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TDS - Tax Deducted at Source

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TDS Deducted at Source
February 28, 2024

Table of Content

1.What Is Tax Deducted at Source (TDS)?

2.How Tax Deducted at Source Works and Who Can Deduct It?

3.What Is the TDS Rate Chart?

4.Types of TDS

5.TDS on Salary

6.TDS on Interest Income (Fixed Deposit)

7.TDS on Interest Received from Bonds

8.TDS on Insurance Commission

9.TDS for Contractors

10.TDS on Interest on Deposits in Savings Accounts

11.TDS on Rent

12.For Individual or HUF (Not liable for Tax Audit)

13.TDS on Shares and Mutual Funds

14.TDS on Property

15.TDS on Brokerage

16.TDS on Fees for Professional and Technical Services

17.What Are the Rules for TDS?

18.Due Dates for TDS Payments

19.TDS Return and Associated Forms

20.How Much Tax Needs to Be Deducted from Salary?

21.What Are the Steps to Upload TDS Statements

22.Steps for Online TDS Payment

23.What Are the Steps to Check TDS Deduction Status?

24.Penalty Provision

25.What Is TDS Refund and Non-Reduction of the Applicable Tax?

26.What Is a TDS Certificate?

27.FAQs on Tax Deducted at Source (TDS)

 

As the name implies, Tax Deducted at Source (TDS) refers to tax credited before you receive income from salaries, fees, commissions, interest and other sources. The concept of TDS was introduced by the Indian Government to tax income at the point of origin. This would prevent tax evasion and ensure taxes were paid even in situations when taxpayers do not file income tax returns.

In the following sections, we will cover everything you need to know about TDS, including its rules, types, TDS rates and more. 

What Is Tax Deducted at Source (TDS)?

Tax deducted at source or TDS is a form of income tax which is levied upfront while making certain payments like commission, rent, interest, salary, professional fees, etc. Tax is levied by the person making certain categories of payments from the person receiving them. The government has designed TDS provisions to ensure the tax is deducted in advance from the person paying. 

Hence, the income recipient receives the income after deduction of tax. The recipient will add the gross income along with the TDS deducted against the tax liability.

How Tax Deducted at Source Works and Who Can Deduct It?

TDS is a form of income tax which is deducted right at the hands of the person who is making payments above a specific limit. The concerned organisation or individual is supposed to deduct the amount and remit the same to the government within the financial year before making payments. 

The person responsible for ‘deducting’ TDS is called a deductor while the person receiving payments after deductions is called a deductee. The deductee can get credit for the deducted tax if he/she furnishes a TDS certificate or Form 26AS when filing income tax returns. 

Please note that in case a PAN card is absent, the applicable TDS will be 20% unless any specified rate is similar to the maximum marginal rate.

What Is the TDS Rate Chart?

Here are the applicable rates for the payments made to the Indian residents having their PAN submitted for tax deducting authority. 

Type of Income

TDS Rate

Salary

Slab rate

Fixed Deposit Interest

10%

Bonds

10%

Insurance Commissions

5%

Contractor Services

1% or 2%

Rent

2% or 10% or 5%

Shares/Mutual Funds

Nil

Savings Account Interest

Nil

NCDs listed on an exchange

Nil

Property

1%

Brokerage

5%

Professional and Technical Services

10%

Types of TDS

Here are the types of incomes which attract TDS at the hands of an individual or organisation that is making certain payments:

TDS on Salary

TDS is deducted from your salary in the hands of your employer as per the income tax slab rates under Section 192 of the Income Tax Act. Hence, your employer asks for an investment declaration at the beginning of a financial year and proof of investments at the end of the year. 

This enables them to calculate your total taxable income, determine your applicable slab rate and levy tax accordingly. For eg, if you are in a Rs. 15 lakh slab, the tax will be deducted based on that.

TDS on Interest Income (Fixed Deposit)

For resident individuals, income from interest is taxable under Section 194A of the IT Act. Banks or financial institutions offering fixed deposits are required to levy tax on making interest payouts for fixed deposits exceeding Rs. 40,000 (Rs. 50,000 for senior citizens). Here are the rates at which the back deducts TDS based on the following scenarios:

Scenario

TDS Rate

If PAN details are not submitted to the bank

20%

If PAN details are submitted to the bank

10%

If an individual submits Form 15G or 15H (For Income Group below exemption limit)

No TDS is levied

TDS on Interest Received from Bonds

TDS is deducted on interest on bonds at a rate of 10% under Section 193. This includes certain bonds issued by the Central Government and state governments and all listed corporate bonds/debentures. If the bonds are tax-free, these provisions will not be applicable.

TDS on Insurance Commission

Both individuals and HUFs receiving insurance commissions are liable to TDS deductions on commission income under Section 194D. The TDS rate is 5% if the payee provides PAN to the tax authorities. For anyone other than HUF and individuals, the TDS rate is 10%. If the PAN is not provided, the TDS applicable is 20%. 

However, individuals and entities in receipt of commissions which  is less than Rs. 15,000 will not be liable to tax deducted at source.

TDS for Contractors

TDS is also applicable for specific payments made to contractors/sub-contractors undertaking multiple kinds of projects for the government or local authority under section 194C. The applicable rate of TDS is 1% for HUFs and individuals while it is 2% for entities other than HUFs and individuals. However, if PAN details are not furnished to the payer, the TDS rate can be 20%.

Please note that the contractors receiving a single payment of Rs. 30,000 or the total amount is up to Rs. 1 lakh in a financial year, will not have to pay TDS.

TDS on Interest on Deposits in Savings Accounts

You will not have to pay any TDS on the interest earned from your savings account. In fact, you can get a deduction for savings account interest up to Rs. 10,000 per year under Section 80TTA. For senior citizens, the deduction is even higher, up to Rs. 50,000 under Section 80TTB, for all types of deposits.

TDS on Rent

If individuals or HUFs are liable for a tax audit, they must withhold tax at the source if the rent they pay exceeds Rs. 1.8 lakh in a financial year. The deduction rate is 2% for the use of equipment, plant, and machinery and 10% for the use of furniture, fittings, land and buildings.

For Individual or HUF (Not liable for Tax Audit)

If an individual or HUF, who is not subject to a tax audit, pays rent to a resident that exceeds Rs. 50,000 per month or a portion of month for the use of land, building, or both, they need to deduct 5% tax as per Section 194IB of the IT Act.

TDS on Shares and Mutual Funds

You don't have to pay any TDS on the profits you make from selling shares or mutual funds.

TDS on Property

TDS is also applicable on the purchase of immovable properties including houses, flats and other property which is of value Rs. 50 lakh and above. In such cases, the applicable rate of TDS is 1% of the total purchase value. 

The absence of a PAN may attract a TDS rate of 20%, however, there is no need for the buyer to obtain a TAN for this purpose. Also is it mandatory for the buyer to pay tax to the government within 30 days from the month end in which TDS is levied accompanied by a Form 26QB (a challan-cum statement)

The individual responsible for tax deduction must furnish a tax deduction certificate to the landlord within 15 days following the tax payment due date along with Form 26QB.

TDS on Brokerage

Apart from individual or HUF, any business or entity paying commission or brokerage (excluding insurance commission) to a resident must deduct TDS. The tax is deducted at a 5% rate when a payer credits the amount to a recipient's account or when they make the payment, whichever happens first. If the recipient doesn't provide a PAN number, the deduction rate increases to 20%, as per Section 194H.

TDS on Fees for Professional and Technical Services

Any business or entity apart from an individual or HUF paying fees for professional or technical services to a resident must deduct TDS up to 10%. The TDS rate is 2% for technical service fees, royalty for cinematographic film and payments to call centre operators. 

If the recipient doesn't provide a PAN number, the TDS rate will be 20%, under Section 194J. Note that for a payment of up to Rs. 30,000, no TDS is applicable.

What Are the Rules for TDS?

There are certain rules associated with TDS, in case an organisation or individual can meet these norms will help them to be free of penalties or fees. These are:

  • The primary rule is that TDS must be deducted while making a payment which is due or when the actual payment is made, whichever comes first.

  • Failure to deduct TDS will result in an interest charge of 1% per month till the time TDS is deducted.

  • In case of non-payment or late payment of TDS, an interest of 1.5% per month will be chargeable till the time payment is made.

  • Each individual, be it an employer or anyone else, must credit the deducted amount of tax to the government's account by the 7th of the next month.

Due Dates for TDS Payments

Here is the deadline for monthly TDS payments:

Month

Due Date

April

On or before 7th May

May

On or before 7th June

June

On or before 7th July

July

On or before 7th August

August

On or before 7th September

September

On or before 7th October

October

On or before 7th November

November

On or before 7th December

December

On or before 7th January

January

On or before 7th February

February

On or before 7th March

March

On or before 30th April

TDS Return and Associated Forms 

Filing TDS returns involves various forms, and the table below provides relevant details for each TDS type and forms associated with it.

Form Number

Importance of the Form

Submission Frequency

Form 24Q

Information on the deduction of TDS from the salary for each quarter

Quarterly

Form 26Q

Statement on the deduction of TDS from earnings except salary

Quarterly

Form 26QB

Information on the deduction of TDS from the transfer of immovable assets (except agricultural land)

Needs to be submitted by 30 days from the end of the month from when the deduction was made

Form 26QC

Information on the deduction of TDS from rent payments

Must be submitted by 30 days from the end of a particular month from when the deduction was made

Form 27Q

Information on the deduction of TDS from incomes earned from dividend, interest or other sum payable

Quarterly

How Much Tax Needs to Be Deducted from Salary?

Paying out salaries to employees is one of the common types of payments according to current income tax laws. There isn't a fixed rate for deducting TDS from salary. The rate of TDS on salary entirely depends on the employee's income tax slab in which he or she falls. 

Employers calculate tax based on the 'average rate of income tax,' which is the total tax liability divided by total income. Before deducting tax, employers consider any investments made by employees. If the estimated salary is below the basic exemption limit, no tax needs to be deducted at the source.

What Are the Steps to Upload TDS Statements

Follow these simple steps to upload a TDS statement on the official Income Tax Department website:

Step 1: Navigate to the Income Tax Department’s tax filing site. On the right side, you will find an option called 'Registered User?' click on it and then click on 'Login Here.'

Step 2: Enter your login details and click 'Login,' where your TAN serves as your user ID.

Step 3: Once you have logged in, then go to the 'TDS' menu and choose 'Upload TDS.'

Step 4: Then fill in the required details on the form and click on “Validate” to continue.

Step 5: Finally, validate your returns using EVC or DSC.

Steps for Online TDS Payment

Here are the steps guiding you to make your TDS payment online:

Step 1: To start with, sign in to the NSDL tax payment portal.

Step 2: Then, choose Challan number or ITNS 281.

Step 3: Indicate a non-company or a company deductee.

Step 4: You will have to provide the Collection Account Number or tax deduction and the assessment year for payment.

Step 5: Specify if the payment is for normal assessment by the taxpayer.

Step 6: After that, you will have to enter details such as the nature and mode of payment, and then click 'submit.'

Step 7: The taxpayer's full name will appear on the confirmation screen provided if the TAN is valid.

Step 8: After confirming the data, you will be directed to your internet banking account.

Step 9: Then simply enter your password and OTP to complete the payment.

Step 10: A challan with payment details will be generated upon successful payment.

What Are the Steps to Check TDS Deduction Status?

Here are the steps that you must follow to check your TDS deduction status:

Step 1: Navigate to the official website of the IT Department.

Step 2: Then, log in by carefully entering your credentials.

Step 3: Then, just click on 'view Form 26AS (Tax Credit)' which you can find under the 'My Accounts' tab.

Step 4: Choose the year and download the file in PDF format.

Step 5: The downloaded PDF file will be password protected. Use your PAN-registered date of birth to open this file.

Step 6: You will be able to access all the details regarding your TDS deductions in the financial year.

Step 7: You can also check TDS deduction through your bank's internet banking if your PAN is linked or not.

Penalty Provision

There are certain provisions created by the Income Tax Department for non-compliance with TDS deduction norms. There are various kinds of penalties levied on the deductor for not deducting TDS or not depositing TDS with the government. These are:

  • Norms on Tax deduction

In case of late deduction or delay of deductions, a penalty of 1% per month will be levied until the amount is fully paid. This applicable penalty will be deducted at the time of actual payment.  In case the person responsible doesn't do it, he or she may face limitations in figuring out the taxable profit from the total expenses.

  • Norms on TDS payment

Being a taxpayer, it is important to remember that the taxable amount has to be paid to the government by the 7th of every month, which is followed by tax filing. In case the person does not make the payments, a penalty of 1.5% per month penalty will be chargeable till the amount is fully paid.

  • Norms on TDS Return Filing

TDS returns must be filed on each financial year’s 31st of January, May, July and October. Not complying with the same will attract a penalty of Rs. 200 per day the return is filed.

What Is TDS Refund and Non-Reduction of the Applicable Tax?

An individual can be eligible for a tax refund if the TDS deducted is more than what was supposed to be paid. If this happens, the taxpayer will be eligible to claim for a refund. Assesses can also file for refunds while filing their annual income tax returns and at the same time their refund will be disbursed.

What Is a TDS Certificate?

A TDS certificate includes various forms such as Form 16, 16A, Form 16 B and Form 16 C. These certificates can only be issued by a person (for example employer) who is responsible for the deduction of the TDS amount at the time of making payments.

Form

Type of TDS Certificate 

Frequency

Due Date

Form 16

TDS applicable on salary payments

Yearly

31st May

Form 16A

TDS applicable on non-salary payments

Quarterly

15 days from the due date of return filing

Form 16B

TDS applicable on the sale of property

All transaction

15 days from the due date of return filing

Form 16C

TDS applicable on rent

All transaction

15 days from the due date of return filing

FAQs on Tax Deducted at Source (TDS)

1. What do you mean by TDS?

TDS or tax deducted at source is a form of income tax levied on specific types of income which is taken right from the hands of the payer. Here, the payer deducts taxes and deposits it with the Central Government's account.

2. What is the TDS on salary?

Employers are required to deduct TDS (Tax Deducted at Source) from employees' salaries based on the average income tax rate applicable to the employee for the year.

3. At what rate the deductor will deduct TDS if I do not furnish my Permanent Account Number to them?

As mentioned in the IT Act, the rate of TDS applicable for a person who has not furnished their PAN is 20%.

4. How many types of TDS are there?

There are several types of TDS but primarily there are 11 types of TDS some of which are: TDS on Salary, TDS on Interest Income, TDS on Interest Received from Bonds, TDS on Insurance Commission, TDS for Contractors, etc.

5. Who is eligible for a TDS deduction?

Any person receiving income which attracts TDS is applicable for TDS deduction.

6. What is the use of a TDS challan?

The primary use of a TDS challan is mainly for the purpose of paying the tax deducted at source to the Income Tax Department.

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