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TDS - Tax Deducted at Source

Most of us are well versed with the abbreviation TDS, but not many know what it literally means? TDS is Tax deducted at source and was introduced by the Income Tax department, with an aim to collect tax from the very source of income. Which means a person (deductor) who is liable to make payment of specified nature to any other person (deductee) shall deduct tax at source and remit the same into the account of the Central Government.

What is TDS?

TDS is a method of collecting Income Tax in India as per the provisions of the Income Tax Act of 1961. The Central Board for Direct Taxes (CBDT) is responsible for managing it. TDS is applicable on followings TDS on salary, commission, brokerage, royalty payments, contract payments, interest earned on several financial investments, earnings from lotteries, rent income and professional fees etc. Apart from that, TDS is collected in order to keep the revenue source stable for the govt. throughout the year which prevents people from evading taxes.

What is the importance of TDS?

Paying a huge amount of tax at one go is not a feasible option for everyone, therefore TDS enables you to pay your tax on your income as and when you earn it. However, if you feel that TDS deduction is an unnecessary burden on the salaried people then you may be wrong, as it has a set of advantages.

Advantages of TDS

TDS is deducted when you start earning and is dependent on the amount you earn. Besides, TDS benefits both the Government and the Tax payers. Following are the advantages of TDS.

TDS reduces the chances of tax evasion (avoidance) as the tax is collected at source.
It is one of the steadiest sources of revenue for the government.
The tax collection base is widened as most of the people have to pay TDS in some or the other form.
It is convenient for the individuals as the tax gets deducted automatically.

TDS Calculation

The percentage of tax that is calculated is different for each kind of income. Since TDS is collected at source without the calculation of investment that is eligible for tax deductions, an individual, in that case, has an opportunity to declare and hand over his proof of investment while filing a return and claiming TDS refund. And payments such as the commission, salaries, interest payment, fees to lawyers and freelancers are subject to TDS.

TDS Deduction

In case an individual has paid a surplus amount as compared to the liable tax amount, the payee can file a claim for a refund of the excess amount. Also, the TDS deductions are calculated based on various factors for individuals from different types of income categories.

How is TDS deducted?

Both income and expenditure such as the salary, lotteries, interests from banks, rent payment, payment of commissions, and payments to free lancers etc. fall under the range of TDS. Therefore, when a payment is made under these segments, a percentage of the overall payment is withheld by the source that is making the payments. This source can be a person or an organization, known as the ‘Deductor’. And the person whose payment is getting deducted is called the Deductee.

For example: Amit works for an organization named KBL Corporation. In this case, KBL Corporation is a deductor who is paying salary to the employee who is the deductee.

Note: Under the laws stated by the Government, any kind of payment made from one party to another will be subject to TDS while complying with the provisions of the Income Tax Act, 1961. Here, the tax will be deducted at source and will be deposited to the Department of Income Tax.

Following are the Rates for tax deduction at source for Assessment year 2019-20.

Particulars	TDS Rates (in %)
Section 192: Payment of salary	As per the Income Tax Slab rate
Section 192A: Payment of the accumulated balance of provident fund which is taxable in the hands of an employee (with effect from 01.06.2015).	10
Section 193: Interest on securities
a) any debentures or securities for money issued by or on behalf of any local authority or a corporation established by a Central, State or Provincial Act;	10
b) any debentures issued by a company where such debentures are listed on a recognized stock exchange in accordance with the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and any rules made thereunder;	10
c) any security of the Central or State Government;	10
d) interest on any other security	10
Section 194: Dividend other than the dividend as referred to in Section 115-O	10
Section 194A: Income by way of interest other than "Interest on securities" from banks and other sources	10
Section 194B: Income by way of winnings from lotteries, crossword puzzles, card games and other games of any sort	30
Section 194BB: Income by way of winnings from horse races	30
Section 194C: Payment to contractor/sub-contractor
a) HUF/Individuals	1
b) Others	2
Section 194D: Insurance commission	5 (10% till Assessment year 2016-17)
Section 194DA: Payment in respect of life insurance policy	1 (2% till 31-5-2016)
Section 194EE: Payment in respect of deposit under National Savings scheme	10 (20% till 31-5-2016)
Section 194F: Payment on account of repurchase of unit by Mutual Fund or Unit Trust of India	20
Section 194G: Commission, etc., on sale of lottery tickets	5 (10% till 31-5-2016)
Section 194H: Commission or brokerage	5 (10% till 31-5-2016)
Section 194-I: Rent
a) Plant & Machinery	2
b) Land or building or furniture or fitting	10
Section 194-IA: Payment on transfer of certain immovable property other than agricultural land	1
Section 194-IB: Payment of rent by individual or HUF not liable to tax audit Note: This provision is applicable from June 1, 2017	5
Section 194-IC: Payment of monetary consideration under Joint Development Agreements	10
Section 194J: Any sum paid by way a) Fee for professional services, b) Fee for technical services c) Royalty, d) Remuneration/fee/commission to a director or e) For not carrying out any activity in relation to any business f) For not sharing any know-how, patent, copyright etc.	10
Section 194LA: Payment of compensation on acquisition of certain immovable property	10
Section 194LBA(1): Business trust shall deduct tax while distributing, any interest received or receivable by it from an SPV or any income received from renting or leasing or letting out any real estate asset owned directly by it, to its unitholders.	10
Section 194LBB: Investment fund paying an income to a unitholder [other than income which is exempt under Section 10(23FBB)]	10
Section 194LBC: Income in respect of investment made in a securitization trust (specified in Explanation of Section 115TCA)	25% in case of Individual or HUF 30% in case of other individual
Any Other Income	10

Incomes on which TDS is not collected

There are certain incomes on which TDS is not collected, at source, like the following:

Interest which is paid to the central or the state financial organizations.
Institutions which are notified under no-TDS.
Interest earned on KVP, NSC or Indira Vikas Patra schemes.
Interest earned on NRE accounts.
Interest earned on KVP, NSC or Indira Vikas Patra schemes
Interest earned from Recurring Deposits or Savings Account opened in co-operative societies.
Interest earned from Recurring Deposits or Savings Account opened in co-operative societies.
UTI, LIC and other insurance or co-operative societies.

Note: A complete list of institutions which are not subject to TDS are available on the official Income Tax website.

TDS Return

It is essential to file a TDS Return to maintain a healthy financial record and one can file it by visiting the Income Tax website i.e. www.incometaxindia.gov.in

One has to sign in to the website by using the existing credential or by registering for the services. Since there are specific deadlines, it is important that an individual ensures that the TDS is filled with in due time.

Also, an individual has to make sure that forms are filled as per his/her income category. Further, they have to provide required documents to process the refund. And post submitting the return, he/she will have to validate the TDS return file. This validation can be done by using the free software provided by the Income Tax Department.

However, in case you are looking for the refund of access for the TDS paid, then you will have to file through TDS return to receive a refund for the excess amount.

What is Challan TDS Payment?

The ITNS 281 is a challan for the payment of TDS (Tax deducted at source) and TCS (Tax Collected at Source) or you can refer Challan ITNS 281 to a bill receipt, invoice or an official summon. This tax is managed directly by the Central Board of Indirect Taxes. The online version of collecting tax was introduced in the year 2004, with an intention to minimize human intervention, thereby reducing errors. It also facilitated online transmission of details of tax collected, deposited, refunded etc.

Due dates for payment of TDS

TDS deducted on payments (excluding the purchase of property): 7th of the subsequent month
TDS deducted on the purchase of property: 30th of the subsequent month
TDS deducted in the month of March: 30th April

If there is a delay in deposit of tax, an interest is levied at the rate of 1.5% per month or part of the month, from the date of deduction.

Process of Filing Challan ITNS 281

Online process

One has to visit the tin-nsdl or onlineservices.tin.egov-nsdl.com and select Challan No/ITNS 281. The following details are to be filled at the time of payment of taxes in Challan ITNS 281.

Select the Deductee: One has to select an appropriate deductee i.e.: on whose behalf the payment has been deducted.

1) 0020: Company deductees

2) 0021: Non-company deductees

AY (Assessment Year): Select an appropriate AY for which the payment is made.

Example: In case the payment is made on 30th June 2017 (i.e. relating to FY 2017-18), the relevant AY will be 2018-19.

Tax Deduction Account Number (TAN): TAN is a 10-digit alphanumeric number issued to the persons who are required to deduct or collect tax.

Type of payment

200: Should be selected if the TDS/ TCS is a regular transaction
400: Should be selected if the payment is being made for a demand raised by the income tax authorities.

Nature of Payment: One has to select the section under which TDS/TCS has been deducted. This can be done from the drop-down list.

Details of Payment: One has to enter the income tax surcharge and late filing fees (in case applicable). However, this needs to be entered along with the date and bank branch.

Once you have filled all the details, click on submit to the bank and you will be redirected to the bank’s portal to process for payment. Once the transaction is successful a challan counterfoil shall be displayed containing the CIN No., payment details, and bank name through which e-payment has been made.

Offline Process

With regards to the offline process, the taxpayer can make payment by personally submitting a challan and visiting a bank. The payment can be made via cash or cheque. Post the submission of the challan, the bank will issue a counterfoil/ receipt back stamped as a proof of submission.

How to check the status of Challan ITNS 281?

The taxpayers who intend to check the status of Challan online can do so by visiting tin-nsdl portal. There are two modes to view the status:

CIN based view
TAN based view

One to enter the following details to view the status through the CIN based mode

BSR code
Challan date
Challan serial number
Amount

To view the status through the TAN based mode, enter the following details from your challan:

TAN
Challan date

Penalty for Late Filing of TDS Return

In case you fail to file TDS return within the due time, you are liable to pay a fine of Rs. 200 per day until the return is filed. Also, the fee is applicable for every day until the fine amount is equal to the total liable TDS amount. On late deposit of TDS, interest becomes payable under section 201(1A) at the rate of 1.5% per month from the date at which TDS was deducted to the actual date of deposit. Besides, if the taxpayer exceeds the one-year limit to file the TDS return or furnishes incorrect details of PAN, TDS amount, he/she will need to pay a penalty of minimum Rs.10,000 to Rs.1 lakh under section 271H.

Reimbursement of Expenses Related to TDS

One can consider the following reimbursement of expenses (taxable) for TDS:

Audit fee is taxable
Traveling expenses are non-taxable, however, if it is taxable for FTS
Management expenses to parent company are non-taxable
Infrastructure expenses are non-taxable, etc.
The reimbursement for visit of a foreign artist is non-taxable
Relocation expenses for employees are non-taxable
Management expenses to parent company are non-taxable
The reimbursement for visit of a foreign artist is non-taxable
Consultant fees are non-taxable

TDS Exemption

In case your TDS is deducted under section 192, 193, 194, 194A, 194C, 194D, 194G, 194H, 194I, 194J, 194LA and 195 and you feel you are not eligible to pay TDS, then in order to claim, a tax deducted at source exemption, one has to follow the following procedure.

Apply to the Income tax department/Assessing Officer (AO) in Form 13 to grant permission.
The assessing officer has to unload the applications within a time frame of 30 days from the end of the month in which application was submitted.
The taxpayers are requested to file complete details in the first instance itself which is required for the processing of Form 13. And if the assessing officer is satisfied, then he will expedite the issuance of certificate u/s 197.
Also, in order to claim the exemption, a copy of this certificate can be attached to the invoice raised to the client.
However, this certificate is valid until the assessing officer does not cancel it

TDS Certificate

Every person deducting tax at source is required to furnish a certificate as per Section 203 to the payee to the effect that tax has been deducted along with certain other particulars. This certificate is usually called the TDS certificate. Also, this certificate is also offered by the banks making deductions on pension payments etc.

Note: Individuals are advised to request for TDS certificate wherever applicable, and if not already provided.

Refund of Excess TDS Deductions

In case the person is subject to excess TDS deductions, the deductor can make claims for refund of the excess amount.

Note: The difference between the tax deducted and the actual payments made by the deductor, whichever is higher, is accepted as the excess payment. However, this amount will be refunded after adjusting against any tax liabilities under Direct Tax Acts.

Points to remember

TDS- is tax deductions at a source of an individual’s income/payments. Here, the deductor (employer) is the person who is making payments to the deductee (employee, stockbroker etc.)
TDS not only ensures stable revenue for the government but also helps in reducing tax filing burdens for a deductee.
TDS certificate is issued wherever TDS has been collected, generally by the deductor or a bank.
The TDS is collected after a certain threshold limit of earnings has been crossed. But a highest TDS (of 30%) is applicable on winnings from horse races, and lotteries and other games.
Also, TDS is exempted on some payments made to government, RBI, cooperative societies etc.

TDS vs Income Tax

TDS	Income Tax
TDS is a small amount of tax that can be deducted monthly, annually, periodically or occasionally from the earning of an individual or a business (the earning is not limited to salary but also includes interest, commission, fee etc.) Note: The earning could be regular or irregular in nature.	Income tax is levied on the total income (salary) on an annual basis for individuals as well as businesses.

FAQs

When is TDS applicable?

TDS is applicable to individual based on his income and deductions. It is also applicable on interest incomes where TDS is deducted by banks on FD’s and RD’s if the interest exceeds Rs 10,000 a year. TDS does not end tax liability.

Is TDS refundable?

Since there is no specific refund process, or form to claim TDS refunds, one must file income tax returns in the usual manner.

Can we claim TDS in next year?

The Government has bought into provision the Online Income Tax Return Filing form, wherein you can actually carry-forward TDS and claim it in the next year.

Is TDS deducted on traveling expenses?

No, TDS is not deducted on traveling expenses.

How many days it will take to get TDS return?

It takes a few months to credit the Income tax refund amount. There is no set time limit. It can be credited anytime from 1 month to 1 year. However, if you did an Aadhaar based ITR verification, then refund will be received within 15 days.

Will TDS be deducted on service tax?

Since Service tax is not an income for the service provider, TDS is to be deducted at the total amount excluding the service tax, in case service tax is separately indicated in the invoice.

Is there any minimum amount up to which tax is not deducted?

Sr. No.	Particular	Section	Threshold limit
1	No deduction of tax at source from salaries	192	If net taxable income is less than maximum amount which is not chargeable to tax (Rs. 2,50,000 for an individual, Rs. 3,00,000 for Senior Citizens and Rs. 5,00,000 for Super Senior Citizens)
1A.	No TDS from payment of provident fund account of an employee	192A	If amount paid is less than Rs. 30,000. (Rs. 50,000 w.e.f. 1-6-2016)
2	No TDS from interest paid on debentures issued by a company in which public are substantially interested. Provided interest is paid by account payee cheque to resident individual or HUF	193	If amount paid or payable during the financial year does not exceed Rs. 5,000
3	No TDS from interest on 8% Saving (Taxable) Bonds 2003 paid to a resident persons or 7.75% saving (Taxable) bond, 2018	193	If amount paid or payable during the financial year does not exceed Rs. 10,000
3A.	No TDS from interest on 6.5% Gold bonds, 1977 or 7% Gold bonds, 1980 paid to resident individual	193	If a declaration is made that the nominal value of such bonds did not exceed Rs. 10,000 at any time during the previous year
4	No TDS from dividend paid by account payee cheque to resident persons	194	If amount paid or payable during the financial year does not exceed Rs. 2,500
5	No TDS from interest other than on securities paid by a banking company or co-operative bank on time deposits	194A	If amount paid or payable during the financial year does not exceed Rs. 10,000 (Rs. 50,000 in case of senior citizen)
6	No TDS from interest on deposit with a post office under Senior Citizens Saving Scheme Rules, 2004	194A	If amount paid or payable during the financial year does not exceed Rs. 10,000 (Rs. 50,000 in case of senior citizen)
7	No TDS from interest other than on securities (in any other case)	194A	If amount paid or payable during the financial year does not exceed Rs. 5,000
8	No TDS from interest on compensation awarded by Motor Accident Claims Tribunal	194A	If amount paid or payable during the financial year does not exceed Rs. 50,000
9	No TDS from Lottery / Cross Word Puzzles	194B	If amount paid or payable during the financial year does not exceed Rs. 10,000
10	No TDS from winnings from horse races	194BB	If amount paid or payable during the financial year does exceed Rs. 5,000 (Rs. 10,000 w.e.f. 01/06/2016)
11	No TDS from sum paid or payable to contractor	194C	a) If sum paid or payable to a contractor in a single payment does not exceed Rs. 30,000
			b) If sum paid or payable to contractor in aggregate does not exceed Rs. 75,000 during the financial year (Rs. 1,00,000 w.e.f. 01/06/2016)
12	No TDS from insurance commission paid or payable during the financial year	194D	If amount paid or payable during the financial year does not exceed Rs. 20,000 (Rs. 15,000 w.e.f. 01/06/2016)
12A	No TDS from sum payable under a life insurance a police (including bonus) to a resident (w.e.f. 01-10-2014) person	194DA	If amount paid or payable during the financial year does not exceed Rs. 1 lakh
13	No TDS from payments made out of deposits under NSS	194EE	If amount paid or payable during the financial year does not exceed Rs. 2,500
14	No TDS from commission paid on lottery tickets	194G	If amount paid or payable during the financial year does not exceed Rs. 1,000 (Rs. 15,000 w.e.f. 01/06/2016)
15	No TDS from payment of commission or brokerage	194H	If amount paid or payable during the financial year does not exceed Rs. 5,000 (Rs. 15,000 w.e.f. 01/06/2016). Further no tax to be deducted from commission payable by BSNL/ MTNL to their PCO Franchisees.
16	No TDS from payment of rent in respect of land & building, furniture or fittings or plant and machinery	194-I	If amount paid or payable during the financial year does not exceed Rs. 1,80,000
17	No TDS from payment of consideration for purchase of an immovable property (other than agriculture land)	194-IA	If amount paid or payable during the financial year does not exceed Rs. 50 Lakhs
17A.	No TDS on payment of rent of any land or building or both by an individual/HUF [whose books of account are not required to be audited under section 44AB] to resident person.	194-IB	If amount of rent does not exceed Rs. 50,000 for a month or part of a month.
18	No TDS from payment of professional fees, technical fees, royalty and directors' remuneration	194J	If amount paid or payable during the financial year does not exceed Rs. 30,000
19	No TDS from payment of compensation on compulsory acquisition of immovable property (other than Agricultural Land)	194LA	If amount paid or payable during the financial year does not exceed Rs. 2,50,000
20	Furnishing of quarterly return in respect of payment of interest (other than interest on securities) to residents without deduction of tax	206A	If amount paid or payable during the financial year does not exceed: a) Rs.10,000 where payer is banking company or co-operative society; b) Rs.5,000 in other case

Is an employee responsible if the deductor fails to collect or deposit the tax?

No, the employee is not responsible as the deduction and deposit of tax collected at source lies with the employer/deductor and not an employee or deductee.

Will I face any consequences, in case I fail to deposit TDS in the Government’s account?

Yes, failure to remit tax deducted by me in the government’s account within stipulated time-limit would attract interest, penalty and rigorous imprisonment of up to seven years.

I have not received TDS certificate from the deductor. Can I claim TDS in my return of income?

Yes, the tax credit in your case will be reflected in your Form 26AS and, hence, you can check Form 26AS and claim the credit of the tax accordingly. However, the claim of TDS to be made in your return of income should be strictly as per the TDS credit being reflected in Form 26AS. In case, there is any discrepancy in the tax actually deducted and the tax credit being reflected in Form 26AS, then you should intimate the same to the deductor and should reconcile the difference. The credit granted by the Income-tax Department will be as per Form 26AS.

What is TDS and How is it Calculated?

TDS, which stands for Tax Deducted at Source, is a concept where entities responsible for making certain payments like commission, interest, salary, professional fees, etc. are liable to deduct a specific percentage of tax prior to making payment in full to the receiver. Employers deduct TDS on the basis of the income tax slab rates applicable. Banking institutions deduct TDS at the rate of 10% (this can become 20% if PAN information is not provided). The TDS calculator on the Income Tax Department’s website allows users to calculate the TDS applicable. Some of the details the individual will have to enter in the TDS calculator include Financial Year, Residential Status, Recipient Type, Section / Description and Amount of Payment.