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There are many of us who must not be familiar with all the aspects of income tax filing. One of these is TDS or Tax Deduction at Source. Some of the queries that most of us have are, what are the factors involved in TDS, when and where TDS is charged, what the various procedures to reduce it are and how to claim this deduction while filing our tax returns? Following is an introduction to TDS and the various doubts that most have regarding it.
What are TDS Deductions ?
The tax architecture in India is a two-way approach towards payment of the tax returns. The first approach is the self-assessment of income tax return by the individual themselves. This means that the person analyzes their expenditure and investments along with the tax to be paid and the deductions because of that and then pays their tax. The second approach is Tax Deduction at Source. In this method, the tax is deducted on the spot from the source of the income itself. This is done to ensure that the particular individual or company is paying their due tax correctly without any discrepancies. This approach also simplifies the taxation procedure to a large extent.
TDS is generally charged for income earnings from variant financial investments and business transactions like sale of property, commissions and incentives, interest income from savings accounts in banks, payment received for contracts and services, awards or prices earned as money, vendors and dividends.
There is no uniform taxation rate for TDS deduction. It can range from 1% for sale proceeds to 30% depending on the source of earnings.
How is TDS Deducted From Salary and Commissions?
It is necessary according to the Indian Income Tax rules that working professionals as well as companies who earn above a certain amount of annual income as mentioned in the income tax slabs should deduct tax at source from the payments they make.
Normally the employers ask the employees to fill out an investment declaration form. If you know the various sections that allow for deductions under the Sections 80C, 80D or are planning to do so in the coming financial year, you will have to provide the required proofs to save TDS. However, if the salary is above the taxation limit, the TDS will be continued to be deducted from the person’s salary every month. The employer issues a TDS certificate, which also often referred to as Form 16(a), at the end of every financial year. This can be produced to file the income tax returns to get exemption from TDS during the self assessment period of income tax. In case of incomes through means such as service fees, commissions and payment through contracts, the TDS certificate will have to be a Form 16(b) if the person wishes to get their TDS returned.
How Is TDS Deducted from Property, Awards and Incentives?
TDS is also applicable in cases of earnings from sale of lottery winnings, rental / lease income, property, cash prizes, etc. The amount of deduction varies from 1% in case of sale proceeds to nearly 30% in case of cash awards.
Those individuals who are seeking a TDS refund in the aforementioned situations need to submit a form 15G/H. This form is a declaration on the part of the individual that your income is below the taxable limit. This is only for people who are Indian residents including senior citizens and Hindu Undivided Families (HUF’s). The Form 15G can be filed by all the Indian residents whose annual income for the particular financial year is below the taxation bracket. The senior citizens however, need to avail a deduction in the Form 15H for the same purpose. Non resident Indians are not allowed the use of forms 15G and 15H and need to apply separately for filing of income tax deduction under TDS.
TDS is deducted in the case of rental income only if it more than Rs. 1.8 Lakhs. If a property, whether rented or leased, is under joint ownership, such that the ownership percentage is predefined, the limit of Rs. 1.8 Lakhs can be availed individually by both or each of the owners.
What about income generated through bank deposits?
The interest paid by banks or other funding institutions in respect of FDs, that are more than Rs. 10,000 in a particular financial year and term deposits that are more than Rs. 5000 are also availed as TDS.
In certain cases, the income earned by the person is lesser than the interest earned from one’s deposits, that is, Rs. 10,000, they can request the bank not to deduct tax. This can be done by submitting forms 15G and 15H to the funding institution at the beginning of every financial year. Another way is to open multiple smaller fixed deposits in various banks. One can also split the interest earned over two financial years such that the ineterst that is earned from them is not more than Rs. 10,000 is also an effective means to avoid TDS.
One can also divide the fixed deposits into two different account types. This means that the person can open some of the deposits in their own name and others under the HUF account so as to avoid generating interest above the taxation limit. Also a PAN card is a necessary document for fixed deposits over and above the limit of Rs. 50,000. This helps the person avoid a TDS deduction of 20% by the bank. This deduction is non-reversible.
How can TDS Collected be Reversed?
A person who files tax returns must be knowing the tax bracket that the individual belongs to. A person can keep track of the TDS paid by them with the help of a form 26AS, also referred to as the annual tax statement. This form enlists all the TDS deducted on the taxpayer’s behalf. It can be obtained from the sources from which the earning has come. This is necessary as the missing taxes may be considered as unpaid leading to levying of penalties by the government on the person.
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