New to paying taxes and don’t understand how the TDS regime works? In this article, we will run through everything you need to know about TDS and TDS certificates.
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 crosses the threshold limits. This TDS is deducted at rates that are prescribed by the Income Tax Department.
| TDS definition – It is a kind of advance tax that is deposited with the government regularly. |
TDS makes paying tax convenient as the total taxable amount is calculated at the beginning of the financial year and divided into 12 equal parts. This tax is deducted from the salary every month ensuring that the taxpayer does not have to bear a huge burden at the end of the financial year.
Note – The person or company who makes the payment after deducting TDS is known as the deductor, and the person or company who receives the payment is known as the deductee.
Tax is deducted at the source for the following types of payments:
| Interest payment by banks | Salaries |
| Rent | Commission |
| Constitution fees | Professional fees |
Remember – If an individual is making the fee payment to doctors or lawyers, no TDS is deducted.
| The CBDT has released Circular No.04, on tax deduction from salary under Income-tax Section 192. Get in touch with our experts to learn more! |
Advantages of TDS
- TDS reduces the probability of tax evasion, as the tax is deducted at source
- TDS ensures that revenue from tax flows regularly and steadily to the government
- Tax collection gets widened as the TDS is paid in some form or the other.
- Since TDS gets deducted automatically, the tax payment process becomes less burdensome for the taxpayer
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 for the entire financial year.
Form 16A: This certificate is issued in cases of tax deduction on payments other than salary
Let’s look at an example to understand this further –
Suppose Mr X is working in a company and the tax deduction rate is 15%. After deducting TDS the company will provide Mr X with 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.
When Should TDS be Deducted and by Whom?
Any individual or Hindu Undivided Family (HUF) making payments specified under the Income Tax Act is obligated to deduct TDS. However, individuals and HUFs, whose books are not subject to audit, are exempt from deducting TDS
Exceptions apply to rent payments by individuals and HUFs exceeding ₹50,000 per month, which require a 5% TDS deduction even if they are not eligible for a tax audit. Individuals and HUFs subject to this 5% TDS deduction are not required to obtain a TAN. Employers deduct TDS based on income tax slab rates, whereas banks deduct at a rate of 10%, or 20% if they lack PAN information.
For most payments, TDS rates are predefined in the income tax act, and payers deduct TDS accordingly. If you provide investment proofs to your employer and your total taxable income falls below the taxable limit, you won’t owe any tax, and no TDS should be deducted from your income
Likewise, you can furnish Form 15G and Form 15H to your bank if your total income is below the taxable limit to prevent TDS deductions on your interest income. If you haven’t provided proof to your employer or if TDS has already been deducted, and your total income is below the taxable limit, you can file a return to claim a refund of the TDS. The complete list of specified payments eligible for TDS deduction, along with the TDS rates, is available in the Income Tax Act.
Rates of TDS
When it comes to TDS rates, there are about 20-25 sections listing various types of payments on which tax is deducted at the source. Here are some of the most common types of payments where tax is deducted at source:
| Section | Type 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 of 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 |
What Is the Due Date for Depositing the TDS to the Government?
TDS funds need to be remitted to the government by the 7th of the following month. For example, TDS deducted in June should be transferred to the government by July 7th. However, TDS deducted in March has an extended deadline until April 30th. In the case of TDS deducted on rent and property purchases, the due date for TDS payment is 30 days from the end of the month in which the TDS was deducted.
How to Deposit TDS?
Submitting TDS returns is a compulsory requirement for anyone who has deducted TDS. These returns must be filed on a quarterly basis and should include specific information such as TAN, the deducted TDS amount, payment type, PAN of the deductee, and more. The choice of the appropriate return form depends on the purpose of the TDS deduction. The various forms for filing TDS returns are as follows: Here is the information in a table format for Form 26Q deadlines for different quarters, covering all payments except salaries:
| Quarter | Deadline |
| Q1 | July 31 |
| Q2 | October 31 |
| Q3 | January 31 |
| Q4 | May 31 |
| Form No | Transactions reported in the return | Due date |
| Form 24Q | TDS on Salary |
Q1 – 31 July Q2 – 31 October Q3 – 31 January Q4 – 31 May |
| Form 27Q | TDS on all payments made to non-residents except salaries |
Q1 – 31 July Q2 – 31 October Q3 – 31 January Q4 – 31 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 |
How to Upload TDS Statements
To upload TDS statements on the Income Tax Department website, follow these steps:
- Go to the Income Tax website and log in with your TAN
- On the dashboard, choose ‘e-File,’ then ‘Income Tax Forms,’ and select ‘File Income Tax Forms
- Pick the appropriate form and complete the required information
- Confirm the return using either a Digital Signature Certificate (DSC) or Electronic Verification Code (EVC).
How Does One Get To Know How Much TDS Has Been Deducted and Whether It Has Been Credited?
- Log on to https://www.incometaxindiaefiling.gov.in/ and click on ‘Register Yourself’
- Now you will need to enter your PAN card details and generate a password
- After logging in, 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 find the details on TDS deducted, advance tax paid, etc.
Form 26AS
Form 26AS is a statement showcasing all TDS deducted on your behalf by others. If TDS has been deducted but is not reflected on the tax credit statement; this could be because the deductor did not file the return.
Hence you must always obtain the TDS certificate from the deductor for proof that tax was deducted.
TAN: What is It and Why Do I Need It?
You might have come across the term TAN which is known as Tax Deduction Account Number. A deductee whether a person or company requires this ten-digit alphanumeric number to deduct TDS. In fact, TAN is mandatory and is required to be mentioned on all TDS returns.
One can easily get TAN by applying for it online and filling out Form 49B with the help of Vakilsearch experts. Give our tax consultants a call today!
Frequently Asked Questions:
What exactly is a TDS certificate, and why is it significant for taxpayers?
A TDS certificate means a document that provides details of the tax deducted at source (TDS) from a taxpayer's income. It is issued by the person or entity that deducted the TDS, such as an employer, bank, or client. TDS certificates are significant for taxpayers because they are used to claim credit for TDS deducted while filing income tax returns. TDS certificates also help taxpayers to track their TDS payments and ensure that they have paid the correct amount of tax.
Could you provide a concise definition of Tax Deducted at Source (TDS)?
Tax Deducted at Source (TDS) is a mechanism of collecting tax at the source of income. It is a system of tax collection in which the payer of income deducts tax at the time of making the payment and deposits it with the government on behalf of the payee
Can you explain the concept of TDS and TCS with a practical example for better understanding?
TDS and TCS are two different mechanisms of tax collection in India. TDS stands for Tax Deducted at Source, while TCS stands for Tax Collected at Source TDS Example: An employer deducts TDS from the salary of its employees and deposits it with the government on behalf of the employees TCS Example: A seller of goods or services collects TCS from the buyer at the time of making the payment and deposits it with the government.
What is the primary purpose or objective of issuing a TDS certificate?
The primary purpose of issuing a TDS certificate is to provide taxpayers with a record of the TDS deducted from their income. This record is used by taxpayers to claim credit for TDS deducted while filing income tax returns.
Is it mandatory for all taxpayers to possess a TDS certificate?
No, it is not mandatory for all taxpayers to possess a TDS certificate. However, it is advisable for all taxpayers to obtain TDS certificates from the persons or entities that have deducted TDS from their income. This is because TDS certificates can be used to claim credit for TDS deducted while filing income tax returns.
Who qualifies for receiving a TDS certificate, and under what circumstances?
Any taxpayer who has TDS deducted from their income is entitled to receive a TDS certificate. This includes taxpayers who receive income from salary, interest, commission, brokerage, professional fees, royalty, contract payments, etc.
Is the TDS amount deducted from income refundable to taxpayers?
Yes, the TDS amount deducted from income is refundable to taxpayers if the total TDS deducted exceeds the taxpayer's actual tax liability. Taxpayers can claim a refund of TDS by filing their income tax returns on time.
What is the typical TDS rate applied to salary income, and how is it calculated?
The TDS rate for salary income is determined by the taxpayer's income tax slab, with a standard rate, such as 5%, applying to those in the 20% income tax bracket. To calculate TDS on salary income, the TDS rate is applied to the gross salary, which represents the salary before any deductions are accounted for.
Why might individuals be eligible for a TDS refund, and how can they claim it?
A TDS refund becomes possible for individuals when the total TDS deducted surpasses their actual tax liability. Several factors can contribute to this, including inaccuracies or omitting information provided to entities deducting TDS, eligible deductible expenses, or overpayment due to changes in the income tax bracket. To initiate the process of obtaining a TDS refund, individuals need to ensure they file their income tax returns promptly and make the refund claim within those returns.
Could you provide an overview of how TDS is calculated on a salary slip, along with an example?
TDS on salary income is determined by applying the relevant TDS rate to the individual's gross salary, which is their salary before any deductions. For instance, if an employee earns a monthly gross salary of ₹50,000 and falls within the 20% income tax bracket, the TDS calculation proceeds as follows: The TDS rate, in this case, is 5%, so the TDS amount is ₹50,000 * 5% = ₹2,500. This sum, ₹2,500, is then withheld from the employee's salary by the employer and subsequently remitted to the government.
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