TDS works on the concept that every person making specified types of payments to any person shall deduct tax at the rates prescribed in the Income-tax Act at the source and deposit the same into the government’s account. The person making the payment is responsible for deducting the tax and depositing the same with the government. This person is known as the ‘deductor.’ On the other hand, the person who receives the payment after the tax deduction is called the ‘deductee.’ Form 26AS is a statement that shows the amount of tax deducted and deposited in a person’s name/PAN in a particular financial year. An individual can, therefore, view/check the TDS from incomes paid to him by viewing this Form 26AS. Each deductor is also duty-bound to issue a TDS certificate certifying how much amount is deducted in the deductee’s name and deposited with the government.
In November 2021, the Indian government introduced two new documents, the Annual Information Statement (AIS) and Taxpayer Information Summary (TIS), to provide a record of financial transactions that the income tax department has of an individual. These documents show the total income received, the source of income, and the total tax deducted on the income received. These documents provide transparency and help individuals to understand the tax liability they owe to the government.
- What is TDS
- Rates prescribed for different types of payments
- How TDS works?
- How to avoid TDS
- What is TDS?
- Is TDS deducted at same rate from all types income which are subject to TDS?
- Who are the deductor and deductee?
- How can I check if TDS is deposited with the government?
- What is the rate at which TDS on salaries is deducted?
- Can TDS be avoided?
- What is the current TDS rate?
- Can TDS be refunded?
What is TDS
TDS, which stands for ‘Tax Deducted at Source’, is a tax collection tool introduced by the government of India to collect tax at the source of an individual’s income generation. The aim is to minimize tax evasion by taxing the income, either partially or wholly, at the time it is generated rather than at a later date. TDS is applicable to various incomes such as salaries, interest received, the commission received, dividends, etc. However, it is not applicable to all incomes and persons for all transactions. The Income-tax Act, of 1961, prescribes different TDS rates for different payments and different categories of recipients. For instance, payment of redemption proceeds by a debt mutual fund to a resident individual is not subject to TDS, but for a Non-Resident Indian, it is subject to TDS.
Rates prescribed for different types of payments
There are different rates for TDS described in the different sections of the Act, depending on the nature of the payments.
Given below are some of the TDS rates on salaried and non-salaried payments for ongoing FY 2021-22:
|Nature of Payment||Section||Threshold (Rs)||TDS Rate (%)|
|Salaries||192||Rs 2.5 lakh (for those below 60 years)||Normal slab rate|
|Withdrawal from EPF before completion of 5 continuous year||192A||50000||10|
|Interest on securities such as debentures etc.||193||5000||10|
|Dividends from companies (Effective from April 1, 2020)||194||5000||10|
|Interest received from banks, post office or co-operative society engaged in banking for e.g. interest from fixed deposit||194A||40000 (50000 in case of resident senior citizen)||10|
|Winning from lotteries, crosswords or any game||194B||10000||30|
|Winning from Horse race||194BB||10000||30|
|Payment to Contractors and sub-contractors||194C||30000||1% (Individual/HUF), 2% (Others)|
|Insurance commission||194D||15000||5%(individuals), 10% (Company)|
|Maturity of Life insurance policy those not exempted under Section 10(10D)||194DA||100000||5|
|National Savings Schemes||194EE||2500||10|
|Commission on sale of lottery tickets||194G||15000||5|
|Commission/Brokerage received except for insurance commission||194H||15000||5|
|Rent of Plant/Machinery /Equipment||194-I(a)||240000||2|
|Rent of Immovable property||194-I(b)||10|
|Transfer of certain immovable property such as land, building*||194IA||50 lakh||1|
|Payment of rent by Individual/HUF||194IB||50000 per month||5|
|Payment under Joint Development Agreements to Individual/HUF**||194IC||–||10|
|Payment of Professional Fees||194J||30000||2% (FTS, Certain royalties,) 10%(Others)|
|Dividend received from mutual funds (Effective from April 1, 2020)||194K||5000||10|
|Payment of compensation on acquisition of certain immovable property (other than Agricultural land) by government||194LA||250000||10|
|Payments made to professional/commission/broekrage Rs 50 lakh or more||194M||50 lakh||5|
|Cash withdrawal from bank account exceeding Rs 20 lakh or Rs 1 crore as the case maybe||194N||1 Crore||2|
|TDS on e-commerce participants (w.e.f. 01.04.2020)||194-O||5 lakhs||1|
|TDS deducted for exempting Senior citizens above 75 years from ITR filing||194-P||Rs 3 lakh or Rs 5 lakh (in old tax regime) or Rs 2.5 lakh (in new tax regime)||Normal slab rate|
|Purchase of Goods||194Q||50 Lakh||0.1|
*From April 1, 2022, Threshold will be Rs 50 lakh or Stamp duty value, whichever is higher
** TDS will be deducted on the monetary amount received from builder/developer
Effective from July 1, 2022, tax will be deducted on the transfer of crypto assets at the rate of 1% under section 194S of the Income-tax Act. The tax will be deducted if the transfer amount exceeds Rs 50,000 in case of specified person (Rs 10,000 in other case).
As per Budget 2022 proposal, in case the payer is an Individual or HUF, having turnover from Business less than or equal to Rs 1 Crore or having turnover from Profession less than or equal to Rs 50 Lakhs or having income under any head other than the head ‘Profits and gains of business or profession and the value of consideration transferred to a Resident with respect to virtual digital asset is less than Rs.50,000, there is no liability on such Individual/HUF to deduct tax. In any other case, the said limit is proposed to be Rs. 10,000 during the financial year.
How TDS works?
TDS or Tax Deducted at Source is a tax collection mechanism introduced by the government to collect tax at the source of income generation. When an entity makes a payment that is subject to TDS, a certain percentage of the amount paid is deducted as tax and the balance is paid to the recipient. The deductor also provides a certificate to the deductee stating the amount of TDS deducted, which can be claimed as tax paid by the deductee for that financial year.
It is the duty of the deductor to deposit the TDS with the government, and once deposited, the amount is reflected in Form 26AS of individual deductees on the TRACES website linked to the income tax department’s e-filing website. This enables the deductee to view and check the TDS from incomes paid to them by accessing their Form 26AS.
TDS only applicable above a threshold level
It is important to keep in mind that TDS is only deducted on specified transactions if the payment value exceeds the threshold level. The Income Tax department sets different threshold levels for different types of payments, such as salaries and interest received. For instance, if the total interest received on FD/FDs from a single bank is less than Rs 40,000 in a year, there will be no TDS deduction. However, for senior citizens, TDS on interest received on FD will be applicable if it exceeds Rs 50,000 in a single financial year. It is crucial to be aware of these threshold levels to ensure compliance with TDS regulations and avoid unnecessary tax deductions.
How to avoid TDS
When a person expects that their total income in a financial year will be below the exemption limit, they can submit Form 15G/15H to the payer and request them not to deduct TDS from their payments. This form is a self-declaration form that certifies that the person’s income is below the taxable limit.
It is important for the deductee to provide their PAN details to the payer while receiving payment that is subject to TDS. This is because if the PAN details are not provided or are incorrect, the TDS will be deducted at a higher rate of 20% or the applicable rate, whichever is higher, as per Section 206AA of the Income Tax Act. Therefore, it is essential for the deductee to ensure that their PAN details are correctly provided to avoid higher TDS deduction.
What is TDS?
TDS stands for tax deducted at source. The payer of income deducts the tax from the gross payment due and pays the net amount (i.e. net of tax).
Is TDS deducted at same rate from all types income which are subject to TDS?
No, TDS is not deducted at the same rate from all incomes which are subject to TDS. There are different TDS rates for different types of incomes.
Who are the deductor and deductee?
A deductor is the person responsible for deducting tax. The person who receives the payment after the deduction of tax is called the deductee.
How can I check if TDS is deposited with the government?
Once the TDS is deposited with the government by the deductor, then the TDS amount deposited will be reflected in your Form 26AS. Further, the deductor is required to issue you a TDS certificate.
What is the rate at which TDS on salaries is deducted?
According to income tax laws, TDS on salary is deducted at the income tax rates applicable to one’s incomes inclusive of cess.
Can TDS be avoided?
TDS can be avoided by submitting Form 15G/Form 15H to the deductee.
What is the current TDS rate?
TDS rate depends on the type of income received by you. Each income has a different threshold and once that threshold is crossed at the TDS rate specified in the Income-tax Act.
Can TDS be refunded?
TDS that has been deducted can be claimed as refund provided your tax liability for financial year is lower than the tax deducted. To claim TDS refund, you are required to file income tax return.