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All ABout TDS - Meaning, Rates & Refund

What is TDS - Meaning, Rates, Calculation & Refund

17 Jan 2019
80 Views

As you complete your education and move into the workforce, it is important to remain aware of the various forms of taxation on your salary. Regardless of your profession and interests, understanding the taxation system and how it affects your earnings is paramount.

Among the many forms of taxation implemented by the Government, TDS is one of the important ones to understand. This is essential for every stratum of employees - from freshmen to veterans.

So, what does TDS means?

The TDS full form is Tax Deducted at Source (TDS). The system was introduced by the Income Tax Department of India. In this, people who are responsible for making payments like salary, commission, professional fees, interest, or rent are liable to deduct a specified percent of tax before making the full payment. In simple words, the system allows tax deduction right at the source.

To understand the TDS better, consider the following example.

Assume that the nature of payment is professional fees on which the rate specified for TDS is 10 percent. An ABC organisation pays INR 50,000 as professional fees to Ms XYZ. In this case, the ABC organisation is liable to deduct INR 5000 and make a net payment of INR 45,000 to Ms XYZ. The INR 5000 deducted by the company will be deposited directly to the credit of the government.

What is A TDS Certificate?

A TDS certificate is a document issued by the deductor to the deductee. Here, the deductor is someone who deducts tax at the source of the payment, while the deductee is the person who receives the tax-deducted payment.

However, there are two types of TDS certificates issued by the deductor -

  1. Form 16: It is issued by an employer to all its employees, incorporating details of the tax deductions made by the employer in the given financial year.

  2. Form 16A: It is issued in all other cases besides salary.

To under these two certificates, consider the following example -

  • Mr Hemant works as a salaried employee at a reputed company in Mumbai. The tax deductions of his salary are at 15 percent. The company will thus provide him with Form 16 describing the amount of salary paid to him and the tax deducted on it.

  • In another case, if Mr Hemant was a working professional who receives professional fees from a company which is subjected to TDS, then he will be provided with Form 16A.

What are The Rates of TDS?

Around 20-25 sections propose different payment types on which the tax is deducted at the source. However, here we have mentioned some of the most commonly used payment types and the percentage of tax deducted on them at the source.

Section

Nature of payment

Rate of TDS

192

Salary

15%

(Education and higher education cess @ 2% & 1% respectively in cases where salary exceeds INR 1 crore)

194

Deemed Dividend u/s 2(22)(e)

10%

194A

Interest other than interest on securities

10%

194C

Payment or credit to a resident contractor/sub-contractor

1% (in cases of individuals and HUF)

2% (in cases of a person other than individual or HUF)

194D

Insurance Commission

5% (in cases of individuals and HUF)

10% (in cases of a person other than individual or HUF)

194G

Commission on sale of lottery tickets

10%

194H

Commission or Brokerage

10%

194-I

Rent

2% (rent of plant & machinery)

10% (rent of land or building or furniture or fixtures)

194-IA

Payment/credit of consideration to a resident transferor for transfer of any immovable property (other than rural agricultural land)

1%

194J

Professional fees, technical fees, royalty or remuneration to a director

10%

194LA

Payment of compensation on acquisition of certain immovable property

10%

How to Calculate TDS?

Calculating TDS can be a tedious task under a few sections. However, to help you understand how TDS is calculated, consider this example.

Under Section 194A, the tax should be deducted on the payment of interest (other than interest on securities). However, no tax is deducted in case of –

  • The interest paid is less than INR 10,000 for a banking company, co-operative society engaged in the business of banking and post office deposits

  • The interest paid is INR 5000 in any other cases

Also, no tax is deducted for savings account interest.

So, based on the above information, here are a few scenarios.

 

Interest Paid

Amount Credited As Interest

Tax To Be Deducted

Scenario 1

For a Banking company, co-operative society engaged in the business of banking and post office deposits

INR 9000

Nil.

Scenario 2

For a Banking company, co-operative society engaged in the business of banking and post office deposits

INR 12,000

At 10% - TDS of INR 1200

Scenario 3

In any other cases

 

INR 4000

Nil.

Scenario 4

In any other cases

 

INR 8000

At 10% - TDS of INR 800

What are The Due Dates for TDS?

The due dates for TDS payments every month as per the financial year are as follows -

Month

The due date for payment of TDS

April

7th of May

May

7th of June

June

7th of July

July

7th of August

August

7th of September

September

7th of October

October

7th of November

November

7th of December

December

7th of January

January

7th of February

February

7th of March

March

30th of April

Different Forms Prescribed for TDS Returns

The following table will give you a brief idea about the various forms along with its significance.

Form

Significance

Form 24Q

Deductions made in a salaried case

Form 26Q

Deductions made in the non-salaried case

Form 27Q

Deductions made in the case of NRIs

Now that you know the different forms available for TDS returns, the following table showcases the quarterly distribution of the dues dates of the various forms.

Quarterly Distribution

Form 24Q & Form 26Q

Form 27Q

April to June

15 July

15 July

July to September

15 October

15 October

October to December

15 January

15 January

January to March

15 May

15 May

What are Penalty Provisions for Non-Deduction of TDS?

Some of the instances where penalty, interest, and fees are imposed on non-deduction of TDS are explained below -

  1. In case of non-deduction of TDS: If the deductor fails to deduct tax at the source, then the assessing authority can disallow the entire expenditure for ascertaining taxable profits.

  2. In case of late TDS deductions: It is necessary to deduct tax at the time of payment. So, in case there is a delay in income tax deduction by the deductor, then they will have to pay interest at 1 percent per month of the TDS amount.

  3. In case of late payment of TDS: After deducted tax, the amount needs to be paid to the credit of the government. This needs to be done on the 7th day of every succeeding month. Failing to do so will attract interest at 1.5 percent of the total TDS amount.

  4. In case of late filing of return of TDS: You should file TDS returns in the last month of the following quarters - May 31, July 31, October 31, and January 31. Failing to do so will cost you INR 200 per day subject to the maximum amount of TDS under Section 234E.

  5. Penalty for filing TDS returns late: If you fail to file your TDS returns before the due dates, you will be liable to pay a minimum penalty of INR 10,000 which may extend to INR 1 lakh.

How to Apply for TDS Refund?

It is often miscommunicated that the TDS refund is altogether a different process from the income tax refund. However, to set the facts straight, there is only a single kind of return which you file annually known as the income tax return. So, if more TDS is deducted, the claim can be made when filing the ITR.

What is Applicability of TDS on Transactions of Immovable Property?

The following sections prescribe tax deductions on transactions of immovable property.

  1. Section 194-I: Here, TDS is deducted on the rental income at 10 percent for rent on land and building if the total annual TDS amount is more than INR 1.8 lakh.

  2. Section 194IA: TDS is deducted at 1 percent of the consideration for immovable property (other than agricultural land), only if the consideration amount is more than INR 50 lakh.

  3. Section 194LA: TDS is deducted at 10 percent for payments made as compensation on account of compulsory acquisition of immovable property if the total amount is more than INR 2.5 lakh.

Conclusion

Now that you’ve understood the TDS meaning in its entirety, it’s also essential to note how you can help reduce your tax liability. There are a variety of exemptions and deductions available that can help reduce your tax outgo.

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FAQs

  • ✔️What are the advantages of TDS?

    The TDS deducted is beneficial for both you as well the government. The major benefit of TDS deduction for you (the deductee) is the convenience that it offers, as a certain amount of tax is deducted automatically. The government, on the other hand, benefits as follows - • It provides a stable source of revenue to the government • The Tax Collection base widens • The tax collection efforts for the authorities is reduced

  • ✔️What is a TAN and how can I apply for it?

    The Tax Deduction Account Number (TAN) is a ten-digit alphanumeric number. It should be obtained by all individuals liable for deducting or collecting tax. For all the TDS returns, it is mandatory to represent TAN allotted by the Income Tax Department under Section 203A of the Income Tax Act. Applying for a TAN is quite straightforward. The process can be done online by filling Form 49B available on the National Securities Depository Limited (NSDL) website.

  • ✔️How can I know the TDS amount is deducted?

    The deductor or the employer will give you the TDS certificates. These documentations will have the TDS amount that is deducted.

  • ✔️Will I face penalties if my employer fails to deduct TDS?

    No. The deductor, or in this case your employer, is responsible for any TDS incidents. It is their responsibility to collect TDS and submit the same to the government.

  • ✔️How can I know that the TDS amount deducted is credited to the government?

    There is a form 26AS available on the website of the Income Tax Department of India. It provides you with the information of whether or not the TDS deducted from your payment is credited to the government under your name.