TDS means Tax Deducted At Source. It is a tax that is deducted by any person involved in making payments in the form of salaries, commissions, rent, interest, professional fees, etc.
It comes under the Income Tax Department. As the name suggests, it the tax which is deducted particularly at the source of payment.
Now let us look into the various concepts of tax deducted at source in brief.
Table of Content
- What Is TDS?
- What Is TDS Certificate?
- Who Has To Deduct And When?
- How And When To Deposit TDS
- What Is TDS Return?
- Penalties Under TDS
- What Is TDS Refund?
- Frequently Asked Questions
What Is TDS?
TDS which is also known as Tax Deducted At Source, is a form of tax under the Income Tax.
It is to be deducted by any person who is liable to make payments specifically in the form of salaries, rent, commission, interest, fees, prize money, etc.
The person who is making the payment has to deduct a certain percentage of tax before making the complete payment to the receiver. Let us see an example to understand this.
For example, person A has to pay person B a sum of Rs.10,000 as his professional fees. In this case, person A will has to deduct TDS before making complete payment to person B. If the percentage of tax is 10%, then person A will deduct a sum of Rs.1,000 as tax deducted at source and pay the remaining Rs.9,000 to person B. The amount of Rs.1,000 deducted by person A has to be paid by him directly to the government.
For this deduction, the person has to apply for a TAN (tax deduction account number). It is a ten-digit alphanumeric number that every person has to apply for when he/she is responsible for deducting or collecting taxes.
What Is TDS Certificate?
TDS certificate is a certificate given by the person who is deducting taxes to the person whose taxes are being deducted.
The certificate includes complete information about the taxes deducted and the net payment made to the person.
The certificate is of two types namely –
- 16 – This is given in case of a salary. The employer gives it to the employee. It has complete details about the amount of salary paid and taxes deducted on the same.
- 16A – It is given in cases other than salary.
For example, you are working at a company, and you receive a salary every month on which a 10% tax is deducted. So your company will issue you a Form 16 having complete details of salary paid and the amount of taxes deducted.
Now, for example, you are providing some services to a company and charging your professional fees. Then you will provide Form 16 A to the company having details of professional fees paid to you and the amount of tax deducted at source.
Who Has To Deduct And When?
According to the Income Tax Act, anyone making payment specifically under the defined categories has to deduct TDS.
Below are some the categories in which tax at source has to be deducted –
- Payment of salaries to the employees having a salary above the specified limit.
- Dividends received
- Interest received above a specified limit on deposits in the bank, post offices
- Prize money received in lottery, game, horse race, etc
- Payment made to contract workers
- Commission on sale of insurance
- Payment made to LIC
- Payment made to any mutual funds
- Any kind of commission or brokerage
- Rent payment above the specified limit
- The professional fee received for rendering any professional services.
The tax is deducted whenever the payment is due or when the payment is actually made, whichever is earlier.
How And When To Deposit TDS?
Any person or a company deducting TDS has to pass on all the tax deducted at source to the government.
The amount of tax deducted has to be paid to the government before the due dates as specified by the government.
The payment of tax can be made online on the NSDL website through Challan No. ITNS 281. This can be done by both individuals or companies and is to be done quarterly
The due dates for making the payments of taxes to the government for a particular month is on or before the 7th of the succeeding month.
If the payments are not made before the due date, penalties and late fees are applicable.
What Is TDS Return?
TDS return is a statement that is to be filed with the Income Tax Department on a quarterly basis.
It is to be filed by every person or company who is having a TAN number and is liable to deduct tax at source.
It includes the following information –
- PAN details of both the payer and the receiver.
- Amount of taxes deducted and paid to the government.
- Information of challan.
- Other information if specified.
TDS returns due date are as follows –
- April to June (Quarter 1) – Due date is 31st July.
- July to September (Quarter 2) – Due date is 31st October.
- October to December (Quarter 3) – Due date is 31st January.
- January to February (Quarter 4) – Due date is 31st May.
Every person or company deducting taxes has to do TDS filing before the due dates mandatorily, otherwise, the penalties and late fee will be applied as specified by the government.
The returns can be prepared as per the formats available on the NSDL website and can be filed online on the its website.
Penalties Under TDS
The Income Tax department has defined specific penalties, late fees, and interests for not maintaining the compliances under the TDS laws of the government.
There are different penalties under the law such as –
- If there is a delay in the TDS returns filing, then a late fee of Rs.200 per day is applicable to the person or the company liable to file the returns.
- Interest at the rate of 1.5% per month of the tax amount is charged in case there is a late payment of taxes.
- If the tax deductor submits any incorrect information related to tax amount, PAN details, challan details, etc., then a fine of Rs.10,000 to Rs.1,00,000 can be imposed on the person or the company.
What Is TDS Refund?
At the end of the financial year, sometimes there is a difference between actual tax liability and the total tax deducted at source during the year.
If the actual tax liability is more than the total tax deducted at source, then the difference has to be paid.
If the actual tax liability is less than the total tax deducted at source, then the person or the company claims a refund of extra tax paid. This refund is known as a TDS refund.
A person or company can claim a TDS refund by showing it while filing the income tax return for the respective financial year.
The refund will be processed by the income tax department when the ITR is filed, and it is credited to the respective person or company’s account within 3 to 6 months.
Frequently Asked Questions
Now let us discuss some frequently asked questions on tax deduction at souce and its returns.
It is not applicable in the following cases –
1. Any payment made directly to the government.
2. Any payment made to Reserve Bank of India
3. Any payment made to a person who a no deduction certificate from Income Tax
While filing the tax return electronically, a statement of total tax deducted at source and the amount paid to the government is made in a prescribed format. This statement is known as the TDS statement.
Following different types of return forms are available –
1. Form 24Q – Used for preparing a return for tax deducted at source on the salaries
2. Form 26Q – Used for preparing a return for tax deducted at source on payments other than salaries
3. Form 27Q – Used for preparing a return for tax deducted at source on payments made to NRI or Foreigners or any income from interest, dividends, etc
4. Form 27QE – Used for preparing a return for tax collected at source
It is deducted on salary when the salary is above the threshold limit as specified by the government.
Following responsibilities are there for a person or company deducting TDS –
1. Should have a valid TAN number to deduct taxes
2. Should deduct taxes at the proper time and according to the specified rates
3. Should pay the deducted taxes to the government before the due date
4. Should file tax returns before the due date
5. Should issue tax certificate to the person or company whose tax is deducted
The percentage ranges from 1% to 30% depending upon the condition in which the tax is deducted.
The rate of tax deduction on rent is 10%.
The value of supply in the GST invoice is to be taken as the amount on which the tax is to be deducted. This means TDS shall not be deducted on the CGST, SGST, or IGST component of the invoice.