When is TDS to be deducted? Who is responsible to deduct TDS?

The following are the scenarios when the TDS must be deducted and by whom:

  • In case of certain incomes/payments, tax is required to be deducted at source by the payer at the rate as prescribed under the Income Tax Act, 1961. TDS will be deducted at the time of accrual or payment of such income to the payee, whichever is earlier. However, if you are an "individual" or a "Hindu Undivided Family" (HUF), whose total revenue from the business or professional carried on by him does not exceed one crore rupees in case of business, or fifty lakh rupees in case of profession during the Financial Year immediately following the current financial year, no TDS is required to be deducted at source.
  • If you are an "individual" or a "HUF member" who is paying rent (even if your books are not subject to a tax audit) a TDS of 5% will be taken if the amount payable is exceeding ₹ 50,000 per month. Deduction u/s 194IB is a PAN Based deduction. Therefore, no Tax Deduction Account Number (TAN) is required to be obtained by the individual or the HUF Member.
  • If you are employed, your employer will deduct TDS according to the applicable income tax slab rates. TDS rates are set under the Income Tax Act for the majority of payments, and the payer deducts TDS according to the rates.
  • If you present your investment proofs to your employer for claiming deduction under Income Tax Act and your total taxable income is less than the total taxable limit as prescribed under the Income Tax Act, it will not be essential to deduct TDS in this case. In case of interest income received from Bank, if your total taxable income is less than the total taxable limit, you can also submit Form 15G and Form 15H. In this instance, the bank will not deduct any TDS from your interest income.
  • If you fail to provide your employer with investment proof and the employer has deducted the applicable TDS, you can file a return and get a refund. However, you will get a TDS refund only if your total taxable income is less than the total taxable limit.

Example of TDS

Imagine that a startup company pays rent to the property owner of ₹ 90,000 per month. In this case, the TDS on the sum is 10%, the company must minus ₹ 9,000 from the total and give ₹ 81,000 to the property owner. The property owner will receive ₹ 81,000 after TDS deduction in this situation. In this case, the owner may include ₹ 90,000 in his income in order to get refund of ₹ 9000 that has been deducted by the company.

How does TDS work?

In case of certain incomes/payments, tax is deducted at source by the payer. In most of the cases, it would be deducted at a fixed rate at the point of origin. Almost all other payments as specified, with the exception of salary, have a TDS rate that is determined by the nature of income rather than the amount of payment.

In the case of salary, the employer might estimate the employee's entire expected income. As a result, TDS is deducted at the applicable slab rate, which may change during the year depending on:

  • Changes in income as a result of bonuses and/or appraisals
  • Investment proof submission

Pro Tip: Many employed taxpayers are taken by surprise by the TDS deduction from their salary. In the final quarter of the financial year, these taxpayers lose a significant amount of their pay.

As a result, begin your tax-saving investments in April and keep your TDS deductions spread uniformly so as to avoid TDS burden at a specific stage. As a result, you'll avoid both the last-minute rush for tax-saving investments and income loss.

Types of TDS

The following are some of the income sources that are eligible for TDS:

  • Amount under life insurance
  • Bank Interest
  • Brokerage or Commission
  • Contractor payments
  • Compensation on acquiring immovable property
  • Commission payments
  • Dividend declared
  • Interest on securities
  • Interest apart from interest on securities
  • Insurance Commission
  • Payment of rent
  • Remuneration paid to the director of a company, etc.
  • Salary
  • Transfer of immovable property
  • Winning from games like a crossword puzzle, card, lottery, etc.

TDS Rate Chart

Here’s the applicable TDS Rate Chart:

Income Type TDS Rate

Salary

Applicable Slab Rate

Fixed Deposit Interest

10%

Bonds

10%

Insurance Commissions

5%

Contractor Services

1% or 2%

Rent

2% or 10% or 5%

Shares/Mutual Funds

Nil

Savings Account Interest

Nil

NCDs listed on exchange

Nil

Property

1%

Brokerage

5%

Professional and Technical Services

10%

The rates mentioned above apply to payments paid to residents individuals who have submitted their PAN to the person in charge of deducting the TDS. For special conditions and other categories of taxpayers, different rates apply under the various income heads mentioned.

Suggested Read: TDS Rate chart.

What is the TDS rate on salary?

The TDS rates on salaries are the same as the individual's applicable tax slab rates.

Under the old tax regime, if you are below the age of 60 and:

  • If your income is less than/ up to ₹ 2.5 lakhs you would have TDS liability of 0%
  • If your income is between ₹ 2.5 lakhs and ₹ 5 lakhs you will have a TDS liability of 5%
  • If your income is between ₹ 5 lakhs and ₹ 10 lakhs you will have a TDS liability of 20%
  • If your income is more than ₹ 10 lakhs you will have a TDS liability of 30%

Under the new tax regime, if you are below the age of 60 and

  • If your income is less than/ up to ₹ 2.5 lakhs you would have TDS liability of 0%
  • If your income is between ₹ 2.5 lakhs and ₹ 5 lakhs you will have a TDS liability of 5%
  • If your income is between ₹ 5 lakhs and ₹ 7.5 lakhs you will have a TDS liability of 10%
  • If your income is between ₹ 7.5 lakhs and ₹ 10 lakh you will have a TDS liability of 15%
  • If your income is more than ₹ 10 lakh and ₹ 12.5 lakhs you will have a TDS liability of 20%
  • If your income is more than ₹ 12.5 lakh and ₹ 15 lakhs you will have a TDS liability of 25%
  • If your income is more than ₹15 lakh, you would have a TDS liability of 30%

Things to Keep in Mind While Filing TDS Returns Online

There are a few things you must make sure of while/before filing your TDS return. They are as follows::

  • Make sure you have a valid Tax Deduction and Collection Account Number (TAN) and that it is registered for e-filing.
  • Use the Return Preparation Utility to prepare your TDS statements before verifying them with the File Validation Utility.
  • If you want to use Digital Signature Certificate (DSC) to upload your returns, you must have a valid DSC that is registered for e-Filing.
  • If you want to upload your returns using Electronic Verification Code, provide the DEMAT account or bank account data of your principal contact, or make sure his or her PAN is linked to his or her Aadhaar.

Important Dates for TDS Payment

Each TDS payment is due on the 7th of the month following the month in which the deduction was made. For instance, if TDS is deducted on the 15th of January, it must be deposited with the Income Tax Department by the 7th of February, unless specific exceptions apply. You must complete a TDS return after making payment. The last day of the month after the quarter in which TDS was paid is the due date for each TDS return (except for the Jan-March quarter). Take a look at the table below for further information:

Quarter TDS Payment Date TDS Return Date

Quarter 1 – From April to June

7th May, 7th June, 7th July

31st July

Quarter 2 – From July to Sept

7th August, 7th, September, 7th October

31st October

Quarter 3 – From Oct to Dec

7th November, 7th December, 7th January

31st January

Quarter 4 – From Jan to March

7th Feb, 7th March, 30th April

31st May

Suggested Read: Income tax return due dates.

Steps to Upload TDS statements

The following is a step-by-step instruction to uploading your TDS statements on the Income Tax Department's official website:

  1. Go to https://www.incometax.gov.in
  2. 'Registered User?' appears on the right side of the page, followed by the 'Login Here' option.
  3. Before clicking on 'Login,' click on the aforementioned option and fill in your login details. Your user ID will be your TAN.
  4. After you've logged in, go to the 'TDS' drop-down menu and choose 'Upload TDS’ option.
  5. A form will display, and you must fill in the appropriate information before clicking on 'Validate' option.
  6. After that, you'll have to verify your returns using either DSC or EVC.

Challan for TDS Payment

The Challan form that is used for online payment of TDS and TCS is “Challan ITNS 281”. Tax Deducted at Source/ Tax Collected at Source (TDS/TCS) from corporations and non-corporations is covered under Challan No. 281. TDS is a system created by the Indian government in which a tax deduction is made at the source of an income, calculated at a certain rate, and afterwards paid to the Income Tax Department.

Penalty for Late Filing TDS Return

The penalties charged by the Income Tax Department for failing to submit or missing on your TDS return/statements are as follows:

  • Late Filing Fees for Failure to File Your Returns on Time – When a person fails to file the TDS returns on or before due date - a late filing fees under Section 234E of ₹ 200 for every day during which the failure continues will be charged.
  • Penalty For Failure to File TDS Statements on Time – If the deductor fails to file TDS returns on time, a penalty of ₹ 10,000 to ₹ 1 lakh would be imposed under Section 271H of the Income Tax Act. This is in addition to the late fees as prescribed under section 234E.
  • For False Information – If the deductor submits false information regarding PAN, challan particulars, TDS amount, etc., a penalty of ₹ 10,000 to ₹ 1 lakh will be charged under Section 271H of the Income Tax Act.
  • Non-payment of TDS – If TDS is not paid within the due date, interest will be charged in addition to the penalty under Section 201A of the Income Tax Act. There can be 2 scenarios
    1. TDS was not deducted by the Deductor
    2. TDS was deducted but not deposited by the Deductor

The penalty will be as below :

Period of Default Rate of Interest

From the date the tax was deductible to the date on which such tax is deducted

1% per month or part of the month on the amount of such tax

From the date on which such tax is deducted to the date on which such tax is actually paid

1.5% per month or part of the month on the amount of such tax

Steps to Check TDS Deduction Status

To check one's TDS status, one must complete the following steps:

  1. Go to the Income Tax Department's official website.
  2. Enter your details and log in to the site.
  3. Click on 'My Accounts' and select 'view Form 26AS (Tax Credit)' option from the page.
  4. To download the file, choose the year and the PDF format.
  5. The PDF file you downloaded is password-protected. The password will be your Date of Birth mentioned on your PAN card. For instance, if your birthday is May 13, 1990, your password will be 13051990 (DDMMYYYY).
  6. You may now see all of the information about the TDS deduction.
  7. If your PAN is linked to your bank then you can check the whether your TDS has been deducted or not using the bank's online banking function.

How to claim TDS refund online?

TDS refund can be claimed by individuals on the online e-filing portal of the Income Tax Department. The TDS refund will be processed by the Income Tax Department after the ITR is filed. The following steps must be followed:

  1. Log in or create an account on the Income Tax Department's online e-filing portal, incometaxindiaefiling.gov.in.
  2. Fill-in the applicable Income Tax Return (ITR) form with the required information.
  3. The portal generates an acknowledgement when the Income Tax Return is submitted.
  4. E-verify the acknowledgement using a digital signature, a net banking account, or an Aadhaar-based One-Time Password (OTP).

The refund shall be credited to your bank as mentioned in the Income Tax Return Form. Individuals can also use the Income Tax Department's website to check the status of their refund.

What is the TDS refund period?

If you file your ITR on time, your return will be transferred to your bank account. A TDS refund is granted when the amount of tax deducted is more than the actual tax payable. Sometimes, investment estimates made at the start of a fiscal year do not match with the actual investments achieve at the time of the year. When there is a difference between the total tax deducted at the end of a financial year and the amount of income tax you are required to pay for that year and your total tax deducted exceeds the tax liability as computed, you will receive a TDS refund.

What are the steps for raising a complaint about the delay in receiving ITR?

After you submit your Income Tax Return (ITR), and your TDS Refund is taking significant time to get credited to your Bank Account you can raise a ticket at the Income Tax Department website after logging in. Your reimbursement may, however, be delayed due to various reasons.

You must contact the officer to register a dispute if you have not received your refund after filing an ITR. Please include all required details and information. If you don't hear back, you can contact the Income Tax Ombudsman with your PAN, Form 16, bank statement, bank TDS certificate, and documents showing your earnings and investments.

What is the interest on a TDS refund?

The Income Tax Act allows you to receive interest if the TDS amount is not refunded on time. A simple rate of 0.5% per month or part of a month is used to calculate the interest.

What is a TDS Certificate?

There are two types of TDS certificates: Form 16 and Form 16A.

A certificate must be submitted to the deductee under Section 203 of the Income Tax Act, 1961, showing the amount that has been deducted (subtracted) as tax. This form must be provided to the deductee by the deductor.

  • For those in the salaried class - Salaried employers must furnish Form 16 to salaried employees, which must include various details including the amount deducted as TDS, The computation of tax, the deduction of tax, rate of tax and the payment of TDS.
  • For those in the non-salaried class: The deductor gives the deductee Form 16A, which contains all of the information on the tax computation, TDS deduction, and payments. TDS Certificates have to be generated within 15 days from the date of filing of return.

Advantages of TDS

Some of the many advantages of TDS are as follows:

  1. It ensures that people do not avoid paying taxes.
  2. Government gets its share of Taxes in the form of TDS on time.
  3. Since it is deducted on a regular basis, the pressure on the deductee is reduced as the deductions are spread uniformly throughout the year.
  4. The tax collection burden on tax collection agencies is greatly reduced.

How Can I Save TDS?

By investing in specific tax-saving products, the taxpayer can reduce TDS liabilities on his or her income. Here are a handful of the most-opted tax-saving tools:

1. Section 80C

Employees can claim a maximum deduction benefit at the time of TDS on salary up to the limit of ₹ 1,50,000 per year under Section 80C of the Income Tax Act. This section covers a variety of tax-saving expenses/ investments, some of which are as follows:

  • Premiums paid towards life insurance policy
  • PPF (Public Provident Fund)
  • Sukanya Samriddhi Account
  • ULIP (Unit linked investment plan)
  • House loan repayment (principal amount), and much more.

Suggested Read: Complete Guide on Tax-Saving Investments/ Expenses under Section 80C

2. Under 80D

The following expenditure should be incurred:

  1. Health insurance premium or Mediclaim premium
  2. Contribution to Central Government Health Scheme
  3. Preventive health checkup
  4. Medical expenditure (only applicable in case of a Very Senior Citizen/ senior citizen (aged 60 years or above) not having a medical insurance)

The expenditure can be incurred by the taxpayer being:

  1. Individual: for self, spouse, dependent children and parents.
  2. HUF: for Karta & Co-parceners.

Amount of deduction to be allowed :For Individuals paying for Self, Spouse and Dependent Children below 60 years: Rs. 25,000.

For Individuals paying for Self, Spouse and Dependent Children above 60 years: Rs. 50,000.

An additional Deduction is allowed if paid for Parents:

  • 25,000 (If one of the parents is a senior citizen or a very senior citizen, Rs. 50,000)
  • Deductions for Preventive Health checkups should not exceed Rs. 5000, but this limit is not in addition to the limit of Rs. 25,000 or Rs. 50,000 mentioned above.

Any payment mode is allowed other than cash. However, the payment of Preventive Health Checkups can be paid in cash.

Suggested Read: What all can be claimed under section 80D?.

3. Other Deductions under Chapter VI A

Including Section 80C and 80D deductions, Chapter VIA of the Income Tax Act allows other deductions such as 80CCC, 80CCD, 80CCE, 80DD, up to 80U. All these deductions/exemptions should be considered at the time of calculation of Tax Deducted at Source and Taxable Income.

Key Takeaways
  1. The TDS deduction limit differs depending on the type of payment. When interest on Fixed Deposits received from any Bank or Banking Institute, or a co-operative society, or any deposit with Post Office exceeds more than ₹ 40,000 in a year, for example, TDS is required to be deducted. In the case of older citizens, the said limit is ₹ 50,000.
    In case interest is received from any other party, the threshold limit is ₹ 5,000.
    Similarly, in the case of salaries, professional fees, and other items, the TDS rate varies. The TDS rate also varies depending on the nature of the payment.
  2. The TDS refund is allowed when the amount of TDS paid is more than the tax payable.
  3. To get the TDS refund in your bank account, the bank details given must be correct. Incorrect information can result in delays or non-receipt of the refund amount.
  4. In the Income Tax Return, it is very important to accurately mention the details of the tax-saving products. Section 80C, for example, allows you to deduct the premiums you pay on a life insurance policy. Life insurance isn't just a way to save money on taxes but also a way to secure the financial future of your loved ones.

To find the best life insurance plans that fits with your requirements, feel free to connect with a trusted financial advisor.