Types of TDS

What Is Meant by TDS?

As per the ITA or Income Tax Act, any individual earning above a certain threshold is required to deduct tax at source as TDS (Tax Deducted at Source). The Income Tax Department has prescribed certain rates as per which TDS is deducted for differently salaried individuals. The person or company that makes a payment after deducting tax as TDS is known as the ‘deductor’. The company or individual receiving the payment with TDS is referred to as the ‘deductee.’

The deductor is responsible to ensure they subtract TDS from the deductee’s salary if the latter is eligible for TDS. This amount is then deposited with the Government. Irrespective of how one is paid  – cheque, credit, cash – and is linked to the PAN card of the deductee and deductor. Your employer is required to deduct TDS as per the applicable income tax slab rates. Typically, banks deduct TDS at 10%. In cases where the deductee’s PAN information is not available, an employer may deduct TDS at 20%.

Places Where TDS Is Deducted Are:

•  Salary
• Amount that is kept under LIC
• Bank Interest
• Deemed Dividend
• Brokerage or Commission
• Commission payments
• Compensation on an immovable property that is acquired
• Contractor payments
• Insurance Commission
• Interest on securities
• Interest other than the interest on securities
• Payment of rent
• Remuneration that is paid to a director of a company
• Immovable property that is transferred
• The awards won from games such as crossword puzzles, cards, or lottery.

Do note that as per the Income Tax Act, individuals who pay rent or make payments to professionals like lawyers and doctors are not required to deduct TDS. TDS is once again not applicable if the person behind the payment is an individual or HUF whose books, in one way or another, are not required to be audited.

If an individual submits their investment proofs (to claim tax deductions) to their employer and their gross taxable income is under the taxable limit  –  they are not required to pay TDS. In the case of one’s bank, simply submitting Form 15H and Form 15G to your bank will allow you to prove that your total taxable income is below the TDS threshold. No tax will be deducted when you receive interest on your income. In case, these forms and investment proof are not submitted to the respective parties in advance, a TDS return can be filed to claim your tax returns.

When Is TDS Due for Depositing with the Government?

TDS is required to be deposited to the government by the 7th of each subsequent month post deduction. Take for example, that you deduct TDS towards a payment in May. It must be deposited to the government by the 7th of June. There are some exceptions to his rule.

One exception is that when TDS is deducted in March, it is due for depositing with the government by April 30th. Another exception is TDS deducted on purchasing property or paying rent. In these cases, the due date for deposition is an additional 30 days from the last day of the month in which the tax was deducted. TDS must be deposited on the government portal using the Challan ITNS-281.

What Is TDS Return?

The basic TDS meaning is tax paid in advance. The idea behind it is that it is periodically deposited with the government and the responsibility for doing so rests with the deductor. For those whose tax has been deducted –  the deductee – the gross amount must be reclaimed as a tax refund after each deductee files their Income Tax Returns around the end of the financial year. This is known as one’s TDS return. However, it is not just filed once a year but mandatorily has to be filed quarterly.

When filing TDS returns, various details need to be provided such as the amount of TDS deducted, PAN of deductee, TAN, type of payment, etc. There are different forms for TDS returns depending on the purpose of the TDS. Here are all the types of TDS return forms:

What is Form 26AS?

It is essential to understand how TDS and your PAN are linked. Deductions of TDS are linked to PAN in the case of the deductor as well as the deductee. If any part of your income has TDS charged on it, you are required to go through Form 26AS for Tax Credit. This form is an integrated tax statement that is provided to all individuals who have PAN. All TDS is linked up with an individual’s PAN. So, this form states the details of TDS on income by different deductors. It does not matter whether these payments are part of your salary, or interest that you earn. All the TDS that is connected to your PAN is disclosed here. Form 26AS also has a record of the income tax that has been paid by you directly, whether it is self-assessment tax or advance tax.  This is precisely why it is so essential for you to enter your PAN details correctly, whenever your income is subjected to TDS.

What Is a TDS Certificate?

Since we know what TDS (tax deducted at source) returns are for, it’s important to note that they are only applicable when a TDS certificate was issued. A TDS certificate must be issued by the deductor towards the deductee as proof of tax deducted. Here are all TDS certificates issued by the deductor towards the deductee depending on the type of TDS deducted.

If you are a salaried individual, you will receive Form 16 from your employer which details the TDS deducted on your salary during the year and submitted to the government. You can also check Form 26AS on the Income Tax website to find out TDS deducted by your employer or clients on your income. For commission payments, consultation fees and interest payments, you will receive a TDS certificate from the deductor.

Applicable TDS Rates for Different Types of Payments

TDS is only applicable if payment exceeds a certain level 

The Income Tax Act, 1961 has prescribed a threshold limit for TDS (tax deducted at source). If the payment is below the threshold, there is no requirement for deducting TDS. Below are a few types and their applicable threshold as per the Income tax website. This table will help you learn about different types of TDS threshold limits and understand how tax deductions at source work.

The income tax department has started notifying taxpayers through SMS. The SMS states the amount that has been deducted as TDS against the taxpayer’s PAN. The taxpayers can themselves cross-check the information that the SMS provides on TDS with the information provided on their payslips to ensure that they are matching.

Are There Any Times When TDS Is Not Applicable?

Yes, there are times when TDS (tax deducted at source) is not applicable. As stated above, TDS is not deducted for an individual or HUF whose books are not required to be audited, unless they pay rent of above ₹50,000 per month. TDS is also only applied above a certain level.

TDS (tax deducted at source) on eligible transactions are deducted only in the instance that the payment amount crosses the appropriate threshold level. There will be no deduction of TDS if the value does not surpass the specified limit. Different types of payments have different threshold levels that are specific to them. For example, no TDS is applicable on the interest one receives on fixed deposits from a single bank if the total amount does not cross ₹10,000 per year from that bank.

Tax Liability When TDS Has Already Been Applied

TDS from salaries are based on the income tax slab that is applicable for a person. For other types of incomes, TDS rates are specified and range from 10% to 20%. These rates are not calculated based on an individual’s total income. This is why people suffer a TDS in some cases on their receipts.

A person’s actual tax liability is calculated on their total taxable income. Based on taxes calculated, an individual can apply for credit on the deducted TDS on different receipts. You have to subtract the TDS from the actual tax liability to calculate the amount you have to pay to the income tax department. You might even get a refund.

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FAQs:

Is the payee (receiver of the payment) liable if the payer does not deduct TDS?

No, the payee is not responsible for the actions of the payer. However, that does not relieve the payee from applicable income tax on his taxable income.

What are the duties of the deductor?

One who deducts TDS before making payment to another person has to follow the following steps and rules:

– Obtain a Tax Deduction Account Number from the tax department and quote the same in all documents
– Deduct TDS at applicable rates
– Pay the TDS deducted by the due date to the government
– File the periodic TDS statements by due date
– Issue TDS certificate or Form 16 to the payee by due date

How does the payee find out whether TDS is being paid to the government by the payer?

You can ask the payer to furnish a TDS certificate or check Form 26AS from your e-filing account at https://incometaxindiaefiling.gov.in or use the “View Your Tax Credit” at www.incometaxindia.gov.in

What happens if I don’t furnish my PAN to the payer?

If you don’t furnish your PAN number, the payer may deduct tax at the rate of 20% or other rates in force which is higher than the applicable rate.

Can I claim TDS while filing my taxes if I have not received a TDS certificate?

Yes, you can still claim TDS if you have not received a TDS certificate from the payer. You can refer to Form 26AS to ascertain the amount of tax deducted from the payment received by you.