All about Tax Deducted at Source (TDS)

Budget 2021 update :It has been proposed to exempt the senior citizens from filing income tax returns if pension income and interest income are their only annual income source. Section 194P has been newly inserted to enforce the banks to deduct tax on senior citizens more than 75 years of age who have a pension and interest income from the bank.

TDS is basically a part of income tax. It has to be deducted by a person for certain payments made by them. In this article, we will discuss in detail about the TDS provisions under the Income Tax Act.

1. What is TDS?

TDS or Tax Deducted at Source is income tax reduced from the money paid at the time of making specified payments such as rent, commission, professional fees, salary, interest etc. by the persons making such payments.

Usually, the person receiving income is liable to pay income tax. But the government with the help of Tax Deducted at Source provisions makes sure that income tax is deducted in advance from the payments being made by you.

The recipient of income receives the net amount (after reducing TDS). The recipient will add the gross amount to his income and the amount of TDS is adjusted against his final tax liability. The recipient takes credit of the amount already deducted and paid on his behalf.

For instance:

The_Vikesh Pvt Ltd make a payment for office rent of Rs 80,000 per month to the owner of the property.

TDS is required to be deducted at 10%. Shine pvt ltd must deduct TDS of Rs 8000 and pay balance Rs 72,000 to the owner of the property.

Thus the recipient of income i.e. the owner of the property in the above case receives the net amount of Rs 72,000 after deduction of tax at source. He will add gross amount i.e. Rs 80,000 to his income and can take credit of the amount already deducted i.e. Rs 8,000 by shine pvt ltd against his final tax liability.

2. When should TDS be deducted and by whom?

Any person making specified payments mentioned under the Income Tax Act are required to deduct TDS at the time of making such specified payment. But no TDS has to deducted if the person making the payment is an individual or HUF whose books are not required to be audited.

However, in case of rent payments made by individuals and HUF exceeding Rs 50,000 per month, are required to deduct TDS @ 5% even if the individual or HUF is not liable for a tax audit. Also, such Individuals and HUF liable to deduct TDS @ 5% need not apply for TAN.

Your employer deducts TDS at the income tax slab rates applicable. Banks deduct TDS @10%. Or they may deduct @ 20% if they do not have your PAN information. For most payments rates of TDS are set in the income tax act and TDS is deducted by payer basis these specified rates.

If you submit investment proofs (for claiming deductions) to your employer and your total taxable income is below the taxable limit – you do not have to pay any tax. And therefore no TDS should be deducted on your income. Similarly, you can submit Form 15G and Form 15H to the bank if your total income is below taxable limit so that they don’t deduct TDS on your interest income.

In case you have not been able to submit proofs to your employer or if your employer or bank has already deducted TDS and your total income is below the taxable limit) – you can file a return and claim a refund of this TDS.

3. What is the due date for depositing the TDS to the government?

The Tax Deducted at Source must be deposited to the government by 7th of the subsequent month.

For instance:

TDS deducted in the month of June must be paid to the government by 7th July. However, the TDS deducted in the month of March can be deposited till 30th April.

For TDS deducted on rent and purchase of property, the due date is 30 days from the end of the month in which TDS is deducted.

4. How to deposit TDS?

Tax Deducted at Source has to be deposited using Challan ITNS-281 on the government portal.

Read our article for a step by step guide to deposit TDS.

5. How and When to file TDS returns?

Filing Tax Deducted at Source returns is mandatory for all the persons who have deducted TDS. TDS return is to be submitted quarterly and various details need to be furnished like TAN, amount of TDS deducted, type of payment, PAN of deductee, etc. Also, different forms are prescribed for filing returns depending upon the purpose of the deduction of TDS. Various types of return forms are as follows:

Form 26QTDS on all payments except salaries

Q1 - 31st July

Q2 - 31st October

Q3 - 31st January

Q4 - 31st May

Form No : Form 24Q

Transactions reported in the return : TDS on Salary

Due date : Q1 - 31st July , Q2 - 31st October , Q3 - 31st January ,Q4 - 31st May

Form No : Form 27Q

Transactions reported in the return : TDS on all payments made to non-residents except salaries

Due date : Q1 - 31st July , Q2 - 31st October , Q3 - 31st January ,Q4 - 31st May

Form No : Form 26QB

Transactions reported in the return : TDS on sale of property

Due date : 30 days from the end of the month in which TDS is deducted

Form No : Form 26QC

Transactions reported in the return : TDS on rent

Due date : 30 days from the end of the month in which TDS is deducted

6. What is a TDS certificate?

Form 16, Form 16A, Form 16 B and Form 16 C are all TDS certificates. TDS certificates have to be issued by a person deducting TDS to the assessee from whose income TDS was deducted while making payment.

For instance, banks issue Form 16A to the depositor when TDS is deducted on interest from fixed deposits. Form 16 is issued by the employer to the employee.