Tax Deducted at Source (TDS) is a crucial mechanism in the Indian taxation system. It ensures that tax is collected at the very source of income. This method helps the government to collect taxes in advance and reduces the chances of tax evasion. Here’s a detailed look at tax deducted at source payment and how it works.
How Does TDS Work?
When a payment is made, the deductor deducts a certain percentage of the amount as tax before making the payment to the deductee. This deducted amount is then deposited with the government. The deductee receives the net amount (after TDS) and can claim the deducted amount as a credit against their final tax liability.
Importance of Tax Deducted at Source Payment
- Prevents Tax Evasion: By collecting tax at the source, the government ensures that taxes are paid on time and reduces the chances of tax evasion.
- Regular Flow of Revenue: TDS helps in the regular inflow of funds to the government, aiding in better financial planning and management.
- Ease of Compliance: For taxpayers, TDS simplifies the process of paying taxes as it is deducted automatically from their income.
TDS Rates and Applicability
TDS rates vary depending on the type of payment and the recipient’s status (resident or non-resident). Some common TDS rates include:
- Salary: As per the income tax slab rates applicable.
- Interest on securities: 10%
- Dividends: 10%
- Rent: 10% for land/building, 2% for plant/machinery.
Section 194S: TDS on Transfer of Crypto, Defi, NFTs & Virtual Estate
How to Pay Tax Deducted at Source Payment?
Step-by-Step Guide to Pay TDS Online
- Visit the Official Website
Go to the official website of NSDL TIN (Tax Information Network) for online tax payment. The URL is NSDL TIN.
- Select the Correct Challan
1.On the homepage, click on the “Services” tab and select “e-payment: Pay Taxes Online.”
2.Choose the appropriate challan based on the type of TDS payment. For most TDS payments, select Challan No./ITNS 281. - Fill in the Challan Details
1.Enter your TAN (Tax Deduction and Collection Account Number).
2.Select the type of payment (e.g., TDS/TCS payable by taxpayer).
3.Fill in other required details such as the assessment year, address, and contact information. - Verify the Information
1.Double-check all the details entered to ensure accuracy.
2.Enter the captcha code and click on “Proceed.” - Log In to Your Bank Account
1.You will be redirected to the net-banking page of your selected bank.
2.Log in using your net-banking credentials. - Complete the Payment
1.Enter the payment amount and confirm the transaction.
2.After you successfully complete the payment, the system generates a challan counterfoil. This counterfoil includes the Challan Identification Number (CIN), payment details, and the name of the bank that processed the payment. - Save the Challan Counterfoil
Save and print the challan counterfoil for your records. This serves as proof of payment.
Penalties for Non-Payment of TDS
Non-payment or late payment of TDS can attract severe penalties and interest charges. Here are some of the consequences:
- Interest: If you do not deduct TDS, the government levies interest at 1% per month from the date the tax was deductible to the date you deduct it. If you deduct TDS but do not deposit it, the government levies interest at 1.5% per month from the date of deduction to the date of deposit.
- Penalty: A penalty equal to the amount of TDS not deducted or not paid can be imposed.
- Prosecution: In severe cases, prosecution can lead to rigorous imprisonment for a term which can extend to seven years and a fine.
- Disallowance of Expenditure: The expenditure on which TDS was not deducted or deposited will be disallowed while computing taxable income.
Consequences of Late Payment of TDS
Late payment of TDS can also lead to several consequences:
- Interest: Interest at 1.5% per month is levied from the date of deduction to the date of deposit.
- Late Filing Fee: The government charges a fee of ₹200 per day for each day you delay filing the TDS return, up to a maximum of the TDS amount.
- Penalty for Late Filing or Non-Filing: The authorities can impose a penalty ranging from ₹10,000 to ₹1,00,000 for late filing or non-filing of TDS returns.
- Disallowance of Expenses: Similar to non-payment, the authorities can disallow expenses on which you did not pay TDS on time while computing taxable income.
- Prosecution: In extreme cases, late payment can also lead to prosecution.
Claiming TDS Credit
The deductee can claim the TDS credit while filing their income tax return. The TDS amount is reflected in Form 26AS, which can be accessed through the Income Tax Department’s e-filing portal. The deductee must ensure that the TDS details match the entries in Form 26AS to avoid discrepancies.
FAQ Section
TDS stands for Tax Deducted at Source.
You can check your TDS credit in Form 26AS, available on the Income Tax Department’s e-filing portal.
If TDS is not deducted, the deductor may face penalties and interest charges. The deductee may also have to pay the tax directly.
Yes, if the total TDS deducted exceeds your actual tax liability, you can claim a refund while filing your income tax return.
No, TDS is applicable only on specified types of income such as salary, interest, rent, commission, etc.
