the payment is called the deductee.

What is the TDS Certificate?

Every person or individual or you can say the deductor is required to mandatorily furnish a certificate to the supplier or the payee which acts as a proof that tax has been deducted laterally with certain additional particulars. And this proof acts as the TDS Certificate. Further, The TDS Certificate shall contain the following:

  • The value of the contract
  • The rate of deduction
  • The amount deducted as tax
  • Amount paid to the government and other particulars

What are the Exemption in TDS?

No Deduction of TDS shall be done if:

Same State or UT: The place of supplier and place of supply is in the same State or UT in which TDS is to take place. And it is different from the State or UT of registration of the recipient or beneficiary.

Value of the supply: It should be less than or up to Rs. 2.50 lakhs under a contract.

Claim TDS if Not eligible: If you think you are not eligible to pay TDS, then you can claim TDS by following certain steps:

  • By Form 13 you can Apply to the Income tax department/Assessing Officer (AO).
  • within a time of 30 days, the assessing officer will unload the applications
  • The taxpayers need to fill the details for the processing of Form 13.
  • certificate u/s 197 will be issued by the assessing officer if he is satisfied.
  • a copy of this certificate should be attached to the invoice of the customer.
  • The validity of TDS certificate is in the hands of the assessing officer, if he wishes to cancel TDS then he can do so.

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What is The Deduction of TDS?

TDS deduction @ 1{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} is deducted by the deductor. It is to be deducted from the payment that has to be made to the supplier.

However, TDS deductions are calculated based on the different factors for individuals from diverse types of income categories. These TDS rates are different in case of India residents and non-residents of India.

TDS Rates Applicable for Resident of India: The TDS Rate are also known as the TDS Chart that dignifies the TDS percentage levied on different categories.

  • For Payment of salary covered in Section 192: TDS Rate is as per the Income Tax Slab rate
  • For payment of the accumulated balance of provident fund which is taxable in the hands of an employee (with effect from 01.06.2015) covered in Section 192A: TDS Rate is 10{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39}
  • For Interest on securities covered in Section 193:
  1. Any debentures or securities for currency distributed by or on behalf of any local authority or a corporation established by a Central, State or Provincial Act: TDS Rate is 10{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39}
  2. Any debentures issued by a company where such debentures are listed on a recognized stock exchange by the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and any instructions made there-under: TDS Rate is 10{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39}
  3. Any security of the Central or State Government; TDS Rate is 10{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39}
  4. Interest on any other security: TDS Rate is 10{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39}
  • For Dividend other than the dividend as referred to in Section 115-O covered in Section 194: TDS Rate is 10{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39}
  • For Income by way of interest other than “Interest on securities” from banks and other sources covered in Section 194A: TDS Rate is 10{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39}
  • For Income by way of winnings from lotteries, crossword puzzles, card games and other games of any sort covered in Section 194B: TDS Rate is 30{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39}
  • For Income by way of winnings from horse races covered in Section 194BB: TDS Rate is 30{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39}
  • For Payment to contractor/sub-contractor covered in Section 194C:
  1. By HUF/Individuals: TDS Rate is 1{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39}
  2. By Others: TDS Rate is 2{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39}
  3. For Insurance commission covered in Section 194D: TDS Rate is 5{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39}
  4. For Payment in respect of life insurance policy covered in Section 194DA: TDS Rate is 1{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39}
  5. For Payment in respect of deposit under National Savings scheme covered in Section 194EE: TDS Rate is 10{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39}
  6. For Payment on account of repurchase of the unit by Mutual Fund or Unit Trust of India covered in Section 194F: TDS Rate is 20{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39}
  7. For Commission, etc., on sale of lottery tickets covered in Section 194G: TDS Rate is 5{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39}
  8. For Commission or brokerage covered in Section 194H: TDS Rate is 5{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39}
  9. For Rent covered in Section 194-I:
  10. Of Plant & Machinery: TDS Rate is 2{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39}
  11. Of Land or building or furniture or fitting: TDS Rate is 10{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39}
  12. For Payment on transfer of certain immovable property other than agricultural land covered in Section 194-IA: TDS Rate is 1{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39}
  13. For Payment of rent by individual or HUF not liable to tax audit Note: This provision is applicable from June 1, 2017, covered in Section 194-IB: TDS Rate is 5{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39}
  14. For Payment of monetary consideration under Joint Development Agreements covered in Section 194- IC: TDS Rate is 10{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39}
  15. For Any sum paid by way of Fee for professional services, Fee for technical services, Royalty,
  16.  Remuneration/fee/commission to a director, for not sharing any know-how, patent, copyright etc. covered in Section 194J: TDS Rate is 10{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39}
  17. For Payment of compensation on acquisition of certain immovable property covered in Section 194LA: TDS Rate is 10{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39}
  18. Certain income distributed by a business trust to its unit holder covered in Section 194LBA: TDS Rate is 10{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39}
  19. For Any Other Income: TDS Rate is 10{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39}

What is TDS Calculation?

Calculation of TDS depends on the kind of income; it means TDS for each income is calculated by different methods.

In this case, an individual or a person can file a return and claiming TDS refund. And some of the payments like the commission, salaries, interest payment, fees to lawyers and freelancers are also subjected to TDS.

What is TDS Return?

An individual need to file a TDS return to maintain the financial record and claim the TDS back. Important things to note down while filing TDS Return:

TDS Filed Quarterly and The Quarters are:

Quarters of TDS Period Range TDS Last date or TDS Due Date
1st Quarter 1st April to 30th June 31st Augus
1st Quarter 1st April to 30th June 31st August
2nd Quarter 1st July to 30th September 31st October
3rd Quarter 1st October to 31st December 31st January
4th Quarter 1st January to 31st Marc 31st May
  • There are TDS Due Dates for the Payment of TDS.
  • Some particulars required to file TDS returns are:
  1. PAN of the deductor person
  2. PAN of the deductee person
  3. The Total Amount of tax paid to the government
  4. TDS challan information
  5. Other documents if required
  • Tax Collection and Deduction Account Number (TAN) is required.

Other Common Things you Should Know about TDS:

When to deduct TDS?

TDS is deducted at the time of making a specific payment by a person or an individual. And no TDS will be deducted when an individual or HUF is making payment as their books are not required to be audited.

Why TDS is deducted?

TDS is deducted so that the tax is deposited to the government directly. TDS acts as a substitute for receiving tax on your income from you at a future date, the government deducts TDS in the name of tax from your income.

How does TDS work?

TDS is a type of tax that is paid by the payee directly to the government. TDS works on the concepts laid down by the Income tax department and the rules framed therein.

What is Challan TDS Payment?

Challan TDS is used for depositing TDS (Tax deducted at source) and TCS (Tax Collected at Source). TDS Challan is managed directly by the Central Board of Indirect Taxes. It was introduced in the year 2004.

Features of TDS Challan:

  • Objective to minimize human intervention
  • Reducing errors
  • Online transmission of details of tax collected, deposited, refunded etc.
  • Challan Identification Number (CIN) is issued
  • Separate Challan for each Nature

Process of Filing Challan ITNS 281:

There exist 2 methods for filing TDS Challan, the first one is through online and the second one is by offline.

Filing TDS Online Method:

Steps involved in filing TDS Challan Online:

  • Visit the tin-nsdl or onlineservices.tin.egov-nsdl.com
  • Select Challan No/ITNS 281.
  • Fill out the details asked or mentioned in the form.
  • Select the Deductee: You need to select the deductee that could be the 0020: Company deductees or 0021: Non-company deductees.
  • Select the AY (Assessment Year)
  • Select the Tax Deduction Account Number (TAN) which is a 10-digit alphanumeric number
  • Select the Type of payment: You need to select the type of payment that could be 200: For a regular transaction of TDS/ TCS or 400: if the payment is made for a petition elevated by the income tax authorities.
  • Select the Nature of Payment from the drop-down list.
  • Select the Details of Payment
  • click on submit to the bank
  • you will be redirected to the bank’s portal
  • When a transaction is successful
  • You will get a CIN No., payment details, and bank name.

Filing TDS Offline Method:

  • Visit a bank.
  • To submit a challan payment can be made via cash or cheque.
  • The bank will issue a counterfoil/ receipt which acts as a proof that TDS Challan has been paid.

How to Calculate TDS on Salary?

Companies can calculate TDS on salary by using the following method:

  • By Calculating the total earnings:

The total earning of an employee or an individual is calculated for the year including his perks, commission, bonus etc.

  • By Collecting his declaration:

Declaration from the employee or individual is asked about his investments. So, the company can collect proof of investment. As without declaration, no tax exemption or TDS exemption will be granted.

  • By Calculating the total amount eligible for tax exemption:

All the tax assumptions are to be considered. From the gross salary, all the allowable exemptions are Reduced. And based on tax slab, the employer deducts tax at source (TDS) aptly.

  • By Depositing the TDS collections:

The collected TDS is deposited with the central government, for which the employee can file TDS return and claim the TDS return as applicable.

Reimbursement of Expenses Related to TDS:

The following expenses are treated as taxable for the purpose of TDS:

  • Traveling overheads
  • Management expenditures to parent company
  • Infrastructure expenses
  • Reimbursement for visit of a foreign artist
  • Transfer expenses for employees
  • Administration expenses to parent company
  • Consultant fees

Benefits of TDS

Some of the TDS benefits are:

  • A consistent assortment of taxes
  • Safeguards a flow of steady income to the government
  • Lessens the liability of lump-sum tax payment.
  • Dissemination of the entire tax payment over a number of months i.e. quarters of TDS, that indirectly helps the taxpayer in reducing the burden
  • Tranquil manner of tax payment is offered to the TDS payer.

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