Tax Deducted at Source (TDS) is the tax that is deducted from an individual salary before the salary gets credited to employee’s account. It is usually done by the employer or by a pre-determined deductor in other cases. Mostly TDS is taken out from the employee’s salary as per the declarations done by him at the beginning of the financial year. TDS refers to the process in which taxes are collected under Income Tax Act of 1961. So any payment that is collected under this provision needs to be collected after deducting the prescribed taxes. This is managed by the Central Board for Direct Taxes (CBDT) and fall under the part of Department of Revenue and is therefore managed by Indian Revenue Services (IRS). It becomes very important at the time of conducting audit of taxes. All the tax payers are required to file quarterly returns to CBDT. TDS Refund becomes significant in the following ways mentioned below:
- The taxes are collected regularly generating a continuous stream of income for the government.
- Moreover it benefits the payer too as the tax is distributed throughout the year and deducted every month causing less tax burden at the end of the year.
- Thus this whole process of TDS is designed to help the government collect taxes without the IT department intervening every time and every step of the way.
In case financial declarations made at the beginning of the year are greater than or lesser than the investment proofs submitted at the end of the financial year, a refund/lumpsum deduction of taxes comes into force. So if there is a difference between in the total tax deducted at the end of financial year and the total tax that is deducted from the income tax that one pays for the particular year, a TDS refund needs to be processed.
- Aman works in an MNC in Hyderabad. But somehow he was late in submitting his document for HDFC premium which is exempted under 80C section and so Rs 10000 extra was deducted as TDS.
- The total tax to be paid by Aman for 2014-15: Rs 40000.
- The tax that got deducted from Aman’s salary: Rs 50000.
- Aman’s eligibility for tax refund is: Rs 50000 – Rs 40000 = Rs 10000.
So we can clearly see that by the above example Aman had to pay total tax of Rs. 40000 wherein he ends up paying Rs 50000 due to not giving the insurance premium payment receipt on time to the employer thereby ended up paying extra in taxes.
- In the same way Ratan was not able to invest his Rs 30000 in the investments as per time allotted by the employer. He was indecisive about whether to go on investing in life insurance policy or get a fixed deposit for long term savings. Pondering upon this thought of his, he missed the last date to submit the income tax proof as asked by the employer. So in this way also Ratan ended up paying more tax for the financial year even though he had done the investments for the concerned year.
These are some of the typical situations that are faced by the salaried individual every year by lots of individuals and so TDS refund process comes into action. The sooner you file the income tax return the earlier you can get your TDS refunded.
Filing the TDS Refund Claim
1. A TDS Refund claim has to be filed in cases where the employer deducts TDS over and above the actual tax liability. As mentioned in the above example, the difference between the tax deducted by the employer and the actual tax that is payable can be done by filing a claim in form of income tax return. At the time of filing the tax return, the tax payer needs to mention his/her account number, bank name and IFS Code. This way the income tax department can easily return the excess tax via an account transfer.
Tip: If in any financial year you are sure that the TDS will be more than the tax that is payable, then under section 197 you can file Form 13 to get the benefit of lower or nil income tax deduction. After that, the certificate that is received by you has to be submitted with the authority that is entrusted with deducting your TDS.
2. In the case where your income tax is less but the bank is deducting tax on the fixed deposits. Where the income is not available under the income tax bracket but the bank has deducted the income tax then in this case refund can be claimed in two ways.
- Firstly, you can declare this income in your income tax return and the IT Department will refund the amount in your bank account.
- Secondly, by filing Form 15G, the concerned bank understands that your salary does not come under any tax slab so no tax should be deducted at source at the time of maturity.
And thereafter, you can get the returns credited to your bank account by claiming it in your IT return. After that the IT department calculates the taxes and finds out that excess tax has been paid, it credits the amount back to the bank account of the payee as mentioned in the IT return.
Tip: When the payee declares the income from FD at the time of maturity, then the lump-sum amount should be mentioned. This can cause hefty taxes and also attracts a higher tax slab (as it attracts high income for that period of time). So it is advisable to declare income annually rather than declaring it at the time of maturity.
TDS Refund Interest
Under the Income Tax Act section 200A, if the IT Department delays in paying your tax refund, then you are entitled to a 6% simple interest on the amount refunded. The accrual of interest starts from the first month of the financial year i.e. April. But here also the interest is paid only if the refund amount is more than 10% of the total tax paid during the year. The interest that is earned on tax refund is also taxable as it comes under the head of income from other sources.
Hassle-free tax filing: if the following steps are considered then one can file hassle-free tax returns.
- One should do tax planning beforehand rather than running for the last minute. It is always advisable to plan from the first day of the financial year.
- One should avoid to filing tax returns late as it features an additional penalty charged on the tax that is due.
- One should plan and manage the tax filing smartly so that there is equalization in the TDS and the tax payable by you. In this way, one can avoid having to resort to the refund process of TDS.
- One should be aware of all the tax exemptions applicable to them and should claim those to maximise the advantages.
Questions that are asked frequently on TDS refund
1. Will a person get his TDS refund if by mistake he forgets to mention his bank details on the claims form?Ans- The person filing the claim needs to mention his bank details correctly and clearly on the TDS certificate or the return filled by him so that the IT Department can transfer funds online through a NEFT transfer. Any mistake in bank details will lead to refund being transferred to someone else’s account or no transfer of funds at all. If you have not mentioned your bank account number, then at least one should make sure that the address filled out should be correct so that the IT department can check the ITR with your PAN details and can send a refund check to you for the same.
2. How to change the address in order to receive the refund?
Ans- By logging on the E-Filing portal, one can raise a Refund or Re-issue Request. But this is only possible if you have filed for a refund and not received the cheque or it was returned to the income tax department due to delivery issues. If someone else collects it on your name then you are not liable for the same benefits. This refund and re-issue option on the e-portal can be found in the ‘My Account’ section and you can chose the mode of refund such as cheque or the electronic clearing system. You also get the facility to update your address and account details and these updates are automatically applied to all tax documents.
3. Can the contact details filled on ITR be updated later on?
Ans-The contact details of the tax payer can be edited on the profile settings of the e-portal page. You can update or change your address, mobile number or email id in this section of the portal.
4. What are the different types of refund statuses that are available on this site?
Ans- There are a total of 11 types of different refund statuses available to the tax payer. These are as follows:
- E-filing not done for this assessment year- If the ITR was filled physically but the same was not completed online, then any status of the same will be updated online and the same can be taken as no ITR filed at all.
- No determination- If the refund of the tax has not been determined by the IT department to process the same.
- Refund that is paid- if the IT department has processed the refund and dispatched it but you have not received it then you need to check your bank account and post office and you need to update your address and bank details on the E-portal.
- No refund no demand- When the tax deduction was an exact amount and the in this case the IT department doesn’t owe anything to you. And if you still claimed for refund then the taxmen’s calculations are different that from that of the department and it does not owe anything. Thus the necessary changes and update or correction of error it can be done online.
- ITR processed and refund determined and send to Refund Banker- this means that ITR has been checked and refund has been determined so it is being processed. The tax payer needs to wait for the process to be completed.
- Refund unpaid- this means that the bank account detail or the address mentioned on the ITR is not correct hence the department is not able to process the refund.
- Contact jurisdictional Assigning Officer- this means that the department wants further clarification or details about your income tax return so they ask to get in touch with your Jurisdictional Assigning Officer to provide the documents/details what are required.
- Demand determined- it means that the refund has been rejected and it is found that you need to pay more tax to the government. For this you need to get in touch with the taxman and get all the dues cleared before the deadline. But if some mistake has been made when filling the ITR, then it can be corrected or revised online.
- Rectification process refund determined and sent out Refund Banker- In this case, if the rectification was filed by you then it is accepted and processed by the banker.
- Rectification process demand determination- Even after filing the rectification, if the government feels that you owe more taxes, then, you are given a 30 day period of notice within which you need to settle all applicable dues.
- Rectification processed no demand no refund- After you filled out and submitted the rectification request, the government finds that neither total dues nor refund is applicable to your case.
Under section 302 of IT act 1961 there is a provision for earnings deemed as dividend only if it exceeds Rs 2500 in a year, they attract a 10% tax on such dividend. But this is not applicable on SADHA and GIC.
A provision is applicable anything acquired after June 1st 2004 deduction of tax at source is done immovable property other than agriculture land. The person who is a transferee the amount exceeding more than 50 lakh is directly liable to pay 1% tax at source at the payment. The TDS on such property is to be deposited within 30 days of such transactions being completed.
Tax Collected at Source
Tax collected at source (TCS) is the tax which is collected at source on the sale of certain items by a seller based in India under Section 206C of Income Tax Act, 1961. There are specific rates at which the seller collects taxes from the payer as given below:
- Alcoholic liquor for human consumption – 1%
- Timber obtained under forest lease – 2.5%
- Tendu leaves – 5%
- Scrap – 1%
- Minerals being coal and iron ore and lignite – 1%
- Any other forest produce other than timber and tendu is – 2.5%
- Scrap batteries
- Parking lot, toll plaza, mining and quarrying.
- Jewellery exceeding – Rs.5 lakhs and bullion exceeding – Rs.2 lakh.
- Motor vehicle exceeding – Rs. 2 lakh.
Common TDS Exemptions
TDS is based on the assumptions of ‘what you pay as you earn it’. It is like a win -win situation for both the tax payer and the government. The tax is collected when we make payments through cheque, cash or credit which is collected by the central agencies. It is advantageous in sharing responsibilities for the deductor as well as the payer and tax collecting agencies. TDS is also a key way in preventing tax evasion. It helps in widening the tax collection base thereby also proving a steady source of revenue to the government. However TDS is not collected in the following cases –
- When payment is made to central and state corporations, banking companies, etc.
- Refund from the IT department or the interest paid for direct taxes.
- LIC, UTI and other insurance co-operative society.
- Interest that is earned in saving account, recurring deposits and cooperative societies or banks.
- Interest earned in Indra Bikas Patra, KVP and NSC.
- The interests that are earned in NRE accounts.
- even all those institutions that come under non-TDS.
- Thus on paying TDS, the deductor is required to issue a TDS certificate which is called as Form 16 for the salaried employee and Form 16A in case of TDS on non-salaried income within a specified time. The employer is required to issue the TDS certificate within two month of the next financial year. Under the Income Tax Act of 1962, in case of non- compliance, below tax sections have to be taken into consideration for disallowance is under Section 40(a) and 40 (1a) of the Income Tax Act.