What is Tax Deducted at Source & TDS certificate?

Last Updated at: January 14, 2020
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TDS

What is the meaning of TDS?

TDS stands for Tax Deducted at Source. As per the Income Tax Act, an individual or company making a payment is required to deduct tax if the payment of an employee reaches the threshold limits. This TDS is deducted at rates that are prescribed by the Income Tax Department.

The total taxable amount is calculated at the beginning of the financial year and the company divides the total tax into 12 equal parts. The tax is deducted from the salary every month ensuring that the taxpayer does not have a huge burden at the end of the financial year.

The one who makes the payment after deducting TDS is called a deductor and the person or company receiving the payment is called deductee. Tax Deducted at Source is deducted for the following types of payments:

Interest payment by banks

Salaries

Rent

Commission

Constitution fees

Professional fees

If an individual is making the fee payment or rent payments to doctors and lawyers, no TDS is deducted.

TDS definition – It is a kind of advance tax that is deposited with the government regularly.

E-file Your Income Tax Returns

Rates of TDS

When it comes to TDS rates, there are around 20-25 sections that have different types of payments on which tax is deducted at the source. Here are some of the most common types of payments on which the tax is deducted at source:

Section

Kind of Payment

Rates of TDS

192 Salary 15 per cent
194 Deemed Dividend 10 per cent
194A Interest other than interest on securities 10 per cent
194C Payment to resident contractors 1 per cent or 2  per cent
194 D Insurance commission 5 per cent and 10 per cent
194G Commission on sale of lottery ticket 10 per cent
194H Brokerage 10 per cent
194 I Rent 2 per cent in case rent of plant and machinery
10 per cent in case if land rent or building rent or furniture and fixtures
194 I-A Payment in case of transfer of any immovable property (not the rural agricultural land) 1 per cent
194J Professional fees, royalty, tech fees, royalty or remuneration to a director 10 per cent
194LA Payment of compensation on acquiring immovable property 10 per cent

 

People often come across TAN which is Tax Deduction Account Number. The tax deducting person or company requires this ten-digit alphanumeric number. TAN is mandatory and is present on all TDS returns. One can easily get TAN by applying for it online and filling Form 49B.

How does one get to know how much TDS deduction has been done and whether it has been credited?  

The steps to know to abut tax deduction:

  • Log on to https://www.incometaxindiaefiling.gov.in/ and click on “Register Yourself
  • Now you need to enter the PAN card details and generate a password
  • After logging in successfully, you need to click on “View Tax Credit Statement (26 AS)
  • After clicking on this link, you will be directed to another portal called TRACES (TDS Reconciliation Analysis and Correction Enabling System). Here you will get all the details on TDS deducted, advance tax paid, etc.

Form 26AS

It is the statement of all the TDS deducted by others. There is a probability that TDS has been deducted but it is not reflecting on the tax credit statement; this may be because the deductor didn’t file the return. Hence, you must get the TDS certificate as proof that the tax has been deducted.

What is the TDS certificate?

This certificate is issued by the individual or company deducting the tax from the taxpayer. There are two types of TDS certificates:

Form 16: This is issued by the employer to the employee. It contains details of the tax deducted of the entire financial year.

Form 16A: This certificate is issued in all cases other than salary.

Let’s take an example here. Mr. X is working in a company and tax deduction is 15%. Now the company will provide Mr. X Form 16, which will have all the details about the deducted tax and amount of salary.

In case, Mr. X is working as a professional and is receiving professional fees from an organization; then he will get Form 16 A for the tax deducted.

Advantages of TDS:

  1. It reduces the probability of tax evasion, as the tax is deducted at source.
  2. Money steadily flows to the government.
  3. Tax collection gets widened as the TDS is paid in some form or the other.
  4. Since TDS gest deducted automatically, the process becomes simpler for the taxpayer.

 

0

What is Tax Deducted at Source & TDS certificate?

434

What is the meaning of TDS?

TDS stands for Tax Deducted at Source. As per the Income Tax Act, an individual or company making a payment is required to deduct tax if the payment of an employee reaches the threshold limits. This TDS is deducted at rates that are prescribed by the Income Tax Department.

The total taxable amount is calculated at the beginning of the financial year and the company divides the total tax into 12 equal parts. The tax is deducted from the salary every month ensuring that the taxpayer does not have a huge burden at the end of the financial year.

The one who makes the payment after deducting TDS is called a deductor and the person or company receiving the payment is called deductee. Tax Deducted at Source is deducted for the following types of payments:

Interest payment by banks

Salaries

Rent

Commission

Constitution fees

Professional fees

If an individual is making the fee payment or rent payments to doctors and lawyers, no TDS is deducted.

TDS definition – It is a kind of advance tax that is deposited with the government regularly.

E-file Your Income Tax Returns

Rates of TDS

When it comes to TDS rates, there are around 20-25 sections that have different types of payments on which tax is deducted at the source. Here are some of the most common types of payments on which the tax is deducted at source:

Section

Kind of Payment

Rates of TDS

192 Salary 15 per cent
194 Deemed Dividend 10 per cent
194A Interest other than interest on securities 10 per cent
194C Payment to resident contractors 1 per cent or 2  per cent
194 D Insurance commission 5 per cent and 10 per cent
194G Commission on sale of lottery ticket 10 per cent
194H Brokerage 10 per cent
194 I Rent 2 per cent in case rent of plant and machinery
10 per cent in case if land rent or building rent or furniture and fixtures
194 I-A Payment in case of transfer of any immovable property (not the rural agricultural land) 1 per cent
194J Professional fees, royalty, tech fees, royalty or remuneration to a director 10 per cent
194LA Payment of compensation on acquiring immovable property 10 per cent

 

People often come across TAN which is Tax Deduction Account Number. The tax deducting person or company requires this ten-digit alphanumeric number. TAN is mandatory and is present on all TDS returns. One can easily get TAN by applying for it online and filling Form 49B.

How does one get to know how much TDS deduction has been done and whether it has been credited?  

The steps to know to abut tax deduction:

  • Log on to https://www.incometaxindiaefiling.gov.in/ and click on “Register Yourself
  • Now you need to enter the PAN card details and generate a password
  • After logging in successfully, you need to click on “View Tax Credit Statement (26 AS)
  • After clicking on this link, you will be directed to another portal called TRACES (TDS Reconciliation Analysis and Correction Enabling System). Here you will get all the details on TDS deducted, advance tax paid, etc.

Form 26AS

It is the statement of all the TDS deducted by others. There is a probability that TDS has been deducted but it is not reflecting on the tax credit statement; this may be because the deductor didn’t file the return. Hence, you must get the TDS certificate as proof that the tax has been deducted.

What is the TDS certificate?

This certificate is issued by the individual or company deducting the tax from the taxpayer. There are two types of TDS certificates:

Form 16: This is issued by the employer to the employee. It contains details of the tax deducted of the entire financial year.

Form 16A: This certificate is issued in all cases other than salary.

Let’s take an example here. Mr. X is working in a company and tax deduction is 15%. Now the company will provide Mr. X Form 16, which will have all the details about the deducted tax and amount of salary.

In case, Mr. X is working as a professional and is receiving professional fees from an organization; then he will get Form 16 A for the tax deducted.

Advantages of TDS:

  1. It reduces the probability of tax evasion, as the tax is deducted at source.
  2. Money steadily flows to the government.
  3. Tax collection gets widened as the TDS is paid in some form or the other.
  4. Since TDS gest deducted automatically, the process becomes simpler for the taxpayer.

 

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Senior Executive - Content in Vakilsearch | Former TEDxSKCET Licensee | Content Marketing | Psychology | Engineering (IT) | Google Developers Group (GDG) co-organizer | WTM Ambassador