TDS stands for ‘Tax Deducted at Source’ and was initiated by the government to collect tax from the exact income source. This concept allows the government to collect the tax and minimize tax evasion by taking a portion of the income as tax at where it is generated, instead of taking it in the future. TDS applies on income sources like Salary, commission, interest etc. Tax deducted at source does not apply to all incomes and transactions. The Income Tax Act has prescribed different rates of TDS for payments and transactions.
A person who is to make a specific payment to another shall take out tax at the source which shall be remitted to the Central Government. The person from whose income the tax was deducted would receive a credit of the same money deducted on Form 26AS or a TDS certificate from the person making the deduction.
WHAT IS TDS?
Tax Deducted at Source (TDS) is a method of collecting income tax which enables a prescribed amount to be deducted from the total income before payments are affected. The provisions on TDS is covered in the Indian Income Tax 1961 Act. It is controlled by the CBDT which acts as a subsidiary of the Indian Department of Revenue. A quarterly return is filed by the individual to the Central Board of Direct Taxes (CBDT) which contains details of the payment made to the government on the quarter in review.
TDS can apply to regular and irregular income. It is deducted occasionally from an individual’s income. The rules governing TDS directs the employer to make a deduction on the employee’s salary before making the actual payment to the worker.
TDS applies to payment made for salaries, commission, interests, fees to lawyers etc. and is charged based on the percentage on income slab rates. This implies that each income type has a prescribed percentage of the amount the can be deducted.
TDS can be refunded when an individual can declare and submit a proof of his investment when TDS collected was not calculated of an investment that can be taxed.
When the deduction made on a person’s income is higher than the prescribed amount that should be deducted, the individual can file for a refund of the amount. The deductions are made based on individuality and category of income source.
TDS DEDUCTION RULES-
Income and expenditure like interest from banks, lotteries, commissions, salary. Rent, payment to freelancers and much more; are grouped under TDS. A percentage of the total amount will be deducted by the payee at the source when making specific payments for the listed segment. The source is referred to as the deductor while the individual whose income has been deducted is referred to as the deductee. In this instance, the employer who pays the salary is the deductor while the employee who receives the deducted income is the deductee.
The Income Tax Act of 1961 provides that any payment made from one person or party to another will be subject to TDS and the deductions deposited with the Income Tax Department.
The table below states the rules for each payment that is subject to Tax Deducted at Source (TDS).
TDS RATES FOR 2017-2018
|Section 192: Salary||In accordance with the income slab|
|Section 192A: taxable payment of Provident fund in the hands of the employee||10%|
|Section 193: Interest on securities:
(a) issued by or in behalf of a local authority or corporation that is created by an Act of the Central or State government.
|(b) issued by companies that are listed a licensed stock exchange based on the Securities Contract Regulation 1956 Act.||10%|
|(c) of the Central or State Government||10%|
|(d) interest on any other security||10%|
|Section 194: Dividend which is not contained in Section 115-O||10%|
|Section194A: Income earned from interest other than Interest on securities from banks and other sources.||10%|
|Section194B: Income from lotteries, cross word puzzles and games of any sort.||30%|
|Section 194BB: Income from winnings in horse races||30%|
|Section 194C: Payment to contractor and Sub-contractor|
|Section 194C||Payments made to transporters (44AE), with PAN number declaration|
|Section 194D: Insurance commission||5%|
|Section 194DA: Payment in respect of life insurance policy||1%|
|Section194EE: Payment in respect of deposit under National Savings scheme||10%|
|Section 194F: Payment on repurchase of Mutual Fund or Unit Trust of India||20%|
|Section 194G: Commission on sale of lottery ticket||5%|
|Section 194H: Commission on brokerage||5%|
|Section194I: Rent on|
|(a)Plant and Machinery||2%|
|(b)Land, building, furniture or fitting||10%|
|Section 194IA: Payment on transfer of property other than agricultural land||1%|
|Section 194J: Any amount paid for professional or technical services, remuneration to a director, activity in relation to any business and for patent or copyright.||10%|
|Section 194LA: Payment of compensation for purchase of an immovable property||10%|
|Section 194LBA(1): tax deduction by business trust while distribute interest on income received from rent and other real estate structure to the owners.||10%|
|Section 194 LBB: Investment Fund paying income to a stakeholder other than those listed on Section 10 (23FBB)||10%|
|Section 194 LBC: Income earned from investment made in a security trust specified in Section 115CA||25% for Individual or HUF and 30% for any other individual|
|Any other Income||10%|
FILING TDS RETURN
To maintain a healthy financial record or receive TDS refunds, you will be expected to file a TDS return. This can be carried out online by visiting www.incometaxindia.gov.in.
On the website, you can create a new account for the services or log on with the existing credentials. Certain deadlines are provided to ensure that the individual adheres strictly to the stipulated date for filing. For refunds of excess deductions, you will be required to fill the forms provided and submit necessary documents to kick-start the refund process.
You will be required to validate the TDS return file immediately after you completed the registration. The free software provided by the Income Tax department is used for the validation process.
If you want to get a refund for the excess amount charged, you will have to file through TDS refund for excess deductions.
CHALLAN FOR TDS PAYMENT
Challan ITNS 281 is the standard Challan form for payment on both TCS (Tax Collected at Source) and TDS. Challan ITNS 281 is used specifically for tax from corporate and non-corporate and organizations.
For individuals who are non-government officials, deductions for the month of March are calculated by 30th April and other months are often calculated on the 7th of the succeeding month.
If you are a government official, and you are depositing the amount without Challan 281, that means your challan must be filed the same day; on depositing with the challan, you will file your tax return on the 7th of the succeeding month.
CHALLAN TDS 281
Deposits of TDS and TCS taxes is done with Challan No. 281 which will require you to fill in the correct 10-digit Tax Deduction Number (TAN), address, and your name. Different Challan will be used to make deposits for deductions made under different categories and the correct payment code must be indicated.
ONLINE FILING OF TDS RETURN
The following are the instructions that must be taken to file your TDS return online.
- Take the right file format.
- Download the free software to prepare the return file. Note that the file must be ASCII text with ‘txt’ as file extension.
- Use the file validation utility to validate the file.
- Correct any errors found.
- Upload the generated file via tin-nsdl.com
ELECTRONIC PAYMENT OF TDS
The online option for the payment of these taxes is provided by the Income Tax Department. This service enables online payment of taxes. To enjoy this service, you will enable an online banking service through any of the recognized banks.
PENALTY FOR LATE FILING OF TDS RETURN
When you fail to file the TDS Return in the stipulated date, it attracts a fine of Rs. 200 for every day until it is filed. The fee will continue to accumulate until the fine amount equals to the total TDS amount.
On furnishing a false information or failing to file for a period of one year, you will pay a fine that can range from Rs. 10, 000 to Rs 1 lakh.
CALCULATING TDS FROM SALARY
To calculate TDS from salary, you will have to calculate the total salary income, investment and other sources income then the exemptions. From the total amount, you can take out the allowable investment from your salary to obtain your annual TDS.
MAJOR ADVANTAGES OF TDS
TDS follows the ‘pay as and when you earn’ principle. It favours both the government and the tax-payer. Whether the payment is made through cash, cheque or credit, tax will be deducted and deposited authorized agency of the Central Government. The following are the major advantages of TDS over other tax deduction methods.
- Mitigates tax evasion.
- Sharing of responsibility between tax deductor or employee and government agencies.
- Increased tax collection base.
- A stable source of revenue to the government.
- The burden on the employee to go to different channels to pay tax is lifted as the amount deducted is paid automatically into government coffers.
EXEMPTIONS FOR TDS
Payments made to the government of India and the Reserve Bank of India are exempted from TDS. In addition to this, collection of TDS does not cover interests that is paid to: Central or State Financial corporations, Banking companies, UTI, and other insurance or co-operative societies, interest earned from savings account, banks or co-operative societies, interest earned in NRE account and all Institutions that are listed under no – TDS.
Other avenues where TDS may not be allowed include interest on compensation from Motor Vehicle Claims Tribunal (MVCT). It is advisable to verify if your TDS is applicable to your interest income.
THRESHOLD LEVEL FOR TDS
It is important to note that TDS on specific transactions are deducted only on the condition that the amount paid is more than the specified TDS threshold level. If the value is below the specified level, no TDS will be deducted.
The Income Tax Department specifies different threshold levels for different segments of payments such as interest received, salaries etc. For example, if the total interest on FD/FDs for a single bank is less than Rs 10000 in a year, then no TDS will be deducted.
HOW TO AVOID TDS?
If you suspect that your total income in one financial year will be less than the exemption limit, you can negotiate with the payer not to go ahead with the deductions by submitting Form 15G/15H.
On the receipt of payment which can be taxed through TDS, your PAN details must be provided to avoid deductions which could be higher than the normal rates.