TDS or Tax Deducted at Source
TDS is managed by Central Board for Direct Taxes (CBDT) and is prescribed under the Income Tax Act, 1961. TDS are collected on Dividends and Immovable properties. Payer pays off the amount to the collector who later deposits to the government. However, the TDS later get adjusted against their final tax liability.
Normally TDS is prescribed to get deducted from salary, bank interest, contractor payments, lottery winnings, commission payment, house rent above a certain amount, consultancy fees, lawyer / freelance payments and on house bought above INR 50 lakhs. If one is a professional or a freelancer or buying a house property over 50 lakhs than they need to deduct TDS by themselves on the payments. Deducting this amount is linked directly to PAN number of the deductor and deductee. The details of TDS deduction can be found in the Tax Credit Form 26AS. All PAN holder can obtain this form from the TRACES official website. However, this form also has other information such as advance tax and self-assessment tax.
If dividends exceed Rs 2500 in a year, then it attracts TDS and also offer 10% deduction on the tax rate. From June 1st 2014, TDS applies to any immovable property that exceeds Rs 50 Lakhs in value. Employers who deduct TDS must produce 26AS Form or TDS certificate to the employee. Employers deduct TDS as per the applicable income tax slab rates. Banks deduct TDS at the rate of 10% and for NO PAN account, they deduct TDS at a rate of 20%. For submitting proof of investments to the employer your TDS can be saved. Also, you can submit Form 15G and 15H to the bank to get a deduction on TDS.
TDS collection has been designed for many reasons such as stop tax evading and widening Tax Collection base. It’s a steady tax collection source for Government and decreases the burden of tax collection agencies.
There are also few exceptions when TDS is not being deducted from payments:
- Any institutions notified under no-TDS.
- LIC, UTI and other insurance or cooperative societies
- Central or State Financial Corporations
- Interest earned on Krishi Vikas Patra
- Interest paid under Direct Tax
- Interest received in NRE account.
- Interest earned on Indira Vikas Party
- Interest earned on National Savings Certificate
- Income tax refund
- Interests earned on recurring deposit/savings account in any banks or cooperative societies
Taxpayers must make it clear from the particle institution if TDS is applicable on the payments.