What is Tax Deducted at Source?

According to the IT Act, 1961, every individual or company offering a certain kind of instalment above a designated threshold limit must subtract tax at source. TDS stands for Tax Deducted at Source. The tax is to be decreased based on the prerequisites stipulated in the Act. The deducting tax at the origin is called the deductor. The individual or company accepting the payment after the deduction of tax at the source is known as the deductee.

The responsibility of deducting the tax at the source and transferring it to the government is on the deductor. The types of payments where tax is deducted at source are:

a) Interest payments by banks

b) Payrolls

c) Consultation fee

d) Rent

e) Expert fee

f) Commission fee

TDS is an advance tax and necessitates to be deducted irrespective of the form of payment. Since Tax Deducted at Source is a component of income tax, both deductor and deductee’s PAN are associated. If PAN of the deductee is not renewed, the deductor must subtract TDS at costlier of the following rates:

a) the rate as commanded in the Act;

b) at the rate specified in the Finance Act; or

c) at a rate of 20%.

When is Tax Deducted at Source and by Whom?Tax Deducted at Source (TDS)

Tax Deducted at Source requires to be subtracted by a person or company making stipulated payments under the IT Act for which TDS is required to be deducted. Nevertheless, no TDS is obliged to be subtracted if the individual or company executing the payment is an individual or HUF whose records are not required to be reviewed, except in the case of a rent mortgage.

When it comes to renting, an instalment of Rs. 50,000 and above per month, the individuals or HUF are required to decrease Tax Deducted at Source at 5% without appealing for TAN.

TDS on wages is subtracted based on the relevant slab rate, and the bank subtracts TDS on interest at 10%. If the PAN card is not submitted, the TDS decreased by the bank is at 20%. The TDS rates are stated in the Act for other specified sums, and Tax Deducted at Source is decreased based on those specified valuations.

If you are submitting investment proofs to your employer to claim the deduction and your total wage is lesser than the chargeable limit, you are not obligated to give income tax, and therefore no TDS shall be diminished. Furthermore, you can submit Form 15G and Form 15H to the bank stating that your total wage is below the chargeable limit, and hence the bank shall subtract no TDS from your interest earnings.

In case you are unable to submit evidence of your expenses to your employer, and the employer/bank has already subtracted TDS, you can also file the return to demand a refund of decreased TDS.

How to Deposit Tax Deducted at Source?

To submit TDS, obey these steps:

  • First, visit the NSDL website for handling taxes online. 
  • Now choose ‘CHALLAN NO./ITNS 281’ below the section ‘TDS/TCS’.
  • On the e-payment page, enter the necessary details:
    • Choose ‘Company Deductee’ if you are a business; otherwise, choose ‘Non-Company Deductee’ in the ‘Tax Applicable’ section.
    • Next, you have to input the TAN and the Assessment year to execute the payment. 
    • Enter the PIN code and State in which you reside.
    • Now, decide whether the payment you are making is for TDS deducted and obligatory by you or TDS for regular assessment.
    • Now, select the ‘Nature of Payment’ and ‘Mode of Payment’ and then click on ‘Submit’.
  • After submission on the confirmation page, your full name of the taxpayer will be displayed if the TAN is entered right.
  • After you have confirmed the data entered, you will be redirected to the net banking website of your choice, and you have to make the payment by logging in to your net banking account.
  • After the payment is complete, a challan counterfoil will be presented, which will have the CIN, payment particulars and the bank name from which you have executed the payment. This counterfoil is confirmation of payment which you will need while filing the TDS return.

TDS Deduction

Tax Deducted at Source applies to most kinds of income, including salary, professional income, commission, etc.

That is where the income gets generated. As mentioned in the income tax act, a person who makes payments must subtract TDS at stipulated rates and transfer the same with the IT department. The tax department’s value is flexible against the tax liability of the individual or entity whose tax has been subtracted. Tax Deducted at Source is subtracted as per the income tax rate for a particular fiscal year. Businesses can subtract TDS from salaried employees, freelancers, commission payments, etc.

The Tax Deducted at Source needs to be subtracted by any person performing the payment, as stated in the IT Act. The obligation to pay the Tax Deducted at Source to Income Tax Authorities is on the person who has made the abatement.

Tax Deducted at Source Return

TDS Return Form

There are various forms for different taxpayers to register Tax Deducted at Source returns. The resulting forms are:

TDS Return Form Deductee Type
Form 24Q Deductions made in case of salaried employees
Form 26Q Deductions made in case of other than salaried employees
Form 27Q Deductions made in case of Non-Resident

TDS Return Due Date

Quarter Due Date For Filing Of Return For All Deductors
30th June 31st July
30th September 31st October
31st December 31st January
31st March 31st May

TDS Refund

TDS is subtracted in advance, and most frequently, there is a discrepancy in the investment demanded to be performed in the year and the genuine investment made. So, extra TDS deduction is possible, which is refundable by the government following the TDS refund procedure.

TDS Refund Process

  • There is no particular form that is expected to be filled. You can command your Tax Deducted at Source return while filing your IT return. You have to show the calculation of your earnings and the total TDS subtracted. The IT software will automatically verify the details filled by you and will reveal your excess TDS if there is any.
  • Once you register for the TDS refund, it may take a few months on the IT officer’s part in approving the refund. Yet, if the amount of TDS refund is more than 10% of the total tax paid for the year, then the government will be subject to pay you interest at the rate of 6% per annum for the prolonged refund.

TDS Refund- Check Status Online

You can visit the website to monitor the status of your refund. You are expected to supply your PAN details and the year for which the refund was requested.

You can also verify your refund status by communicating with the help desk of SBI through email.

What is a TDS Certificate?

The certificates issued by the person or company deducting TDS to the assessee whose tax has been deducted is called TDS certificate. These TDS certificates include complete information of the TDS deducted based on the nature of the payment. Form 16, Form 16 A, Form 16B, and Form 16C are all TDS certificates.

The employer issues form 16 for deducting TDS on salary, whereas the bank issues form 16A for deducting TDS on interest income:

Form Nature Of Certificate Frequency Due Date
Form 16 TDS on salary payment Yearly 31st May
Form 16A TDS on non-salary payments Quarterly 15 days from the due date of filing TDS return
Form 16B TDS on sale of property Every transaction 15 days from the due date of filing TDS return
Form 16C TDS on rent Every transaction 15 days from the due date of filing TDS return

TDS on Sale of Property

 

As per section 194i (A) of the Income Tax Act, when a buyer buys an immovable property costing more than ₹ 50 Lakh, he has to deduct TDS when he pays to the seller. The immovable property can be any piece of land or building other than the agricultural land. The buyer is required to deduct 1% Tax Deducted at the Source of the total sale consideration. The TDS notification on the immovable property was announced in the budget for the year 2013-14.

Key Points for TDS is to be deducted by the buyer, not the seller.

  • Property should cost more than ₹ 50 Lakh, and then only TDS will be deducted.
  • TDS will be subtracted from the complete amount of the transaction.
  • The buyer does not need to obtain a TAN number.
  • In case the property is purchased by the seller, a PAN number is required, or Tax Deducted at Source will be decreased at the interest rate of 20%. The buyer is also expected to show his PAN card details.
  • TDS has to be submitted along with Form 26QB within 7 days from the end of the month in which TDS was decreased.
  • The buyer is expected to show the TDS certificate to the seller. The seller is required to obtain Form 16, and the buyer needs Form 26QB.
  • TDS should be subtracted in all cases irrespective of the monetary gains rising to the seller.
  • In the case of a housing loan, TDS is to be subtracted when making an instalment to the seller, not paying EMI to the bank.
  • Both buyer and seller are required to file an income tax return in the year of purchase.

Note: In case there are 2 buyers, and the portion of each individual is less than ₹ 5 Lakh, the aggregate value of land is more than ₹ 50 Lakh, the same method of subtracting the TDS will be accompanied by the buyer.

Penalty for Nonpayment or Delayed TDS on Property

  • If the purchaser does not subtract the TDS, he must pay interest at the rate of 1% per month as a punishment on the amount not diminished.
  • If the TDS is deducted but not repaid on time, the buyer has to pay interest at the rate of 1.5% per month as a fine for postponed TDS payment.

Penalty for Late Filing of Form 26QB

If the buyer gets late in filing a TDS return, a fine of ₹ 200 per day would be charged.

FAQs about Tax Deducted at Source

What is the TDS rate?

 

The rate based on which the payee makes a certain deduction on tax deducted at source under a specific section of the Income Tax Act is called the TDS rate.

On what amount TDS is deducted?

Tax Deducted at Source is deducted on the gross amount, which is to be paid by the payee to the receiver.

How is TDS on salary calculated?

Calculate the total income by adding all the salary, commission, bonus, etc. Then add the income received from any investments. Deduct any eligible exemptions from the resulting taxable income, and calculate the TDS as per the average rates.

Who is liable to deduct TDS?

The liability to deduct TDS is on the deductor or the person who is making the payment. However, individuals and HUFs whose books are not required to be audited. However, when the rent payment for each month exceeds ₹ 50,000 per month, individuals and HUF must deduct TDS @ 5%, even if their books are not required to be audited.

Why do we deduct TDS?

Deduction of TDS is mandatory as per the Income Tax Act, 1961 as and when required. The government introduced the deduction of tax at the source to minimize tax evasion activities by taxing at the source of income generation. To know more about the Tax Deducted at Source, visit the Dialabank website.

How can I get a TDS refund?

To get a TDS refund, you need to first declare it in your IT return, following which the Income Tax department will automatically credit it in your bank account.

Is TDS and Income Tax the same?

The basic difference between TDS and income tax is that TDS is levied at the source where income is generated under specified cases like salary, interest from the bank, rent, professional fee, etc. At the same time, income tax is levied on an assessee whose income is above the tax limit in a particular period.

What is the minimum amount for Tax Deducted at Source?

The minimum amount for TDS deduction varies with each payment type. For example, in the contractor’s payment, TDS is deducted when the total payment in a financial year exceeds ₹ 30,000.

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