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Last updated: November 20th, 2024 4:20 PM

TDS - Tax Deducted at Source: All You Need to Know

TDS or Tax Deducted at Source, is a way of taking part of your income tax right when you get paid. It happens when you receive certain kinds of payments. TDS applies to various income sources, including salaries, interest earned on bank savings, rental income from property, and even commissions. It is a vital mechanism to ensure that individuals follow TDS deduction rules and do not evade their tax obligations. This article will comprehensively explain the TDS rules and intricacies outlined in the Income Tax Act of India. IndiaFilings streamlines your TDS return filing with expert assistance! [shortcode_35]

What is TDS Full Form and TDS Meaning?

TDS full form is "Tax Deducted at Source". It is a tax amount deducted by the employer from the taxpayer’s income at the time of payment and deposited with the Income Tax Department. The TDS rate varies based on income type and ensures tax collection at the source. Normally, you're responsible for paying your income tax on your own. But as per the TDS deduction rules, the government ensures that some tax is removed from your payment before you get it. TDS deduction applies to such of the following income sources:

Salary
Commission earned
Rent
Interest payment by banks
Professional or consultation fee
Contractor payments
Amount under LIC
Compensation for acquiring immovable property
Brokerage or Commission
Insurance Commission
Interest on securities
Remuneration paid to the director of the company
Winning from games like a card lottery, crossword puzzle, etc.
Deemed Dividend
Interest apart from interest on securities
Transfer of immovable property
Income from online gaming

Also, read our article on Tax Collected at Source (TCS)

How Does TDS Work?

When you receive money with TDS, you get a bit less because of the tax deduction. Later, you must add the full payment to your total income when calculating your taxes. The Tax you already paid through TDS is then subtracted from what you owe, making it easier to manage your tax responsibilities. This is the way the TDS mechanism functions as per TDS rules.

When and Who Should Deduct TDS?

Tax Deducted at Source comes into play when certain payments are made according to the Income Tax Act. Here's who should deduct Tax Deducted at Source and when, as per TDS deduction rules:

Responsibility for Deducting TDS: Anyone who makes such payments is responsible for TDS deduction.
Exemption for Individuals and HUFs: Individuals and Hindu Undivided Families (HUFs) without needing a tax audit are exempt from TDS.
Mandatory 5% TDS for Rent Payments: Individuals and HUFs must deduct a 5% TDS on monthly rent payments exceeding Rs 50,000, even if they are not subject to a tax audit.
TDS by Employers: Employers can make TDS deductions based on the income tax slab rates applicable to employees. Banks typically deduct 10% or 20% if they lack PAN (Permanent Account Number) information.
Avoiding TDS with Investment Proof: If your total taxable income is below the limit, you can prevent TDS by providing proof of investments that qualify for deductions.
Preventing TDS on Interest Income: To avoid Tax Deducted at Source on interest income when your income is below the taxable limit, you can submit Form 15G or Form 15H.
Claiming a Refund for Excess TDS: If Tax Deducted at Source is deducted, but your income falls below the taxable limit, you can claim a refund by filing an income tax return.

Taxpayers must conduct their TDS-related activities based on the given TDS deduction rules. Learn about the difference between TDS and income tax return

What are the TDS rates?

TDS rates vary based on the nature of payment, such as salary, interest, dividends, professional fees, and rent. These TDS rules and rates are specified under the Income Tax Act, 1961, and are influenced by factors like payment type, recipient’s status (resident or non-resident), and applicable thresholds. Below is a table highlighting the TDS deduction rates applicable for different categories of payments in the Financial Year 2024-25.

Nature of Payment	Section	Threshold Limit (₹)	TDS Rate (%)	Applicable to
Salary	192	Slab-based	Slab rates	Resident individuals
Interest on Securities	193	10,000	10%	Residents
Dividends	194	5,000	10%	Residents
Rent of Land or Building	194I	2,40,000	10%	Residents
Rent of Plant, Machinery, or Equipment	194I	2,40,000	2%	Residents
Fees for Professional or Technical Services	194J	30,000	10%	Residents
Payment to Contractors	194C	30,000 (single payment) / 1,00,000 (aggregate)	1% (individuals) / 2% (others)	Residents
Commission or Brokerage	194H	15,000	5%	Residents
Purchase of Goods	194Q	50,00,000	0.10%	Business entities
Payments to Non-Residents	195	-	Varies by income type	Non-residents

Learn more: TDS rate chart

How to Pay TDS Online?

To make a TDS payment online, follow these steps:

Step 1: Go to NSDL's website dedicated to e-payment of taxes.
Step 2: Under the TDS/TCS section, select 'CHALLAN NO./ITNS 281.' This will take you to the e-payment page.
Step 3: Under 'Tax Applicable,' choose 'Company Deductees' if you deducted TDS while paying a company. Otherwise, select 'Non-Company Deductees.'
Step 4: Enter the TAN (Tax Deduction and Collection Account Number) and the Assessment Year for payment.
Step 5: Provide the 'Pin Code' and select your 'State' from the drop-down menu.
Step 6: Indicate whether the payment is for TDS deducted and payable by you or for TDS on regular assessment.
Step 7: Select the 'Nature of Payment' and the 'Mode of Payment' from the available options.
Step 8: Click the 'Submit' button.
Step 9: After submission, a confirmation screen will appear. If your TAN is valid, the taxpayer's full name, as per the records, will be displayed on this confirmation screen.
Step 10: Upon confirming the entered data, you will be directed to the net banking site of your bank.
Step 11: Log in to your bank's net banking site using your user ID and password provided by the bank.
Step 12: Make the payment through the net banking portal.
Step 13: Upon successful payment, a challan counterfoil will be displayed, which contains the CIN (Challan Identification Number), payment details, and the bank name through which the e-payment was made. This counterfoil serves as proof of the payment made.

After making the TDS deduction and payment online, you must file your TDS return.

How to Check the TDS Payment Status?

To check the status of online Tax Deducted at Source payments, follow these steps:

Step 1: Go to the TIN-NSDL Oltas challan status inquiry website.
Step 2: There are two ways to search for the challan status of TDS payments:

Option 1 - CIN Based View:

Enter the challan details, including the BSR (Basic Statistical Return) code of the collecting branch, challan date, challan serial number, and amount (optional). After providing these details, you can view the following information:

Challan serial number
Date of deposit
BSR code
Major Head Code with description
TAN/PAN (Tax Deduction and Collection Account Number/Permanent Account Number)
Name of the taxpayer
Amount confirmation, if it is entered (correct or not)
Receipt date by TIN

Option 2 - TAN Based View:

Provide the TAN (Tax Deduction and Collection Account Number) and the challan date range for a specific financial year. With this information, you can view the following details:

CIN (Challan Identification Number)
Major Head Code with description
Minor Head Code
Nature of Payment

If you enter the amount against a CIN, the system will confirm whether it matches the details of the amount reported by the bank.

What are the TDS Payment Due Dates?

All employers or deductors responsible for withholding Tax Deducted at Source (TDS) from payments such as salaries or professional fees must deposit the deducted amount to the Central Government's account within the given time frame. Timely compliance is essential to avoid penalties for the evasion of TDS rules. The table below outlines the monthly TDS payment due dates:

Month	Due Date
April	On or before 7th of May
May	On or before 7th of June
June	On or before 7th of July
July	On or before 7th of August
August	On or before 7th of September
September	On or before 7th of October
October	On or before 7th of November
November	On or before 7th of December
December	On or before 7th of January
January	On or before 7th of February
February	On or before 7th of March
March	On or before 30th of April

What is TDS Return Filing?

TDS Return Filing is the process of submitting an appropriate form to the Income Tax Department that details the tax deducted at source (TDS) by a deductor. It includes information such as the amount of tax deducted, the type of payment, the PAN details of the deductor and deductee and the deposited tax amount. Filing TDS returns is mandatory for individuals and entities who deduct TDS and must be done quarterly. Accurate and timely filing ensures compliance with tax regulations and helps the deductee claim the deducted amount while filing their income tax returns. For more details on TDS Returns, refer to our article Guide to TDS Return Filing in India. IndiaFilings provides comprehensive assistance for seamless and accurate TDS return filing. [shortcode_35]

TDS Forms, Purpose, and Due Date

TDS return filing requires specific forms depending on the nature of the payment and the category of the deductee. Each form is designed to capture relevant details, such as the type of transaction, TDS deducted, and recipient details. Filing the appropriate form within the prescribed time ensures compliance with the Income Tax Act and avoids penalties. Below is an overview of TDS forms, their purpose, and their filing due dates.

TDS Form	Purpose	Filing Frequency	Due Date
Form 24Q	For reporting TDS deducted under Section 192 on salary payments to employees.	Quarterly	31st of the month following the quarter
Form 26Q	For reporting TDS on payments other than salary made to residents.	Quarterly	31st of the month following the quarter
Form 27Q	For reporting TDS on payments other than salary made to non-resident individuals and foreign entities.	Quarterly	31st of the month following the quarter
Form 27EQ	For reporting tax collected at source (TCS) under Section 206C by corporate and government collectors.	Quarterly	31st of the month following the quarter.

Penalty for Non-Compliance of TDS

Not following the TDS deduction rules can lead to penalties, usually in fees and interest added to the main taxable amount. These penalties can take different forms, such as:

Regulation Regarding Tax Deduction

Tax must be deducted when the payment is made. Any delay in tax deduction incurs a monthly penalty of 1% interest until the sum is deducted. Failure to deduct TDS may result in restrictions when determining taxable profit from total expenditures.

Regulations Regarding TDS Payment

Taxpayers must remit the taxable sum to the Government by the 7th day of the following month. Non-payment or late payment incurs a penalty of 1.5% per month on the total payable amount until the sum is deposited.

Regulations Regarding TDS Return Filing

TDS returns must be filed on the 31st day of January, July, May, and October of each financial year. Failure to file or late filing results in a penalty of Rs. 200 per day (as per Section 234E of the Income Tax Act of India) until the return is filed, not exceeding the total Tax levied.

Read our article to learn more about the Penalty for Late Filing of TDS Return

How to Know your Deducted TDS amount?

You can easily check whether Tax Deducted at Source (TDS) has been deducted and credited to your account online. The steps to verify TDS details and payments are as follows:

Step 1 - Visit the Official Income Tax Portal: Go to the official website of the Income Tax Department of India and choose the option to register as a new user if not already registered.
Step 2 - Provide PAN Details and Create a Password: Enter your Permanent Account Number (PAN) and other required details to generate a password for your account.
Step 3 - Log In and Access Form 26AS: Use your login credentials to access your account. Select the option to view your tax credit statement, also known as Form 26AS.
Step 4 - Redirect to TRACES Portal: You will be redirected to the TRACES (TDS Reconciliation Analysis and Correction Enabling System) page. Here, you can view detailed information on your TDS, advance tax paid, and other tax-related credits.

What is a TDS Refund?

A TDS refund occurs when the tax deducted at source (TDS) exceeds the actual tax liability calculated for a financial year. This often happens when income from multiple sources is consolidated, and the total taxable income falls under a lower tax slab than the rate at which TDS was deducted. Taxpayers can claim the refund while filing their income tax return, ensuring the excess amount is credited back to their account.

TDS Refund and Adjustments

According to the TDS rules, you can claim a tax refund if you have paid more than required. To do so, file a refund claim with your annual income tax return, and the refund amount will be processed along with your Income Tax Return. For instance, if Mr. Paul presented an invoice of Rs. 40,000 and received Rs. 39,200 after deducting 2% TDS (Rs. 800), but he is liable for a 1% tax (Rs. 400) under Section 194C, the excess amount will be refunded when Mr. Paul files his Income Tax Return.

If annual income falls below the taxable threshold, you can request zero deduction on your income through either of these methods:
Declare income below the basic exemption limit using Form 15G or 15H, which exempts you from TDS. These forms must be submitted annually, or you may face tax deductions.
Under this provision, apply for a lower or zero tax deduction rate certificate using Form 13, which will register your income for zero TDS.

Understanding Tax Deducted at Source is crucial for taxpayers to comply with the regulations of the Income Tax Department of India, including taxation limits, applicable forms, and related details. Individuals can earn income from various sources, and income tax is a direct tax that they must pay based on the income tax slab their taxable income falls into. In the Indian tax system, Tax Deducted at Source plays a vital role in taxation and substantially impacts taxpayers' post-tax income.

How to Claim a TDS Refund?

Many people mistakenly believe that a TDS refund is different from an income tax refund. However, under the Indian Tax System, both are part of the same process and can be claimed while filing your annual Income Tax Return (ITR). To claim a TDS refund, you must provide accurate bank details, including your account number and IFSC code, when filing your ITR. Without these details, the refund process cannot proceed. If excess TDS has been deducted, the system calculates the refund automatically during the ITR filing process. Once the ITR is processed and verified, the excess tax deducted is refunded to your registered bank account. Ensuring all income and deductions are correctly reported in your ITR is essential for a smooth refund process. Simplify your TDS return filing process with IndiaFilings tax experts! [shortcode_35]