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Faster, easier and secure gateway to e-file income tax return

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TDS Payments, Process and Rates

Overview

Tax Deducted at Source (TDS) is a tax collected by the government as per the Income Tax Act, from the payer/deductor/employer who deducts tax from their payee/ deductee /employee. TDS may be deducted from salary, commission, rent, etc. There are various types of TDS and rates at which TDS is deducted or exempted. TDS should be calculated and deposited before the due date.

Tax Deducted at Source (TDS)

TDS is a means of collecting tax where the collection of revenue occurs at the very source of income. It is a direct tax collected from an individual at the time of payment, namely, salary, rent, commission, interest payment by banks, payment to lawyers and freelancers. The payer of the payment deducts a certain amount from the payee’s income at the time of payment, then this deducted/collected amount is transferred to the Government Account by the payer. The CBDT (Central Board of Direct Taxes) manage the provision of TDS under IRS (Indian Revenue Service) as per the Income Tax Act, 1961. The Government had set a specified limit where TDS is not deducted, however, if an individual’s income exceeds the limit TDS will be deducted from his/her income.

Objective of TDS

The objective of TDS are as follows:

  • It helps the salaried personnel to pay tax timely
  • It helps to collect tax from income from various assesses, such as contractors, professionals, etc. at the time of payment
  • It helps the government to run smoothly as advance tax and TDS contributes funds every year.

Advantage of TDS

TDS is a tax deducted while making the payment through cash, credit or cheque by the payer from the payee’s income, which is then deposited to the Government.

The advantages of TDS are:

  • It prevents tax evasion
  • It widens the base for tax collection
  • It is also a steady source of revenue for the Government
  • It is easier for the payee as the tax is collected automatically and deposited to the Central Government’s credit.
  • Sharing responsibility for deductor and tax collection agencies.

TDS Deduction and its Calculation

The employee or payee can claim a refund if he/she had paid excess TDS compare to the liable tax amount. To claim the refund the individual need to calculate his/her deduction. TDS deduction is calculated based on different factors and income categories where the individual falls. It is calculated based on the threshold limit and different TDS rates of the source of income mentioned under various sections. However, TDS calculation under some sections are very tricky and require expert assistance.

TDS Returns and e-filing TDS return

If the TDS paid is more than the liable tax then the deductor can make claims for refund for the excess amount.

Excess payment = TDS Paid– Liable Tax

Where the result will be refunded.

TDS Certificate

TDS Certificate is a certificate generally issued at the deductor/employer’s letterhead. It is used to track the TDS deducted from a deductee/employee. Under Section 203 of the ITA, the certificate of TDS payment needs to be furnished by the payer to the payee. For pension payment, it is offered by the bank making the deduction. It is advisable for everyone to request for TDS certificate if you are not provided with one. There are different types of TDS certificate.

For example:

  • Form 16 comprising details about tax computation, deduction, and payment for Salary Individual
  • Form 16A with details of tax deduction and payment for a non-salary individual

Similarly, separate certificates for different sections.

TDS Exemption

TDS is not deducted under the following scenario:

  • If the amount payment is made to Reserved Bank of India, Government or any such body.
  • Mutual Fund under Section 10(23D)
  • Finance Corporations of State or Central
  • If the deductee has non-deduction certificate under Section 192 of ITA.
  • Credit to or interest paid to:
    • Banking company
    • Co-operative society with banking business
    • LIC, UTI or other insurance company
    • NSC, KVP, or Indira Vikas Party
    • Body notified for non-deduction of tax
    • Banks or cooperative society’s recurring deposits or saving account
    • NRE Account

Types and rate of TDS

The Government set a threshold limit, in which TDS will be deducted if a person’s income exceeds this limit. Depending on various IT Sections the threshold limit varies and range from 1% to 30% of the actual payable amount.

The following are the TDS rates and its types:

Section Number Source Payee type Threshold Limit TDS Rates
192 Salary Payment Individual Basic exemption limits based on the income tax slab rates. Rates of Income Tax in force.
193 Interest on securities Resident Basic exemption limits based on the income tax slab rates. 10%
194 Deemed Dividend Resident & Individual Rs. 2,500/- each Financial Year 10%
194A Interest excluding interest on securities Resident Rs. 10,000/- if the interest is paid by the following Banks –
  • Co-operative Banks
  • Post Office deposits.

In any other case, Rs. 5,000/- will be the limit.

10%
194B Income won from games like a crossword puzzle, card, lottery, etc. Any person The amount is exceeding Rs. 10,000/- 30%
194BB Income won from House race Any person The amount is exceeding Rs. 10,000/- 30%
194C Contractor payments Resident & contractor One of the following –
  • If the single payment is exceeding Rs. 30,000/-
  • If the Aggregate sums paid in the FY exceeding Rs. 1,00,000/-
  • Individual/HUF = 1% of the sum paid.
  • Any other person = 2% of the sum paid.
194D Insurance Commission Any Resident Rs. 15,000/- per Financial Year 10%
194DA Amount under LIC Resident Aggregate payment should be less than Rs. 1,00,000/- in the FY 1%
194H Brokerage or Commission Resident Rs. 15,000/- per Financial year 5%
194-I Rent Resident Rs. 1,80,000/- per Financial Year
  • P&M or equipment = 2%
  • Land, building, furniture or fixtures = 10%.
194-IA Transfer of immovable property Resident & Transferor Consideration of Rs 50lakhs. 1%
194J Royalty, Director Remuneration, Professional or technical service fees, Non-compete fees Resident Rs. 30000 for each income in the FY (Not applicable to payment to the director). 10%
194LA Compensation on acquiring immovable property Resident Rs. 2,50,000 per FY 10%

TDS deposit due date

The TDS Return due date for the Assessment year 2017-18, i.e Financial Year 2016-17 is as follows –

Quarter Quarter Period Due Date
1st April to June 31st July 2016
2nd July to September 31st October 2016
3rt October to December 31st January 2017
4th January to March 31st May 2017

Frequently Asked Questions

Q. What is the difference between TDS and Income Tax?

The difference between TDS and Income Tax is as follows –

TDS Income Tax
  1. A small amount deducted monthly, annually, periodically or occasionally from an individual or business income
  2. It is not limited to salary, it includes interest, commission, fee etc.
  3. The earned income can be regular or irregular.
  1. It is levied on the total income of an employee or business
  2. It is limited to salary/ annual income
  3. It is levied on regular income
Q. How can I claim TDS refund?
Generally, people misunderstand that TDS refund is different from Income Tax refund. There is only one refund which a taxpayer can claim while filing their income tax return. If you had paid more tax than your liable tax, then income tax refund will arise that can be claimed upon the filing of your annual Income Tax Return.
Q. Is there any penalty for non-deduction of TDS?

The following are levied on non-compliance of TDS provisions –

  • Non-deduction of TDS: If an individual who is responsible for deducting TDS do not deduct the same then the AO (Assessing Officer) may disallow whole of such expenditure for ascertaining taxable profits.
  • Late-deduction of TDS: An interest at the rate of 1% per month of the TDS amount subject to maximum amount of TDS will be levied for late deduction of TDS. Here, A single day extension is also counted as a month to calculate the interest.
  • Late-payment of TDS: The deducted TDS by the payer should be credited to the government on every 7th day of the succeeding month in which the tax has been deducted. If the deductor fails to do so, an interest at the rate of 1.5% per month of the TDS amount subject to maximum amount of TDS will be levied.
  • Late Filing of TDS Return: Under Section 234E of ITA, a fee of Rs. 200/- per day subjected to maximum amount of TDS until the return is filed, will be levied if you fail to file your TDS return by the end of the month of the following quarters:
    • 31st July,
    • 31st October,
    • 31st January and
    • In the case of March, it is 31st May.
  • Penalty of Late filing TDS return: If you fail to file TDS return according to the due date, the AO may direct you to pay a penalty of Rs. 10,000/- which may extend to Rs.1,00,000/-. It is in addition to the penalty under section 234E. It also covers incorrect filing of TDS return.
Q. What is TCS?
Under Section 206C of Income Tax Act, 1961, the income Tax collected by the seller in India from payer on selling of certain items is called Tax Collected at Source (TCS).
Q. What is TAN?
Tax Collected Account Number or Tax Deduction Account Number is an alphanumeric 10-digit number issued by the IT department to the individual who is responsible for deducting TDS or who is required to collect TCS.
Q. Can I use PAN for TDS payment?
No, you cannot use PAN for TDS payment. It can be utilised for TAN.
Q. What is the minimum income of an employee to fall under the ambit of TDS?
If an employee falls under the income tax slab then he/she is liable of TDS deduction. The minimum annual income (salary) must be more than Rs. 2,50,000/- or Rs. 3,00,000/- accordingly

In the Blog

  • TDS Mandatory if Rent Exceeds Fifty Thousand

    TDS payment has been made mandatory for the house rent exceeding INR 50,000 a year and this will applicable for a metropolitan city. The TDS need to be deducted by the rent payer on behalf of their landlord. This decision is the result of current government’s focus of widening the tax net but ultimately the rent payers have got an extra income tax payment compliance on them.

    16th Feb 2017

    All India ITR Blog