Tax deduction at source

1st July 2021 1 By indiafreenotes

TDS, or Tax Deducted at Source, is a certain percentage of one’s monthly income which is taxed from the point of payment. According to the Income Tax Act, 1961, every individual or organisation is liable to pay taxes if their income is above a certain threshold.

Any person who is responsible for making payment of nature covered under the TDS provisions of Income Tax Act, 1961 shall be liable to deduct tax at source. But no TDS has to deducted if a person making the payment is an individual or HUF whose books are not required to be audited.

Tax deduction at source (TDS) in India is a means of collecting tax on income, dividends or asset sales, by requiring the payer (or legal intermediary) to deduct tax due before paying the balance to the payee (and the tax to the revenue authority).

Under the Indian Income Tax Act of 1961, income tax must be deducted at source as per the provisions of the Income Tax Act, 1961. Any payment covered under these provisions shall be paid after deducting a prescribed percentage of income tax. It is managed by the [Central Board for Direct Taxes] (CBDT) and is part of the Department of Revenue managed by Indian Revenue Service. It has a great importance while conducting tax audits. Assessee is also required to file quarterly return to CBDT. Returns states the TDS deducted & paid to government during the Quarter to which it relates.

However, just in case of rent payments made by individuals and HUF exceeding Rs 50,000 per month, are required to deduct TDS @ 5% although the individual or HUF is not liable for a tax audit. Also, such Individuals and HUF liable to deduct TDS @ 5% needn’t apply for TAN.

Employer deducts TDS at the income tax slab rates applicable on Salary of Employees.

Banks deduct TDS on Interest income @10% if PAN is Provided, but in case of no PAN may deduct @ 20%. You can submit Form 15G and Form 15H to the bank if your total income is below taxable limit in order that they don’t deduct TDS on your interest income.

TDS deduction is applicable to multiple types of payments, including:

  • Salary
  • Commission earned
  • Rent
  • Interest payment by banks
  • Professional or consultant fees

Tax Deducted at Source is a type of advance tax which Government of India levies on a periodic basis. The overall deducted TDS is claimed as tax refund after a taxpayer files the Income Tax Return.

TDS deduction rules necessitate tax payment when a taxpayer gets payment due, or receives actual payment (whichever is earlier). Let’s take a look at a few examples where TDS will be applicable.

There are some cases where TDS is not Deducted such as:

  • Exempt Incomes
  • Payment to Government/RBI/Statutory Corporation etc.
  • On certificate issued by ITO u/s 197
  • Interest earned on NSC, KVP, or Indian Vikas Patra Scheme
  • On declaration furnished by the payee on Form 15G or 15H
  • Interest earned from recurring deposits or Savings Account opened in co-operative societies
  • TDS is not Deducted on reimbursement of expenses like Travelling expenses, Management expenses, etc

TDS certificates

A deductor is required to issue a TDS certificate called form 16 for salaried employees and form 16A for non-salaried employees within a specified time. Form 16D is a TDS Certificate issued for payment of a commission, brokerage, contractual fee, the professional fee under section 194M by the payer. Under Section 194M if the payments to resident contractors and professionals exceeding INR 50,00,000 during the Financial Year, the payer/deductor has to deduct tax at the rate of 5% from the sum payable to a resident payee/deductee.

Deductor has to issue TDS Certificates within two months of the next financial year.

Form No Transactions reported in the return Due date
Form 24Q TDS on Salary Q1 – 31st July Q2 – 31st October Q3 – 31st January Q4 – 31st May
Form 27Q TDS on all payments made to non-residents except salaries Q1 – 31st July Q2 – 31st October Q3 – 31st January Q4 – 31st May
Form 26QB TDS on sale of property 30 days from the end of the month in which TDS is deducted
Form 26QC TDS on rent 30 days from the end of the month in which TDS is deducted