What is TDS

What is TDS? All You Need to Know About TDS Rates, Amount & More

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17 Jan 2019
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What is TDS?

The income tax is a direct tax levied on your income depending on which tax bracket you fall in. As per the Indian tax system, TDS or Tax Deducted at Source is an important taxation term and has a great significance on taxpayers. According to the concept of TDS, a person (deductor) who is liable to make payment to any other person (deductee) shall deduct tax at source and remit the same amount into the account of the central government. In other words, TDS is a means of collecting income tax by the government and is convenient to the deductee as it is automatically deducted.

What is TDS in Income Tax?

For those who aren’t aware of TDS meaning and wonder ‘What is TDS’, it is the income tax deducted from the amount during a specific payment. According to the Income Tax Act of India, 1961, every individual or organisation is liable to pay the tax if their income is above the set limit. TDS is applicable to multiple types of payments, like salary, earned commission, rent, interest payment by banks, professional or consultant fees, etc.

TDS was introduced with an aim to collect tax from the very source of income. Usually, the person receiving such income is liable to pay the income tax. The recipient receives the total amount after the TDS deduction. The gross amount is added to his/her income and the TDS is adjusted for his/her final tax liability. The overall TDS can be claimed as a tax refund after the taxpayer files his/her Income Tax Return.

When is TDS Deduction Applicable?

A TDS deduction is applicable when the taxpayer either gets the payment in parts or receives the entire payment at once. Let’s understand the application of TDS through examples.

Let’s assume Mr. Satish is a self-employed professional who received ₹40,000 in advance for his work and ₹20,000 after completing his work. In this case, the payee will deduct TDS from the advance and from the amount received after completion of work. Here, the TDS rates will be 10% of the amount, i.e. ₹4,000, and 10% of ₹20,000, i.e. ₹2,000. The total amount of payable tax will be ₹6,000.

In another scenario, if Mr Satish receives the complete payment of ₹60,000 after completing his work, he will be taxed ₹6,000 from the total amount by his payee, earning him a total of ₹54,000 for his work.

How to Know the Deducted TDS Amount?

The TDS amount can be found out in a simple online process; by using Form 26AS on the income tax portal. It is a tax credit statement that has a detailed report of TDS deducted during a financial year. Here is a look at the step by step guide to know the deducted TDS amount.

 

  1. Go to the official website of the Income Tax Department of India and select the option to register as a new user.

  2. Enter the required details like your PAN number and generate your password.

  3. Login using the registered ID and password.

  4. Select the option to view your tax credit statement or Form 26AS.

  5. You will be redirected to a new page for TDS Reconciliation Analysis and Correction Enabling System. This page will show all the details of a taxpayer’s tax liabilities including the Tax Deducted at Source, advance tax paid and other relevant information.

What are TDS Rates?

The Indian tax system has several sections under which different types of payments are governed for TDS. Here is a look at the TDS rate chart for some common types of payments.

Section

Payment Type

TDS Rates (in %)

Sec 192

TDS on Salary Income

No specific rate of TDS on salary

(Average rate of TDS is calculated on the basis of existing slab rate in force)

Sec 194

TDS on Dividend u/s 2(22)

10%

Sec 194 A

TDS in Interest Income (other than that on securities)

10%

Sec 194 C

TDS on Payment/ credit to a resident contractor or sub-contractor

1% (for HUF and individuals)

2% (for others)

Sec 194 D

TDS on Insurance Commission

5% (for HUF and individuals)

10% (for others)

Sec 194G

TDS on Commission on sale of lottery tickets

10%

Sec 194H

TDS on Commission or Brokerage

5%

Sec 194-I

TDS on rent Income received

2% (from plant, machinery or equipment)

10% (from furniture or fixtures, land and building)

Sec 194- IA

TDS on Transfer of any immovable property (other than rural land)

1%

Sec 194 J

TDS on Royalty, technical or Professional fees or remuneration to a director

10%

Sec 194LA

TDS on Acquisition of any specific immovable property

10%

Section 194N

TDS on Cash withdrawal

2% (exceeding Rs. 20 lakh)

5% (exceeding Rs. 1 crore)

How Does TDS Online Payment Work?

All the corporate and government deductors of tax and other assessees who fall in the mandatory audit under Section 44B are required to use electronic transfer to pay the TDS. To use this facility, the taxpayer needs to have a net banking account with an authorised bank. The online payment of TDS is a simple and user-friendly process that can be completed with the help of the following steps.

 

  1. Log in to http://www.tin-nsdl.com > Services > e-payment : Pay Taxes Online. Click on the ‘E-Pay Taxes’ tab.

  2. Select the challan number ITNS 281 that is used for paying TDS/TCS by a company or non-company deductee.

  3. Enter the required credentials like PAN/TAN, address of the taxpayer and the bank through which the TDS online payment is to be made.

  4. After successfully filling up the data, a confirmation screen will be displayed. If the PAN/TAN details are valid according to the ITD PAN/TAN master, the full name of the taxpayer will be displayed on the confirmation screen.

  5. After the confirmation, you will be redirected to the net banking site of the bank.

  6. You will then have to log in using the net banking user ID /password provided by the bank and enter the required payment details

  7. After this successful payment is done, a challan counterfoil will be displayed on your screen containing the CIN – Challan Identification Number. It has the payment details, the bank through which the payment has been made, Bank Branch Code (BSR) and date of tender of challan. It acts as proof of the payment made.

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FAQs

  • ✔️What is TDS and how is it deducted?

    TDS is Tax Deducted at Source. It is a type of income tax that is reduced from the amount paid at the time of making a certain payment. As per the concept of TDS, a person (deductor) who is liable to make payment to any other person (deductee) shall deduct tax at the very source and remit the deducted amount into the account of the central government.

  • ✔️Who is eligible for TDS?

    Any individual making a payment mentioned under the Income Tax Act becomes eligible for the TDS deduction at the time of payment.

  • ✔️Can I get a TDS refund?

    Yes. You can get a TDS refund from the government in case the TDS collected is more than what you owe to the government.

  • ✔️How can I save TDS on bank fixed deposits?

    To save TDS on your bank fixed deposit, you will have to submit Form 15G/15H. It is a self-declaration form that says your income is below the exempted limit.

  • ✔️How can I check if TDS is deposited with the government?

    You can check if the TDS is deposited with the government or not in your Form 26AS. If the amount is deducted, it will be reflected in your Form 26AS. The deductor is also required to issue a TDS certificate to you.