TDS---TAX DEDUCTION AT SOURCS

 




TDS (Tax Deducted at Source): A Complete Guide

Introduction

Tax Deducted at Source (TDS) is a crucial part of India’s taxation system, ensuring that tax is collected at the point of income generation. It is applicable to salaried employees, freelancers, businesses, and even individuals making high-value transactions.

Despite its widespread application, many people struggle to understand how TDS works, when it is deducted, how to claim a refund, and what happens if TDS is not deducted or deposited correctly.

In this blog, we will explore everything about TDS, its types, rates, due dates, and how you can manage it efficiently to stay compliant with tax laws.

https://www.rctaxconsultancy.com/

What is TDS?

TDS is a tax collection mechanism under the Income Tax Act, 1961, where the payer deducts tax before making a payment to the recipient. The deducted tax is then deposited with the Income Tax Department on behalf of the payee.

For example, if your employer pays you a salary of ₹50,000 per month and deducts ₹5,000 as TDS, they will deposit this amount with the government, and you will receive the remaining ₹45,000. The deducted amount is reflected in Form 26AS, and you can adjust it while filing your Income Tax Return (ITR).

Why is TDS Important?

✅ Ensures timely tax collection for the government.
✅ Reduces the burden of paying a large lump sum tax at the end of the year.
✅ Prevents tax evasion by tracking all transactions.
✅ Helps salaried individuals and businesses plan their finances effectively.

Who Needs to Deduct TDS?

TDS is applicable to:

🔹 Employers paying salaries above the taxable limit.
🔹 Businesses making payments for professional services, rent, interest, or commissions.
🔹 Individuals making high-value transactions (e.g., purchasing property above ₹50 lakh).

However, TDS is NOT required in the following cases:

❌ If the recipient submits Form 15G/15H, declaring that their income is below the taxable limit.
❌ When the income is below the TDS threshold limit specified by the Income Tax Act.
❌ If a taxpayer opts for exemption under specific sections of the law.

Types of TDS and Their Applicability

There are various types of TDS deductions based on the type of payment being made. Below is a list of the most common TDS types and their applicable tax rates.

1. TDS on Salary (Section 192)

  • Applicability: Employers deduct TDS from employees' salaries if taxable income exceeds the basic exemption limit.

  • Rate: Based on the individual’s applicable income tax slab.

📌 Example: If an employee’s annual salary is ₹10 lakh, the employer will calculate tax as per the slab rates and deduct TDS accordingly.

2. TDS on Interest Income (Section 194A)

  • Applicability: Deducted on interest earned from fixed deposits (FDs), recurring deposits (RDs), and unsecured loans.

  • Rate:

    • 10% if PAN is provided.

    • 20% if PAN is not provided.

  • Threshold Limit: ₹40,000 for individuals, ₹50,000 for senior citizens.

📌 Example: If you earn ₹60,000 as interest from a fixed deposit, TDS of ₹6,000 (10%) will be deducted before payment.

3. TDS on Rent (Section 194I & 194IB)

  • Applicability: Applicable to individuals and businesses paying rent.

  • Rate:

    • 2% for rent paid on machinery or equipment.

    • 10% for rent paid on land, buildings, or furniture.

  • Threshold Limit: ₹2.4 lakh per year.

📌 Example: If a business pays ₹30,000 rent per month, TDS of ₹3,000 (10%) will be deducted and deposited with the government.

4. TDS on Professional and Technical Services (Section 194J)

  • Applicability: Deducted on payments to freelancers, consultants, lawyers, chartered accountants, etc.

  • Rate:

    • 10% for professional services.

    • 2% for technical services.

  • Threshold Limit: ₹30,000 per financial year.

📌 Example: If a company hires a consultant for ₹1 lakh, they will deduct ₹10,000 (10%) as TDS and pay the consultant ₹90,000.

5. TDS on Contractor Payments (Section 194C)

  • Applicability: Payments to contractors and sub-contractors.

  • Rate:

    • 1% for individual/HUF contractors.

    • 2% for other entities.

  • Threshold Limit: ₹30,000 per payment or ₹1 lakh in a financial year.

📌 Example: If a contractor is paid ₹50,000 for a project, TDS of ₹1,000 (2%) will be deducted.

6. TDS on Sale of Property (Section 194IA & 194IB)

  • Applicability: Buyers must deduct TDS when purchasing property worth ₹50 lakh or more.

  • Rate: 1% of the sale value.

  • Threshold Limit: ₹50 lakh.

📌 Example: If a property is sold for ₹80 lakh, the buyer must deduct ₹80,000 (1%) as TDS and pay ₹79.2 lakh to the seller.

7. TDS on Dividends (Section 194)

  • Applicability: Companies deduct TDS before paying dividends to shareholders.

  • Rate: 10% if the dividend exceeds ₹5,000 per financial year.

📌 Example: If a company pays a dividend of ₹20,000 to a shareholder, ₹2,000 (10%) will be deducted as TDS.


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How to Check and Claim TDS Refund?

If excess TDS has been deducted, you can claim a refund while filing your Income Tax Return (ITR).

Steps to Check TDS and File for a Refund

1️⃣ Login to the Income Tax Portal (www.incometax.gov.in)
2️⃣ Go to ‘Form 26AS’ – This shows all TDS deducted on your behalf.
3️⃣ Match TDS with your income details.
4️⃣ File your ITR and claim a refund.

Refunds are usually processed within 30-45 days after ITR verification.

TDS Payment and Filing Due Dates

Activity

Due Date

Deposit TDS for the month

7th of the following month

TDS return filing (Quarterly)

31st July, 31st October, 31st January, 31st May

Issue of TDS Certificates (Form 16/16A)

15th June

❌ Late TDS payment attracts interest at 1.5% per month, and late TDS return filing leads to a penalty of ₹200 per day under Section 234E.

Conclusion

Understanding TDS rules and compliance is essential to avoid penalties and ensure smooth financial transactions. Whether you are an individual, a business owner, or a freelancer, keeping track of TDS deductions and filing returns on time will help you manage your taxes effectively.

Need assistance with TDS filing or refunds? NGO RC Tax Consultancy can help! Contact us for professional tax solutions and expert guidance.

https://www.rctaxconsultancy.com/

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