Tax Deducted at Source or TDS is one of the ways the Indian government deploys to collect indirect tax from its citizens. The 1961 Tax Act empowers the government to collect TDS from Indians. Tax deducted at source is directly managed by the Central Board of Direct Taxes (CBDT) and supervised by the Revenue Services of India (IRS).
The intention of collecting TDS at source is to ensure that the government does not run out of Finance to provide security and welfare to the masses throughout the year. The government also encourages the citizens to pay these taxes as at when due.
In view of the above, this article will take a look at the TDS tax structure, rates, and how to file TDS returns online. Without further ado, let’s get started.
MEANING OF TDS–
TDS is an indirect tax which is deducted occasionally or periodically from the income of an individual. This form of tax is applicable to both regular and non-regular income. The enabling Act regulating the collection of TDS is the 1961 income tax Act. The Act empowers an employer or a payee to deduct these taxes before remitting the income accrued to a receiver. Areas the TDS Scheme is applicable are;
- Salary
- Commission
- Professional fees
- Interest
- Rent, among others.
Since the Tax deducted at source is collected before one receives his/her income, it minimizes the issue of tax evasion as it were.
THE MERITS OF TDS
The operating principle of TDS is ‘pay as at when you earn’. TDS is viewed as a win-win situation for the government as well as the tax payers. TDS is deducted at source when an individual makes payment through cheque, cash, credit or debit cards. The funds is then deposited into the coffers of the central government. The following are some of the benefits of TDS;
- Sharing of responsibility between tax collection agencies and deductors.
- Prevents tax evasion.
- Widens the tax collection base.
- TDS is a steady source of income for the Indian government.
- TDS makes it easy for the payers since it would be automatically deducted at source.
CALCULATION OF TDS
All payments such as interest, fees to Freelancers and lawyers, salaries, are all subjected to TDS. The percentage of salaries is based on income slab rates. Conversely, all other categories of income have their own peculiar percentages that is deducted provided the amount meets a certain threshold.
DEDUCTION OF TDS
An individual has the right to file for a refund when he/she pays TDS in excess compared to the amount liable. The deductions of TDS are calculated using various types of income categories.
TDS RATES AND TYPES (RATES AND LIMITS AS PER BUDGET 2016)
| Section Number | Source | Payee Type | Threshold Limit | TDS rate |
| 192 | Salary Payment | Individual | Basic exemption limits as per the income tax slab rates. | Rates of Income Tax in force. |
| 193 | Interest on securities | Resident | – | 10% |
| 194 | Deemed Dividend | Resident Individual | Rs. 2500 each Financial year. | 10% |
| 194A | Interest excluding interest on securities. | Resident | Rs 10000 if the interest is paid by the following:
a. Banks; b. Co-operative Banks; or c. Post Office deposits. In any other case, Rs. 5000 will be the limit. |
10% |
| 194B | Winning from games like a crossword puzzle, card, lottery, etc. | Any person | The amount is exceeding Rs. 10000 | 30% |
| 194BB | Winning from House race | Any person | The amount is exceeding Rs. 10000 | 30% |
| 194C | Contractor payments | Resident contractor | – Single payment is exceeding Rs. 30000; or -Aggregate sums paid in the FY exceeding Rs. 100000. |
– Individual/HUF = 1% of the sum paid. – Any other person = 2% of the sum paid. |
| 194D | Insurance Commission | Any Resident | Rs. 15000 per Financial Year | 10% |
| 194DA | Amount under LIC | Resident | Aggregate payment must be less than Rs. 100000 in the FY | 1% |
| 194H | Brokerage or Commission | Resident | Rs. 15000 per Financial year | 5% |
| 194-I | Rent | Resident | Rs. 180000 per Financial Year | – P&M or equipment = 2% – Land, building, furniture or fixtures = 10%. |
| 194-IA | Transfer of immovable property | Resident Transferor | Consideration of Rs 50lakhs. | 1% |
| 194J | Royalty, Director Remuneration, Professional or technical service fees, Non-compete fees | Resident | Rs. 30000 for each income in the FY (Not applicable to payment to the director). | 10% |
| 194LA | Compensation on acquiring immovable property | Resident | Rs. 250000 per FY | 10% |
However, TDS is not deducted if;
- The amount is paid to Reserve Bank of India, Government or any such body.
- Finance Corporations of Central or State.
- Mutual Fund u/s 10(23D).
- Deductee has non-deduction certificate u/s 192 of Income Tax Act.
Interest paid to the following:
- Banking Company;
- Co-operative Society having banking business;
- LIC, UTI or other insurance company;
- Body notified for non-deduction of tax;
- NSC, KVP or Indira Vikas Party;
- NRE Account;
- Banks or cooperative society’s recurring deposits or savings account; etc.
TDS EXEMPTION-
If you feel you should be exempted from paying TDS, then you need to follow the below procedures in order to claim exemption;
- Contact the tax department via Form 13 or your tax official
- You should apply for exemption within a 30 days frame
- All those qualified to pay tax are advised to supply only genuine information at the first instance. Otherwise, your application may be rejected by the tax department. Once your information is accurate, the tax department will issue you a certificate of exemption relying on section 197 of the Tax Act.
- A copy of the receipt should be saved because you will need it when claiming your TDS exemption.
- Unless the tax department cancels the Certificate, you will have total validation.
TAX CERTIFICATE-
Since TDS is an ongoing thing, it is difficult to monitor individual tax deductions. With respect to section 203 of the Income Tax Act, it is required that the deductor provides a TDS payment certificate to the payee or deductee. The TDS certificate is also provided by banks as soon as they deduct a pensioners’ fund. You are advised to request for your TDS certificate as applicable.
EXCESS TDS DEDUCTIONS REFUND-
Under Direct tax Act, the Act empowers an individual to file for a claim of return when he/she has been charged excess TDS. In this context, excess charge is regarded as the difference between the amount deducted and the amount payable by an individual.
PROCEDURE TO PAY TDS ONLINE-
The amount deducted in form of TDS is deposited into the coffers of the central government. TDS can be paid online by following the below procedures;
Step 1: visit NSDL’s website for the payment of TDS.
Step 2: ‘CHALLAN NO./ITNS 281’ should be selected on the portal. It would direct you to the payment page.
Step 3: You need to provide the following details on the payment page;
- Select “Company deductees’ under ‘tax applicable’, if the tax to be paid is deducted from a company. Otherwise, select ‘Non-company deductees’
- Enter your TAN as well as the assessment year which you intend to make the payment.
- Enter your pin code and select your state from the list.
- Select whether you want to pay for TDS deducted or TDS on a regular basis.
- Select the ‘mode of payment’ as well as the nature of payment from the drop down
- Click the submit button
Step 4: Once you submit the form, a page displaying the name of the taxpayer would display for confirmation.
Step 5: When you confirm your details, you will be directed to the page of your bank.
Step 6: You will then log in with your username and password and then make the payment.
Step 7: Once the payment is successful, a challan counterfoil will display containing bank name and CIN.
FILING OF TDS RETURN ELECTRONICALLY
In order to file for your TDS return online, follow the below instructions;
- An appropriate file format should be selected
- The file should be in ASCII format and then the filename should be saved as “txt.”
- A free software is available for download on the portal of NSDL. You can download this software to prepare your return file.
- Once you are done preparing the return file, you need to validate the file with the aid of File Validation Utility (FVU).
- Rectify any errors found by FVU.
- Generate .fvu file and then submit the file at TIN-FC.
- You can also upload the file via tin-nsdl.com
PENALTY FOR FILING TDS RETURN LATE
The Income Tax Act has made it clear that defaulters would be charged a fee for filing their tax return late. The amount to be paid is Rs. 200 daily until the defaulter pays the applicable tax. The fine would be charged continually until the amount equals the tax payable.
However, a penalty of Rs. 10,000 will be imposed on the defaulter if he/she fails to file the return after a year or provides the tax department incorrect PAN information.
TDS REIMBURSEMENT OF EXPENSES
For TDS, the below reimbursements of expenses are important;
- Management expenses to parent company are non-taxable
- Per-Diem expenses are non-taxable
- Relocation expenses for employees are non-taxable
- The audit fee is taxable
- Marketing expenses are taxable
- Traveling expenses are non-taxable
- The reimbursement for a foreign artist’s visit is non-taxable
- Consultant fees are non-taxable
- Infrastructure expenses are non-taxable, among others
SALARY TDS CALCULATOR
Calculation of TDS from salary is pretty simple. However, firstly, you need to calculate the net amount received as salary and other sources of income. Thereafter, you calculate all the exemption and Investments. Once you are through with all the calculation and then arrive at the total amount, you will then reduce the allowable exemption and investment from your salary. This will provide you with your net annual income which is taxable using various income slabs.