What is Tax Deducted At Source (TDS)?

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Hiral Vakil

Form 16
TDS
TDS Due Date
TDS Return

Tax Deducted at Source (TDS) is an indirect method of collecting Income Tax. TDS is based on the principle of “Pay as you earn” which is beneficial for both the Government and the taxpayer.

Tax Deducted at Source (TDS) is a concept where a person making payment of specified nature is liable to deduct tax at source at a prescribed rate. This ensures continuous revenue for Government by way of Tax Deducted at Source.

The Payer making a payment is also responsible to deposit TDS with the Income Tax Department within a specified due date and file TDS Return. The payee can claim a tax credit of TDS deducted based on Form 16 or Form 26AS while filing ITR.

TDS Calculator
TDS (Tax Deducted at Source) is a part of Income Tax. TDS should be dedcuted by a person for specific payments made.
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TDS Calculator
TDS (Tax Deducted at Source) is a part of Income Tax. TDS should be dedcuted by a person for specific payments made.
Explore

How is TDS deducted?

The Payer making a payment of specific nature withholds a percentage of the total amount payable. The payer is also known as “Deductor”. The payee whose TDS is deducted is known as “Deductee”. TDS needs to be deducted on the following type of payment:

Example: ABC Pvt Ltd needs to make payment of Rs. 50,000 to Jay for his professional services. Then in this case, ABC Pvt Ltd (Payer/ Deductor) needs to deduct TDS @ 10% on Rs. 50,000 i.e, Rs. 5,000. And make payment of Rs. 45,000 (Rs. 50,000 – Rs. 5,000) to Jay (Payee/ Deductee).

Who needs to deduct TDS?

The Payer/ Deductor has to deduct TDS before making payment to a payee. The payer needs to obtain TAN for depositing and filing TDS Return. Following persons are required to deduct TDS:

Who needs to file TDS Return?
Payer who deducts TDS needs to file TDS Return based on Nature of Payment.
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Who needs to file TDS Return?
Payer who deducts TDS needs to file TDS Return based on Nature of Payment.
Read More

Tax Deducted at Source (TDS) on Salary

Every employer needs to deduct TDS on salary payments made to employees. The TDS on Salary comes under Section 192. And employer needs to file TDS Return in Form 24Q quarterly.

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Here is the brief overview on how the total amount of TDS on Salary is decided.

Section TDS Rate TDS Applicability
Section 192 Applicable Income Tax Slab Rate
  • When the estimated income of the employee is taxable, TDS is deducted.
  • Employer is not allowed to deduct tax on non-taxable allowances (for eg. conveyance allowance, rental allowance, medical allowance etc..)
  • If the estimated total income of the employee is less than the minimum taxable income, no TDS is deducted. (Which is Rs. 2,50,000/- in case of Individual, HUF, AOP, BOD and AJP. Nil for others.)

As mentioned in the table, if you have any investments (which fall under Section 80) or life events that call for official allowances (Such as your child’s school fees or your wife’s medical treatment), then you can claim deductions. To claim the same you need to provide the relevant documents to your employer. It will also be mentioned in your Form 16. Form 16 issued by the employer is Proof of TDS Deduction and Salary Payments. It is used to file ITR by employees.

Let’s understand how the employer would calculate the TDS liability of the employee:

Particulars Amount (in Rs.)
1. Income from Salary 8,00,000
2. Tax Deductible Investments and Payments  
a. ELSS 25,000
b. PPF 15,000
c. Insurance premium 17,500
d. Home Loan principal repayment 90,000
e. Home Loan interest 1,30,000
3. Total taxable income (1-2) 5,22,500
4. Tax liability as per slab rates 30,385
5. Monthly TDS deducted by the employer (4 / 12 months) 2532

Tax Deducted at Source on Income other than Salary

There are various payments other than salary for which TDS is deducted such as professional fees, contract payments, commission or brokerage, property transaction etc.. TDS rates vary by nature of payment.

In the case of TDS payment other than salary, details of TDS can be found in Form 16A. It should be furnished by the deductor within fifteen days from the due date for furnishing the ‘statement of TDS’ under rule 31A. You will read about it in the next section.

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What are the different types of TDS Returns?

The Income Tax Department has notified different TDS Returns/ Statements to be filed by the payer/ deductor within prescribed due dates. The quarterly returns/statements of the TDS should be submitted in the following forms:

Type of PaymentReturn Type
Salary PaymentsForm 24Q
Payments other than Salary to a ResidentForm 26Q
Payments other than salary to NRIForm 27Q
Tax Collected at SourceForm 27EQ
Payment on Sale of Property (by Individuals)Form 26QB
Payment of Rent on Property (by Individuals)Form 26QC
Payment to Contractor or Professional (by Individuals)Form 26QD

FAQs

1. Do I need to file my income tax return if my TDS is deducted by my employer?

Yes. It is very common for salaried individuals to have all their taxes deducted by their employer in form of TDS. Still you should file income tax return to claim any refund and/or carry forward any losses.

2. How to deposit TDS online?

– Go to TIN-NSDL, select Challan No./ ITNS 281 and enter TAN, Assessment Year and Personal Information.
– Select Type Of Payment and Nature Of Payment
– Select Bank Name and you will be redirected to the net banking site, make payment and Save Challan 281 for your records.

3. What is TDS Certificate?

TDS Certificate is a certificate issued by the person/deductor responsible for deducting tax at source. When TDS is deducted it is important to issue TDS Certificate. From TDS Certificate deductee knows how much TDS has been deducted by the deductor. Some of the examples of TDS Certificate are Form 16, Form 16A, Form 16B.

4. How to check my TDS Credit?

The deductor/employer is liable to give you a TDS Certificate i.e; Form 16, Form 16A confirming the amount of tax deducted. You can also check your TDS credit from your Form 26AS by login to your income tax e-filing account.

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