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What is TDS (Tax Deducted at Source)?

TDS is a concept introduced by the Income Tax Department, Government of India. At present, the provisions of the Indian Income Tax Act 1961 govern this rule. Central Board of Direct Taxes (CBDT) manages this act.

What is TDS?

TDS stands for Tax Deducted at Source. Here, the person making payment of any nature (deductor) deducted at source as tax and the payment he makes to another individual (Deductee). The deductor remits the money into the account of the Central Government. The deductee here is entitled to receive credit. The deductor provides it either as Form 26AS or the TDS certificate. The following scenario illustrates the mechanism:

The payment is professional. If the TDS percentage is 15%, Mr. ABC makes a professional payment of INR 25000 to Mr. Xyz. In such an instance, ABC deducts INR 3750. And he pays INR 21250. The deducted amount, INR 3750, is credited to the Government.

TDS is the best way to minimize tax evasion. It also relieves you from the burden of that massive amount at the end of the financial year.

TDS Rates

The tax mechanism of India features up to 25 sections. Each one governs a particular type of tax. Given below are the types of payment where TDS is applicable and its rates:

Section Type of disbursement Rate of TDS for Individual/Hindu Joint Family (HUF)-Indian Resident in percentage Rate of TDS for NRI-Non-Resident Indian in India in percentage
192 Payment of Salary According to the income tax bracket. According to the income tax bracket
194 B Earnings from winning card games, lotteries, and/or other games Thirty Thirty
194 BB Earnings from winning through horse racing Thirty Thirty
194 EE Disbursement towards NSS-National Savings Scheme deposits Ten Ten
194 F Disbursement towards palter with units by Unit Trust of India or Mutual Funds Twenty Twenty
194 G Earnings that are obtained from lottery, tickets sales, commissions and/or other undertakings Five Five
194 LBB An investment fund that pays disbursal to the unit-holder excluding those incomes that are exempted from Section 10 (23FBB)] Ten Thirty
194 LBC Earning generated from the financing of the securitization trust Twenty-five (for any other person to thirty) Thirty

Types of TDS

Below are the sources of income to which TDS is applicable:

  • Your monthly salary
  • The amount available under your LIC policy
  • Commission for brokerage
  • Interest on the deposit in your bank
  • Payment of commission
  • The compensation you gain when acquiring immovable assets
  • Deemed dividend
  • Payment for contractors
  • Commission on insurance
  • Interest other than the interest on securities
  • Rent
  • Professional payments to companies
  • Transfer of immovable property
  • Wins from the games like lottery

Filing TDS Returns

Follow the guide given below to eliminate errors when submitting TDS returns:

  • Form 27A - This is a controlled chart. Make sure that you fill this form accurately. The form then gets verified as the hard copy upon filing the TDS return.
  • Fill the amount paid correctly and the tax deducted at source. The information should be the same in all fields
  • The assesse has to mention their tax deduction account number
  • Please make sure that all the details related to the deposit of tax are accurate
  • Please follow the basic form that the Income Department has recommended strictly. This is done to bring and maintain consistency in the field
  • The preferred text format for the process is ASCII clean text. Users can utilize any software for the purpose. MS Excel, Computex, and Tally are just a few to mention. Make sure that the file has .txt as its extension
  • Users can submit the physical returns at any of the TIN-FC’s across the country.
  • If a user decides to file the TDS return online, they can submit the return directly to the NSDL website. The deductor has to sign in using a digital signature
  • Upon verification, the user receives a token or a receipt. A token of non-acceptance will be issued if the information is not accurate enough

Validation of TDS Return

The following process validates the TDS return you filed online.

  • A user fills in the form with the required details
  • The utility checks for errors. Afterward, it generates a report if it finds any error
  • Users are required to make necessary changes and resubmit the same

TDS-Penalty and Fees if Delayed

Few things users should keep in mind while paying the tax deducted at source:

  • Users are required to obtain a tax deduction account number. They should quote the same in all the required documents
  • They have to collect the tax at source at the rate applicable to each category
  • They should credit the amount to the Government
  • TDS return statements should be filed every three months
  • Certificates should be issued for the deduction and collection of the amount

Due Dates for filing TDS Returns

The following table describes the due dates according to the latest Government notification:

Quarter Quarter Period Quarter Ending Due Date
First April to June June 30th, 2020 July 15th, 2020
Second July to September September 30th,2020 October 15th, 2020
Third October to December December 31st, 2020 January 15th, 2020
Fourth January to March March 31st,2021 May 15th, 2021
  1. Late Fee for TDS Return Filing

    Let us consider an example wherein, you are accountable for paying an amount of INR 5000 as TDS on a certain quarter:

    Due date of provisioning TDS return for quarter-1 July 31st
    Absolute date of filing for TDS return February 5th
    Holdback 189 days
    Forfeit based on holdback 189*200= INR 37,800
    Maximum Cap for forfeit INR 5,000

    If a person fails to file your TDS returns within the stipulated due date, then he/she will have to incur a late filing fee of Rs. 200 per day. You will be charged for the fee every day until you file your return. But the maximum fees that you will be charged for will be restricted to the actual TDS amount.

  2. Interest in the delayed filing of TDS

    Section Type of Default Interest on delayed deposit for TDS/TCS delinquency  Period of Interest
    201 A When there is non-deduction of tax (complete or partial) One percent per month Initiates from the date when the tax was subject to detection till the present date of deduction
      When the tax has been subject to deduction, non-payment/late payment of tax (complete or partial) 1.5/month Commences from the rebated date till the actual date of compensation

     

    Users are required to pay the amount to be deducted as penalty for non-filing of TDS return. Non-payment may even result in prosecution, as per the provisions of the 276B of the Income Tax Act, 1961. The punishment includes three months or seven years of rigorous imprisonment along with fine. Every single day after the due date will cost you INR 200.

TDS Refund

Those liable to pay TDS returns can claim a refund on the Income Tax Department’s official portal. However, they have to make sure that the TDS file is submitted on time. The refund amount, too, should be shown as per the guidelines.

Upon filing the ITR, the portal starts the process of refunding. It should be credited to the Government within six months. You can check the refund status on the portal.

Times when TDS is not applicable

TDS is not applicable to someone belonging to a Hindu Undivided Family. Those whose books don’t require auditing too are exempt from the same. Even then, HUFs whose rent exceeds INR 50000 are required to pay 5% TDS on the income. The same applies to those whose books don’t require auditing.

FAQ's

Written By: Paisawiki - Updated: 03 December 2020