Tax Deduction at Source

Tax Deduction at Source is a specific amount to be deducted when a certain payment like commission, rent, salary, professional fees, etc is made. The person who is paying TDS, while the person who is getting that TDS has the ability to pay tax. It reduces tax evasion.

In the Union Budget for financial year 2023-24, Finance Minister Nirmala Sitharaman announces dividend payment to REIT and Infrastructural investment trust will get exemption from Tax Deducted at Source. Aims at increasing compliance to follow tax laws. A proposal was also made to take advance tax liability on dividend income after the payment or declaration of a dividend has been made.

For example : Let’s assume that the Start-up company pays Rs 90,000 rent each month. TDS applicable on the same is 10%, so that company has to deduct Rs 9000 from the rent and pay Rs 81000 as rent.
The owner can add the gross amount of Rs.90,000 to his income, thereby allowing him to take credit for the Rs.9,000 that has already been deducted by the company.

Scenarios in which TDS gets deducted :

If you are making any type of payment under the Income Tax Act, TDS gets deducted. However, no TDS gets deducted being an individual or part of Hindu Undivided Family (HUF), and your books are not required to be audited.

In case of making rent, payment being an individual or HUF, amount payable exceeds Rs 50,000, then a TDS will be deducted even if the books are not liable for any tax audits. TDS at 5% will be deducted. You will not be required to apply for a Tax Deduction Account Number (TAN) if you are liable to have TDS deducted at 5%.

If you are a working professional then your employer will deduct TDS as per the applicable income tax slab rates. The bank with whom you hold a working account will deduct TDS at 10%. In case, the individual is not having PAN, TDS applicable will be 20%.

How to exempt TDS deduction :

  • To avoid TDS deduction, you can also submit Form 15G and Form 15H to the bank, if the total taxable income is less than total taxable limit.
  • You will not be required to pay any tax if you submit your investment proofs to your employer and your total income that can be taxed is below the total taxable threshold. Thus, no TDS will be deducted in this case

TDS Types :

Here are some of the income sources that qualify for TDS:

  • Salary
  • Amount under LIC
  • Remuneration paid to the director of a company, etc
  • Insurance Commission
  • Commission payments
  • Interest apart from interest on securities
  • Winning from games like a crossword puzzle, card, lottery, etc.
  • Deemed Dividend
  • Payment of rent
  • Bank Interest
  • Brokerage or Commission
  • Compensation on acquiring immovable property
  • Contractor payments
  • Interest on securities
  • Transfer of immovable property

TDS Certificate Types :

The TDS certificate are mainly of two types:

Form 16 : Offered to salaried employees, employers shared with them Form 16 reflecting details such as such as the computation of tax, the deduction of tax, and the payment of TDS. It is issued before 31st May.

Form 16A: It is issued to non-salaried class reflectingall the details concerning the computation of tax, the deduction of TDS, and payments.

Benefits of TDS :

  • Compliance of tax laws
  • TDS is a proof of steady source of revenue for the government
  • It is much more convenient for the deductee as the tax amount payable is automatically deducted.

The Process to file TDS Return online :

  • Must be having valid TAN duly registered for e-filing.
  • Get ready your TDS statements using return preparation utility software.
  • Must be having a valid digital signature certificate as if you want to upload your returns using DSC.
  • Submission of demat account and bank account details of your principal contact. Also ensuring that PAN is linked with his Aadhaar in case you want to upload your return using electronic verification code.

Penalties for late filing :

  • Failure on submission of TDS, a penalty of Rs 100 per day will be levied as per the Section 272(2) of the Income Tax Act subject to a maximum of the TDS amount.
  • Failure on filing of return, a penalty of Rs 200 will be levied per day under Section 234E of the Income Tax Act subject to a maximum of the TDS amount.
  • Under Section 271H of the Income Tax Act, a penalty of Rs.10,000 to Rs.1 lakh will be levied in case the deductor defaults at the time of filing TDS return within the due date.
  • In case of non-payment of TDS under Section 201A of the Income Tax Act, interest levied along with the penalty. The interest will be charged at 1.5% every month starting from the date on which the tax was deductible to the date on which the tax is actually deducted.

How to check Tax Deduction Status :

  • Log on to the official website of Income Tax Department enter your user ID and password
  • After that, click on 'My Accounts' tab to view your Form 26AS.
  • Choose the relevant financial year and PDF format to download the file.
  • The file you will be downloading is always password protected. The password for the same will be the date of birth mentioned on your PAN. For example, if your date of birth is 5 March 2000 then the password will be 05032000.
  • You can then view all the details related to the TDS deduction.
  • You can use your bank's net banking facility to check whether your TDS has been deducted provided your PAN is linked to it.

Frequently Asked Questions

  • Who is eligible for TDS deduction?
    Any person who is taxable on their income will be eligible for TDS deduction.
  • What is the use of TDS challan?
    TDS challan is mainly used for depositing the tax deducted at source (TDS) with the government.
  • Is PAN required for payment of TDS?
    Yes, the details of your PAN are necessary for the payment of TDS.
  • Is TDS required to be paid only by salaried individuals?
    Any individual with annual income of over Rs.2.5 lakh will have to pay taxes. Hence TDS is required not only to be paid by salaried people but self-employed individuals as well.