Introduction Tax Deducted at Source (TDS) is a crucial mechanism of tax collection introduced by the government to ensure timely tax payment. It helps in reducing tax evasion by collecting tax at the source of income. Whether you are a salaried individual, freelancer, or business owner, understanding TDS is essential for compliance with tax laws.
What is Tax Deducted at Source(TDS)
TDS is a system in which tax is deducted at the time of making payments such as salary, interest, rent, commission, or professional fees. The entity making the payment (deductor) is responsible for deducting tax at prescribed rates and depositing it with the government. The recipient (deductee) can claim the deducted amount as a tax credit while filing their income tax return.
Applicability of Tax Deducted at Source
Tax Deduction at Source applies to various types of payments, including:
- Salary: Employers deduct TDS from employees’ salaries based on their income tax slabs.
- Interest on Fixed Deposits (FDs) & Savings: Banks deduct TDS on interest earned above a specified threshold.
- Rent Payments: Individuals and businesses paying rent exceeding a specified limit must deduct TDS.
- Professional Fees & Commissions: Payments to freelancers, consultants, and commission agents are subject to TDS.
- Purchase of Property: TDS is applicable on property purchases above a prescribed value.
TDS Rates and Threshold Limits
TDS rates vary depending on the nature of the payment and the recipient’s status. Some common TDS rates include:
- Salary: As per income tax slabs
- Interest on FDs: 10% (if PAN is provided)
- Rent: 10% (for individuals) and 2% (for companies)
- Professional Fees: 10%
- Commission: 5%
If the recipient does not provide their PAN, a higher TDS rate may be applicable.
TDS Deduction and Payment Process
- The deductor calculates and deducts TDS at the time of payment.
- The deducted amount is deposited with the government within the prescribed due date.
- The deductor issues a TDS certificate (Form 16 or 16A) to the deductee.
- The deductee can check the deducted TDS in their Form 26AS on the Income Tax portal.
TDS Returns and Filing
Tax Deduction at source deductors must file quarterly TDS returns in prescribed forms:
- Form 24Q – TDS on salary
- Form 26Q – TDS on non-salary payments
- Form 27Q – TDS for foreign entities
- Form 27EQ – Tax Collected at Source (TCS)
Filing TDS returns on time is crucial to avoid penalties and ensure the tax credit reflects correctly for deductees.
How to Claim TDS Refund?
If excess TDS has been deducted, the taxpayer can claim a refund while filing their income tax return. The refund amount is processed after tax assessment by the Income Tax Department.
Penalties for Non-Compliance
Failure to deduct or deposit TDS on time may lead to penalties, including:
- Interest on delayed deposit
- Late filing fees for TDS returns
- Disallowance of expenses under the Income Tax Act
Conclusion TDS is an essential part of tax compliance, ensuring the government receives tax revenue timely. Understanding its applicability, rates, and filing procedures helps taxpayers avoid penalties and claim eligible tax benefits. Stay updated with the latest TDS regulations to ensure hassle-free tax compliance. Read to know about Section 194S: TDS on Transfer of Crypto, Defi, NFTs & Virtual Estate.
For more tax-related information, stay tuned to GST India News!
