Tax Deduction At Source: Meaning and Types

Tax deducted at source by a designated deductor while paying any bill is referred to as TDS. It is applicable to all forms of income and is paid to the Indian Central Government. There are 27 sections under TDS, each with a particular deduction provision and an exemption threshold.

What is the Meaning of Tax Deduction at Source (TDS)?

In India, tax is collected on income, dividends, and asset sales through tax deduction at source (TDS), which mandates that the payer (or legal intermediary) subtract any taxes owed before sending the remainder to the payee (and the tax to the revenue authority).

According to the Indian Income Tax Act of 1961, income tax must be withheld at the source in accordance with its rules. Any payment covered by these rules must be made after a certain percentage of income tax has been withheld. It belongs to the Department of Revenue, which is overseen by the Indian Revenue Service, and is controlled by the Central Board for Direct Taxes (CBDT). When conducting tax audits, it is extremely important.

Types of TDS

There are several payments that you must deduct TDS from even if you are an individual taxpayer. The following payments are subject to TDS −

• Salary Transfer

• Professional Fee

• Consultation Fee

• Rent Payments

• Commission

• Interest on Securities & Deposits

• Dividend on company shares and mutual funds

• Lottery and similar winnings

• Payment of royalty

TDS Return

Over the course of the year, you pay other parties for their services. You are required to deduct the appropriate TDS amount if the payments to one party exceed the limit for payments made in accordance with sections 192 to 195 of the Indian Income Tax Act.

You must deposit the TDS amount that has been withheld each quarter along with the corresponding TDS return. Each quarter, you must submit a different TDS form known as a TDS Return depending on the type of payment (relevant part).

Applicability of TDS

If the taxpayer receives the money in installments or all at once, a TDS deduction is applicable. Let's use examples to better comprehend its applicability.

• Assume Mr. Satish is a self-employed professional who received Rs. 40,000 up front and Rs. 20,000 when his work was finished. In this scenario, both the advance and the amount received when the work is finished will have tax deducted at source and subtracted by the payee on the advance and the amount received when the work is finished will have tax deducted at source and subtracted by the payee. The TDS rates in this case will be 10% of the sum, or Rs. 4,000, and 10% of Rs. 20,000, or Rs. The entire amount of tax that must be paid is Rs. 4,000.

In a different scenario, if Mr. Satish is paid the full amount of Rs. 60,000 after finishing his work, his payee will deduct Rs. 6,000 in taxes from the total sum, giving him a salary of Rs. 54,000 for his work.

What is TDS Certificate?

TDS Certifications come in Form 16 and Form 16A varieties. According to Section 203 of the Income Tax Act of 1961, the deductee must receive a certificate outlining the amount that has been deducted as tax. It is the deductor's responsibility to give the deductee this form.

• For employees who are paid a salary, their employers must give them a Form 16 that includes a statement of the TDS deductions that have been made. Many pieces of information, including the tax computation, tax deduction, and TDS payment, are included in Form 16. Before the end of the next fiscal year on May 31, employers must provide this form to their staff.

• For non-salaried class − The deductor gives the deductee Form 16A, which includes all the information on tax computation, TDS deduction, and payments.

Rules for TDS

There are regulations governing the filing of TDS as well as income tax returns. An individual or organization can avoid penalties, fees, or interest if they effectively comply with certain requirements. The following are the key TDS regulations −

• One of the first fundamental criteria is that tax deducted at source must be withheld at the sooner of the time the payment becomes due or the time the actual amount is paid.

• Interest will accrue at a rate of 1% each month until the TDS is deducted.

• On the 7th day of the next month, everyone, including employers, must credit the tax withheld to the government's account.

• If TDS is not deposited on time or is paid late, interest will be assessed at a rate of 1.5% per month.

Penalty for Late Filing TDS Return

The Income Tax Department imposes the following penalties for failure to submit or delays in submitting your TDS return or statements −

• Failure to file returns − In accordance with Section 272A (2) of the Income Tax Act, there is a penalty of Rs. 100 assessed for each day that returns are not filed, up to the TDS amount.

• Failure to file returns on time − According to Section 234E of the Income Tax Act, there is a fine of Rs. 200 assessed for each day that returns are not filed, up to the TDS amount in total.

• According to Section 271H of the Income Tax Act, a penalty of between Rs. 10,000 and Rs. 1 lakh shall be assessed in the event that the deductor fails to file the TDS return by the deadline.

• According to Section 201A of the Income Tax Act, if TDS is not paid by the deadline, a penalty and interest will also be assessed. If any portion or all of the tax is not deducted at source, interest will be assessed at a rate of 1.5% per month starting on the date the tax was deducted until the date the tax is actually deducted.

Conclusion

To collect tax from the very source of income, the TDS concept was introduced. According to this idea, a person (deductor) who is required to make a payment of a specific sort to another person (deductee) must withhold tax at source and deposit it into the Central Government's account.

Frequently Asked Questions

Q1. Who is eligible for TDS deduction?

Ans. TDS is only subtracted if your entire income is taxable. However, if your total income is less than Rs. 2,50,000, TDS will not be taken into account. This figure applies to both men and women under the age of 60. Note: TDS deduction rates for salaries range from 5% to 30%, which corresponds to the relevant income tax slabs.

Q2. Is TDS refundable on salary?

Ans. In the event of an excessive tax at source deduction, the deductor may request a refund of the excessive TDS.

Q3. What is TDS limit?

Ans. If the credit to a contractor under TDS Section 194C is less than INR 1,00,000 in total for a fiscal year and the single transaction threshold, the TDS will not be deducted.

Q4. What is TDS and how it is deducted?

Ans. TDS is the amount of tax that is withheld from the employee by the employer or other deductor and deposited to the income tax department on the employee's behalf. The TDS rates are determined by the various persons' income levels and age groups.

Q5. What is The TDS Rate On Salary?

Ans. The TDS rate on salary is depending on the amount of money you get from your employer, which determines which tax bracket you are in. Your TDS deduction on salary will range from 10% to 30% depending on the tax slab.