What is Tax Deducted at Source?

Tax Deducted at Source (TDS) is a major concept in the Indian taxation system and refers to the deduction of income tax at the source of the income. It means that the deductor (can be the employer, company, or a bank) deducts the applicable income tax from the rent, fee, interest, payment or salary of the deductee or the employee. The TDS is immediately deposited with the Income Tax department of the central government.

TDS is applicable to different types of incomes, including salary, rent, interest, and consultation or professional fees. The taxes are deducted at the applicable rates when the income is above the prescribed exemption limit. TDS is guided by the Income Tax Act, 1961, and there are strict rules for its compliance and penalties for non-compliance. It is the deductor’s responsibility to deduct the tax at the source, and any delay or failure can result in a penalty.

The TDS can be deposited by the deductor either through the prescribed online methods or offline by submitting challans at a bank branch. There is a scope to claim a refund, possibly after the end of the financial year, if you find that excess tax has been deducted from you.

Rate of TDS

The rate at which the TDS is deducted varies with the type of income. To better understand the rate of TDS for different types of incomes, here is a table that explains it in detail.

Is TDS Mandatory?

TDS is mandatory under Indian law if the deductee is liable for it. However, the burden lies on the deductor to ensure that the TDS is deducted on time and deposited with the Income Tax department of the central government. The TDS is mainly deducted on a monthly basis (or when the payment is made to the deductee), and the deductor has to mandatorily deposit the TDS with the Income Tax department by the seventh of next month. For instance, the TDS for January must be deposited with the government by or before February 7. However, if the amount is paid or credited in the month of March (the end of the financial year), the TDS can be deposited on or before April 30. Any delay in depositing the TDS can make the deductor liable for a fine or penalty. The Income Tax Act, 1961, provides the rules and regulations for TDS on different types of income.

How to Deposit TDS?

TDS can be deposited with the government through either an online process by visiting the official website of the Income Tax department and following the due course, or through an offline process by visiting the bank.

Depositing TDS Online Without Login

1. Go to www.incometax.gov.in and click e-Pay Tax.
2. Once on the e-Pat Tax page, fill in the required details and click Continue.
3. You will now reach the OTP Verification page. You will have to enter the 6-digit OTP that you will receive on the mobile number entered in Step 2. Click Continue.
4. Once OTP is verified, you will receive a success message which will display your PAN/TAN and masked name. Click Continue.
5. Enter the tax payment category and click Proceed.
6. Select the Assessment Year, Minor head, other details, and click Continue.
7. Add the breakup of the total amount of tax payment and click Continue
8. Select your Payment Gateway and click Continue.
9. Verify the details and tax break-up details, and click Pay Now.
10. Read and accept the terms and conditions and click Submit to Bank.

Depositing TDS Online With Login

1. Go to www.incometax.gov.in and click on Login. Then enter your User ID and Password.
2. Click on e-File and then go to e-Pay Tax. Once you are directed to the e-Pay Tax page, click the New Payment.
3. Select the applicable tax payment tile and click Proceed.
4. Select the Assessment Year, Minor head, other details (as applicable) and click Continue.
5. Add the breakup of the total amount of tax payment and click Continue
6. Select Payment Gateway mode and click Continue.
7. Verify the details and tax break-up details, and click Pay Now.
8. Read and accept the terms and conditions and click Submit to Bank.

Depositing TDS Offline via Bank

1. The deductor has to download the TDS challan 28.
2. Fill in the details of the challan and take a printout.
3. Submit the challan and the TDS amount at the bank by cash or cheque.
4. You will be given a receipt as proof of submission.

Why is TAN Important for TDS?

TAN is the abbreviated form of Tax Deduction Account Number, which is a 10-digit alphanumeric code issued by the Income Tax Department. This number is mandatory for all persons who are responsible for deducting TDS. It is mandatory under law to quote TAN in challans for payment of TDS, and TDS statements and certificates. The person responsible for deducting TDS can face a penalty of ₹10,000 if he or she fails to quote the TAN or quotes an incorrect TAN.

Conclusion

TDS is an important and mandatory taxation process that makes it binding on the deductor to deduct the income tax on several types of notified incomes and deposit it with the central government within the stipulated time period. The failure to comply with the rules and regulations of TDS can result in fines, penalties and prosecution. It is therefore crucial to understand the processes and legalities that guide the TDS.

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