Tax Deducted at Source or TDS is a type of indirect tax introduced with the intent to collect taxes (revenue to the government) at the very source of income. As TDS is cut from income regularly and right at the source of income, it helps check tax evasion, and also relieves the taxpayer from the burden of paying huge taxes all at once at the end of the financial year. Through it, the central government also ensures a steady inflow of revenue.
Tax Deducted at Source – Concept
According to the Income Tax Act, 1961, policies and regulations related to tax deducted at source (TDS) is managed by CBDT (Central Board of Direct Taxes). Tax deducted at source is the part of Indian Revenue Service Department (IRS). A person who is liable to deduct the payment is referred to as deductor and the person from whose account the specified income is deducted is referred to as the deductee.
As per the concept of TDS, the deductor has to deduct the tax at the time of making payment of income (if the income is above a predefined limit) and forward the same to government on behalf of the deductee. It is the deductor’s duty to pay the tax deducted at source to the government within a prescribed time limit. The deductor after filing returns, issues a TDS certificate to the deductee.
Types of TDS
Below mentioned are some of the sources of income that fall under the purview of tax deducted at source (TDS):
- Salary – Payment from employer to employee
- Interest on securities
- Deemed Dividend
- Interest excluding interest on securities
- Winning from games like a crossword puzzle, card, lottery, etc.
- Contractor payments
- Insurance Commission
- Amount under LIC
- Brokerage or Commission
- Transfer of immovable property
- Compensation on acquiring immovable property
- Payment of rent
- Commission payments
- Bank Interest
- Remuneration paid to director of the company, etc.
Points to Remember before Deducting TDS
- Section 192 to 194L of Income Tax Act can be referred for the complete list of expenses and sources of income under TDS.
- If an individual does not fall under income tax slab, he or she can furnish Form 15G or Form 15H to the deductor as a declaration in advance for non-deduction of tax at source.
- Form 15H is for senior citizens.
- Form 15G is for all other individuals.
- Certain payments as mentioned above are subjected to TDS.
- TDS is applicable to each type of income, beyond a certain limit.
- TDS is deducted as per the income tax slab rate for salaried individuals.
- For other deductees, TDS is deducted at the specified percentage for each income type.
TDS (Tax deducted at source) Rates for FY 2017-18
|Section||Sources of Income/Expenses||Threshold Limit||TDS Rate (%)|
|Individual / HUF||Other deductees|
|192||Payment of Salary Income||As per the Income tax slab||slab rate|
|192 A||Premature withdrawal of Employee Provident Fund( with effect from 1st June 2015)||₹ 50,000||10%, In case of no PAN- 20%||10%, In case of no PAN- 20%|
|193||Interest on Securities||₹ 10,000||10%||10%|
|193||Interest on Debentures||₹ 5,000||10%||10%|
|194||Dividend Income (other than the dividend referred to in Section 115-0)||Not Applicable||10%||10%|
|194 A||Interest other than ‘interest on securities’ like interest on bank deposits, interest on loans and advances, interest on post office deposits etc.||₹ 10,000 in case the TDS payer is a bank or any banking institution, banking co-operative society and the post office.
₹ 5,000 in any other case
|194 B||Prize money, Winning from lottery, cross word puzzle etc.||₹ 10,000||30%||30%|
|194 BB||Winning from horse race/Jackpot||₹ 10,000||30%||30%|
|194C||Payments to contractors and sub-contractors||₹ 30,000 for Single Payment and ₹ 1,00,000 for Annual Payment||1%||2%|
|194 D||Insurance commissions paid by Insurance companies to its agents||₹ 15,000||5%||5%|
|194 DA||Maturity of life insurance policy||₹ 1,00,000||1%||1%|
|194 EE||Payment of National Savings Scheme Deposits||₹ 2,500||10%||Not applicable|
|194F||Repurchase of units by mutual fund or Unit Trust of India||Not Applicable||20%||20%|
|194 G||Commission on the sale of lottery tickets||₹ 15,000||5%||5%|
|194 H||Commission or Brokerage||₹ 15,000||5%||5%|
|194 I||Land and building or furniture or fitting||₹ 1,80,000||10%||10%|
|Rent, Plant and machinery||₹ 1,80,000||2%||2%|
|194 IA||Sale proceeds of immovable property other than agriculture land||₹ 50,00,000||1%||1%|
|194 J||Royalty, professional or technical services||₹ 30,000||10%||10%|
|194 LA||Compensation paid on acquisition of certain immovable property||₹ 2,50,000||10%||10%|
|194 LB||Interest from infrastructure debt fund||Not Applicable||5%||5%|
TDS is not applicable in below cases:
- When the amount is paid to government or any government body and Reserve Bank of India
- Amount is paid to notified mutual funds under Section 10(23D)
- When deductee has certificate of no-deduction under Section 192 of the Income Tax Act
- When amount is paid to state or central financial corporations
- Interest credited or paid to :
- Banks or Banking Company
- Life Insurance Corporation, Unit Trust of India or any other insurance company
- National Savings Certificate
- Kisan Vikas Patra
- Non Resident External Account
- Banking Co-operative society
- Savings account and Recurring deposits of banks and co-operative society
- Notified body for non-deduction of tax
Advantages of Tax deducted at source (TDS)
- It helps to prevent tax evasion
- As TDS deductions take place throughout the financial year, it’s an effective mode of revenue inflow to the government.
- It widens the tax collection base
- It is a way to share the responsibility of tax collection between the government and the deductor’s
As per Section 203 of Income Tax Act, everyone who is deducting TDS is required to furnish a certificate to the respective deductee to the effect of the amount deducted as tax, along with all the other particulars. Such certificates are called TDS certificates.
- In case of Salary Income
- The employer has to provide Form 16 to his employee specifying the amount of tax deducted at source.
- The form has all the particulars such as computation, deduction and payment of tax.
- The certificate needs to be issued within 31st May of next financial year
- For non-salaried cases
- Form 16A is given by the deductor mentioning all details of tax computation, deduction and payments.
- The certificate needs to be issued to the deductee within 15 days of due date of filing TDS return
- TCS: A certificate that contains the tax deducted and paid in detail which is issued in Form 27D
Depositing TDS to Central Government
- The deductor needs to deposit the TDS to central government by making a payment through NSDL using physical form that can be processed in authorised bank branches.
- The payment can be made online through the official portal of NSDL using Challan 281 and by routing the payments through net banking.
- The TDS amount needs to be deposited before filing the TDS return.
- The e-payment is compulsory for all assesses who are liable for audit under Section 44AB.
Payment Due Dates
Monthly due date for payment of TDS is as below:
|April||On or before 7th of May|
|May||On or before 7th of Jun|
|June||On or before 7th of Jul|
|July||On or before 7th of Aug|
|Aug||On or before 7th of Sept|
|Sept||On or before 7th of Oct|
|Oct||On or before 7th of Nov|
|Nov||On or before 7th of Dec|
|Dec||On or before 7th of Jan|
|Jan||On or before 7th of Feb|
|Feb||On or before 7th of Mar|
|Mar||On or before 30th of Apr|
The deductor may have to pay penalty for not complying with TDS rules. Below are the instances for which penalty may be levied:
- For Non-deduction of TDS:
If a deductor/collector fails to collect the tax at source, whole of such expenses can be disallowed from computation of total profits by the income tax assessing officer.
- For late-deduction of TDS:
In case the TDS is deducted after a day or few days of making the payment of income, then interest at the rate of 1% per month on the amount of tax deducted at source will be levied.
- For Late-payment of TDS:
As mentioned above, there is a monthly due date for making TDS payment to the government. If deductors fail to do so, they have to pay interest on TDS amount at the rate of 1.5% per month.
Every deductor/collector of TDS needs to file TDS return every quarter within specified date and in a prescribed format. TDS form differs depending on the purpose of TDS deduction.
Below are the various forms used for filing TDS return:
|Form Type||Purpose of TDS deduction|
|Form 24Q||For TDS on salary|
|Form 26Q||For TDS on payments other than salary|
|Form 27Q||TDS deducted for non-residents from interest income, dividend or any other payment|
|Form 27EQ||Quarterly statement of collection of tax at source (TCS)|
Deductors can furnish the TDS return in either physical format or in electronic format. However, it’s compulsory for below-mentioned employers to file the TDS return in an electronic format as per Section 206 of IT Act:
- All Corporate Deductors
- All Government Deductors
- If the deductor is liable for audit under Section 44AB
- If number of deductee records in a statement for any quarter of the financial year is twenty or more.
Below are some of the pre-requisites for e-filing TDS return :
- Deductors should be registered in e-filing and should also hold valid TAN
- Return Preparation Utility (RPU) and File Validation Utility (FVU) has to be downloaded from NSDL website (https://www.tin-nsdl.com/).
- Statement of TDS needs to be prepared using these utilities.
- Register for valid DSC in e-filing site
Procedure for e-filing TDS Return
- Go to e-filing home page
- Login with user ID and password provided at the time of registration
- Go to TDS section and select ‘’upload TDS’’ option
- Select and fill in all details correctly and validate the statement details
- Upload the TDS/TCS statement (prepared using utilities downloaded from NSDL website)
- E-filing requires digital signature of deductor. Generate signature file using DSC and attach the signature file
- Click on upload button and you will receive the confirmation message.
Filed TDS status can be viewed online under “view filed TDS’’ tab.
TDS Return Due Dates
TDS return filing due dates
|Quarter||Quarter Period||Due date to file TDS return|
|1st Quarter||April to June||On 31st of July of the same FY|
|2nd Quarter||July to September||On 31st of Oct of the same FY|
|3rd Quarter||October to December||On 31st of Jan of the same FY|
|4th Quarter||January to March||On 31st of May next financial year|
Important Points to Remember
- Everyone who is deducting TDS needs to have TAN (Tax deduction and collection Account Number) as per the provisions of Section 203 A of the Income Tax Act
- TAN is a mandatory requirement while filing TDS return and also should be mentioned on the issued TDS certificate
- TDS deductions are linked to your PAN (Permanent Account Number). It is essential to have PAN details to deduct TDS
- The deductor needs to quote every deductee’s PAN
- Every deductee needs to present the TDS certificate to adjust the amount of TDS paid against the total tax payable
- TDS details can be checked through Tax credit Form 26AS which is available to all PAN holders
- This consolidated tax statement gives you the clear details of TDS deducted for various type of payments by each deductor
- For Late Filing ITR
If the deductor fails to furnish the TDS return on or before specified due date, he shall be liable to pay a penalty of ₹ 200 per day till the date of default. And the total amount of such penalty cannot exceed the total amount of tax deducted at source.
- For Not Filing ITR
- If the deductor defaults to file the TDS return within a year from the due date of TDS return, he shall be liable to pay a penalty which ranges from ₹ 10000 to ₹ 1 lakh.
- The same is applicable for cases in which incorrect details are furnished by the deductor.
- TDS is refundable.
- If the TDS deducted is more than the total amount of tax you are supposed to pay in a year, you are eligible to claim for TDS refund.
- When your total income falls below the minimum taxable limit, TDS already deducted can be claimed as refund.
For example, you are a freelancer who works on contract with different companies. Let’s say TDS of ₹ 10,000 was deducted by your client for a freelancing job that you have done. However, your income for the year totalled up to only ₹ 1.8 lakh which is in the tax exempt limit. Here, you can claim tax refund as your yearly income is below the limit.
However, you can also place a request for non-deduction of tax at source if your income falls below the basic exemption limit. Here are two ways to do so :
- Submit Form 15G/15H through which you can declare that your annual income is below the basic exemption limit for the respective financial year and hence the tax is not to be deducted at source.
- The declaration holds good for only to that particular financial year. Hence, it needs to be submitted each year in which your taxable income is below the limit.
- You can place an application for Lower deduction or nil deduction of TDS.
- Duly filled Form 13 has to be submitted to Income Tax Officer to do so.
TDS Refund Process
TDS refund can be claimed through the Income tax site. You must file the income tax return and show the TDS refund. After filing the Income tax returns, income tax department will process the TDS refund request. The amount may get credited to your account within 6 months. TDS refund status can be checked online using your e-filing site login.