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Tax Deducted at Source (TDS): Meaning, filing and Due Dates

Updated on: 23 Feb, 2024 12:08 PM

When it comes to tax deduction at source, there are a lot of confusions. The first question is, what exactly is TDS? And when we understand that, the next question which pops up is, how many times do I have to pay tax? Why is TDS deducted from my salary? When is the TDS deducted? How the amount of TDS deduction on salary is calculated? What is the need for TDS the list is literally endless!

So, to clear all your queries and provide you with all the possible solutions, we bring you a series on Tax Deducted at Source or TDS. This series will explain all the income tax laws related to TDS, which hits our life daily.

But before that, let us beat the heat out of some TDS basics!

Budget 2023 Updates

  1. Section 194BA - TDS on income from online gaming: The budget 2023 introduced TDS (Tax Deducted at Source) on income from online gaming under Section 194BA. This means that any winnings or income earned from online gaming platforms will be subject to TDS at the applicable rate (30% of the net winnings at the end of the financial year or at the time the user withdraws the same).
  2. Section 196A - TDS benefit for non-residents earning from mutual funds: Effective from April 1, 2023, non-residents earning income from mutual funds in India can provide a Tax Residency Certificate to avail the benefit of TDS as per the rate specified in the tax treaty between India and their respective country, instead of the standard rate of 20%.
  3. Section 192A - TDS rate reduction on PF withdrawal without PAN: Section 192A was amended to reduce the TDS rate on Provident Fund (PF) withdrawals for employees who do not have a PAN (Permanent Account Number). The TDS rate has been lowered to 20% from the previous maximum marginal rate.
  4. Section 193 - TDS on interest from listed debentures: The budget 2023 eliminated the exemption from TDS on interest earned from listed debentures. This means that tax must now be deducted at source on the interest income from such specified securities.
  5. Section 194N - Increased TDS threshold on cash withdrawal by co-operative societies: From April 1, 2023, the budget increased the TDS threshold on cash withdrawals made by co-operative societies. Tax will now be deducted on cash withdrawals exceeding Rs 3 crore, as opposed to the previous threshold of Rs 1 crore.
  6. Section 194R - Clarification for deductibility of TDS on benefits or perquisites: In the Budget 2023, it was clarified that the TDS is to be deducted whether the perquisite or benefit is in cash or in kind or whether it’s partly in cash and partly in kind.

What is TDS?

TDS stands for Tax Deducted at Source. It is a system implemented by the government to collect taxes at the source of income itself. Under this system, a person or entity making certain specified payments is required to deduct a certain percentage of tax before making the payment to the recipient. The deducted tax amount is then directly deposited with the government.

TDS serves two primary purposes:

  1. Revenue Collection: TDS ensures a steady flow of revenue to the government by collecting taxes in advance from the income earned by individuals or entities.
  2. Compliance and Monitoring: TDS helps in monitoring and ensuring tax compliance by requiring the deductor to deduct tax at the time of making payments. It acts as a mechanism to keep track of various financial transactions and helps in preventing tax evasion.

TDS is applicable to various types of payments such as salary, interest, rent, professional fees, commission, contractual payments, dividends, etc. The rates at which TDS is deducted can vary based on the nature of the payment and the provisions of the Income Tax Act.

The deductor is responsible for deducting the TDS, issuing a TDS certificate to the deductee, and depositing the deducted tax amount to the government within the specified due dates. The deductee can then claim the TDS amount as a credit while filing their income tax return, and it is adjusted against their total tax liability.

Further, it is to be noted that TDS doesn’t exempt you from the requirement of filing of ITR. If your income exceeds the basic exemption limit, then irrespective of the fact whether TDS has been deducted or not, you have to file ITR. Let us understand it with the help of the below example, where TDS is calculated on salary income.

For e.g. Let’s say you earn a total salary of Rs.6,00,000 (i.e. Rs.50,000 per month) and have no other income in F.Y 2022-23. Now, as your GTI exceeds the basic exemption limit (of Rs.2,50,000), tax liability will occur at the time of filing your return. To understand the concept of TDS, we will consider 2 cases: One when TDS is deducted and one without TDS u/s 192.

Note: Since, the income source is “Salary, “ so in this case, TDS will be deducted under Section 192. Further, Tax Calculation is done without giving the benefit of standard deduction of Rs. 50000.

Without TDS (Situation 1) With TDS (Situation 2)
Salary Income 6,00,000 Salary Income 6,00,000
Total Income 6,00,000 Total Income 6,00,000
Gross Tax Liability 32,500 Gross Tax Liability 32,500
  • Cess @ 4%
  • Cess @ 4%
    Less: TDS deducted 33,800
Tax Payable at the time of filing the return 33,800 Tax Payable at the time of filing the return
    Tax Refund

In Situation 2 (when TDS is deducted), your employer will deduct the TDS as Rs.33800/12 months, which comes to Rs.2817 (round-off) per month. This is how TDS is calculated on salary. So, every month Rs. 2817 is deducted from your salary income and deposited to the government as tax by your employer.

So from the above example, you can easily understand how TDS helped to evenly spread your total income tax liability during the year. And even in some cases, makes you eligible for a refund.

Why is the TDS deduction done?

The need for implementing the system of TDS is because of the various benefits it possesses. They have been summarized below:

  • From the government’s point of view, the need for implementing TDS arises in order to avoid tax evasion. As per the TDS scheme, the liability to deposit the tax is on the payer of income and not the receiver. Thus, it becomes easy for the government to collect taxes and keep a check on payers rather than controlling a large number of receivers of income.
  • Another one is that government gets a steady source of revenue around the year rather than waiting till the time of filing returns.
  • From a common man’s point of view like yours and mine, under the system of TDS, the tax is deducted at various points when you receive income during the year itself. Therefore, you don’t need to pinch your pocket and pay the tax in one go.

Who is liable to deduct TDS and Who is the TDS Deductor and TDS Deductee?

There are basically two parties involved in any transaction, one is the person making the payment and the other is the person receiving the payment. The government has covered certain categories of persons making the payment under the TDS Scheme. As per this scheme, the person making the payment is liable to deduct the tax at a specified rate and deposit it with the government.

So we can say –

  • TDS Deductor: Is the one who is liable to deduct a specified amount as TDS from the amount which is to be given to the receiver/ payee/ deductee. Deductor is also referred to as Payer (because he/she deposits this part of the tax to the government on the payee’s behalf)
  • TDS Deductee: Is the one who is receiving the balance money after deduction of tax at source or the person and deposited on his/her behalf to the government by the Deductor. Deductee is also commonly referred to as Payee.

Now, as per the Income Tax Act, Person means Individual or HUF Firm or AOP or BOI or Company Corporation, Government or any local authority or Non-Resident, etc. The deductor/deductee can be any of the persons depending on the section and rules applicable to that transaction.

What type of payments are covered under the TDS scheme?

There are various types of payments defined under the Income Tax Act on which tax deduction provisions are attracted like salary payments (to residents/non-residents), other than salary payments like interest, dividends, rent, commission, lottery winnings, royalty etc.

For your better understanding, we have made a summary table of all the sections with their number, name, rate of tax deduction and the threshold limit (which simply means that upto this limit there is no requirement for deducting TDS).

In the below table, you can simply click on the relevant section to know more about it in-detail.

Brief Overview of all the TDS Provisions for F.Y 2022-23 (2023-24)
S.No. TDS Section Nature of Payment Payer (Deductor) Payee (Deductee) Rate of TDS Exemption Limit (No TDS to be Deducted upto threshold limit mentioned)
1 Section 192 TDS on Salary Any Person Employee(R or NR) Applicable Income Tax Slab Rates Basic GTI exemption limit of Rs.250000 or Rs.300000 or Rs.500000 as the case may be.
2 Section 192A TDS on Premature Withdrawal from Provident Fund Any Person Employee 10% (If no PAN then MMR i.e. 35.535%) Amount is less than Rs.50000
3 Section 193 TDS on Interest on Securities Any Person Any Resident Person 10% Upto Rs.5000 in a financial year (FY) for Individual/HUF in the case of Debentures.
4 Section 194 TDS on Dividends Domestic Company Resident Person 10% Upto Rs.2500 in a FY (for Individual)
5 Section 194A TDS on Interest (Other than Interest on Securities) Any Person(Other than Individual/HUF not liable to tax audit in last PY) Resident Person 10% Up to Rs.10,000 (for payments made by banks, cooperative banks or on post office deposits) and up to Rs.5000 (for other cases). [In case of a senior citizen, the limit of Rs 10,000 shall increase to Rs. 50,000 w.e.f. 1.4.2018]
6 Section 194B TDS on Winnings from Lottery or Crossword Puzzles Any Person Any Person 30% Up to Rs.10000
7 Section 194BB TDS on Winnings from Race Horses Any Person Any Person 30% Up to Rs.10000
8 Section 194C TDS on Payment to Contractors Any Person(Other than Individual/HUF not liable to tax audit in last PY) Any Resident Person 1% (for Individual/HUF)
2% (other person)
Up to Rs.30000 for individual payment.
Up to Rs.100000 for total amount during a FY.
9 Section 194D TDS on Insurance Commission Insurance Company Resident Agent 10% (if deductor is company)
5% (if deductor is resident person other than company)
Up to Rs.15000 during FY
10 Section 194DA TDS on Payment in Respect of Life Insurance Policy Any Person Any Resident Person 1% up to Rs.100000
11 Section 194E TDS on Payments to Non-Resident Sportsmen or Sports Association Any Person NR-
-Sports Association
20% No exemption limit.
12 Section 194EE TDS on Payment for Deposit Under NSS Any Person Any Person 10% Upto Rs.2500
13 Section 194G TDS on Commission on Sale of Lottery Tickets Any Person Any Person 5% Upto Rs.15000
14 Section 194H TDS on Commission or Brokerage Any Person(Other than Individual/HUF not liable to tax audit in last PY) Any Resident Person 5% Up to Rs.15000
15 Section 194I TDS on Rent Any Person(Other than Individual/HUF not liable to tax audit in last PY) Any Resident Person 2% (on rent paid for use of machinery, plant or equipment)
10% (other cases)
Up to Rs. 240000 during the FY
16 Section 194IA TDS on Payment on Transfer of Immovable Property (Not Being an Agricultural Land) Any Person (Other than person referred to in section-194LA) Any Resident Person 1% Less than Rs.50,00,000
17 Section 194IB TDS on Payment of Rent by Certain Individuals or HUF Individual & HUF(Other than covered u/s 194 I) Any Resident Person 5% Upto Rs.50000 per month
18 Section 194 IC TDS on Payment Made Under Specified Agreement Any Person Any Resident Person 10% No exemption limit
19 Section 194J TDS on Fees for Professional or Technical Services Any Person(Other than Individual/HUF not liable to tax audit in last PY) Any Resident Person 10%
2% (in case of payment of fees for technical service {not being a professional service} or made to the business of operating a call centre or royalty paid for sale, distribution, or exhibition of cinematographic films.
Up to Rs.30000 during FY (the separate limit for each kind of payment)
20 Section 194LA TDS on Payment of Compensation on Acquisition of Certain Immovable Property Any Person Any Resident Person 10% Upto Rs. 2,50,000
21 Section 195 TDS on Other Payments Made to NR (Not Company) or Foreign Company Any Person NR or Foreign Company Rate as specified in Act or DTAA No exemption limit
22 Section 194O TDS on Payments Made to e-commerce Participants An e-Commerce operator An e-Commerce participant 5% Rs 5 lakh is set only for resident individuals and HUF, who has furnished PAN or Aadhaar to e-commerce operator.

*R means Resident and NR means Non-Resident

**Note: In the above table, unless other rate like MMR is specified, if PAN is not available then TDS rate will become 20%.

Also, now you can easily compute actual TDS for many sections using our Online TDS Calculator Tool, that too for FREE.

What happens after TDS deduction?

As soon as your TDS is deducted, an entire chain of process starts which is described briefly below:

TDS is deducted

  • Deposit TDS with Government: After deducting TDS, the deductor is required to deposit it with the government within the specified time period(7th day of the next month, 30th April incase of March).
  • File TDS Return: The deductor is also required to file TDS returns (quarterly) where he declares the financial details of all the deductee for whom TDS has been deducted during the quarter.
  • Updation of 26AS: When the government receives the amount of TDS, Form 26AS of the deductee gets updated with Tax deposited details.
  • Issue of TDS Certificates & ITR Filing: After that, when the deductee (or payee) files ITR in the relevant financial year, he/she considers his Form 26AS and claim the credit of TDS available in it.

Which ultimately reduces his total tax liability to be paid via income tax return (and in some cases result in tax refund/TDS refund as well).
Now you must be having many question regarding the process discussed above. Just relax! The next set of questions will solve all your queries.

What is the due date of depositing TDS amount with the government?

After deducting the TDS amount, the deductor is required to deposit this amount with the government within a specified time and this is called making TDS payment.

The amount of TDS is deposited by using TDS Challan No. 281. You can visit the link to see where this payment is made.

The due dates for depositing TDS (or making TDS payment) are as follows:

Month of Deduction Due Date for Making Payment Through Challan for both Government or any other deductor
April 7th May
May 7th June
June 7th July
July 7th August
August 7th September
September 7th October
October 7th November
November 7th December
December 7th January
January 7th February
February 7th March
March 30th April for deductors other than government and 7th April for government deductors.

How to deposit TDS?

The procedure for payment of TDS is almost same as payment of income tax with some minor changes. To know the process click here. The TDS amount is required to be paid online through Challan No. 281 at the Online e Tax website. Click here to visit.

What is the Penalty on default in making TDS payment?

Now, when the deductor does not comply with the above provisions of TDS payment, some penalties are levied on him/her which are discussed as below:

When TDS is not deducted (either in whole or in part)?

Interest- late deposit interest @ 1% per month or part of month is levied on the TDS amount from the date when tax was required to be deducted till the date of actual deduction.[Section 201(1A)(i)]

For example Date of:

  1. Payment/credit is 16.08.2017
  2. Deduction is 30.04.2018
  3. Deposit of tax is 05.05.2018

the interest would be payable for 9 months i.e. from 16.08.2017 to 30.04.2018 @ 1% pm.

When TDS is deducted but not deposited with the government?

Interest- Interest will imposed @ 1.5% for each month or part of the month

For Example :

  1. Date of payment/credit is 16.08.2017
  2. Date of deduction is 16.08.2017
  3. Date of deposit of tax is 31.07.2018

then interest would be payable for 12 months i.e. from 16.08.2017 to 31.07.2018 @ 1.5% pm.

Prosecution under Section 276B

As per this section, any person who fails to deduct/collect TDS or does not deposit to the government after deducting. The IT Officer can punish the defaulter with an imprisonment of minimum 3 months or maximum 7 year along with fine.

What is a TDS certificate?

A person who deducts tax (TDS) is required to issue an acknowledgement( ‘form’ )to the person whose TDS is being deducted(deductee) that tax has been deducted and deposited with the government by him.This Form/Acknowledgement is known as TDS certificate.It contains the particulars of payment,deductor , deductee details, the date of tax deduction and the date of its credit to the government . Form 16, Form 16A, Form 16 B and Form 16 C are all TDS certificates.

Using this certificate, the taxpayer (or deductee) can claim the credit or the refund (if any) of taxes while filing his/her income tax return.

There are different TDS return forms that have different TDS certificates which are as follows:

Respective TDS Certificate TDS Return Form No Due Date Time of Issue
Form 16
(For TDS on Salary)
Form 24Q By 15th June 31st May of the F.Y immediately following the F.Y in which tax is deducted. Annually
Form 16A
(For TDS on other income)
Form 26Q Within 15 days of furnishing Form 26Q Quarterly
Form 16B
(For TDS on purchase of immovable property)
Form 26QB Within 15 days of furnishing Form 26QB MonthlyEvery transaction
Form 16C
(For TDS on payment of rent)
Form 26QC Within 15 days of furnishing Form 26QC MonthlyEvery transaction

What is Form 26AS?

Form 26AS is simply a summarized annual statement which contains tax credit information of each taxpayer against his PAN. This form is maintained and updated by the income tax department.

If you have paid any tax (like self assessment tax, advance tax) or any tax has which has been deducted and deposited with government on your behalf (like various TDS) then all such details will be available on Form 26AS.

This form helps you to claim credit of all the taxes you have paid (plus paid on your behalf-TDS ) while filing income tax return. Therefore, it becomes very important that details mentioned here are correct and they match with relevant TDS certificates.

If you want to about Form 26AS further in detail like how to download? It’s importance? etc then you can refer to our detailed guide.

What to do in case of mismatch of TDS details in Form 26AS and actual TDS deducted?

As we said above that it’s important for Form 26AS details to match with the actual TDS deducted, the reason being, in case of any mismatch you will not be able to claim benefit of taxes paid or you may claim excess credit which will lead to penalty being imposed you. So what to do in such case?
Well, the biggest reason for such mistakes is the wrong updation of information in the TDS return forms by the deductor. As information in Form 26AS is updated by ITD using the filed TDS return, so wrong information at that place impacts your 26AS which in turn will impact your ITR.
Hence, in such case, you need get in touch with the TDS deductor and get all the corrections/updations done and then file ITR (or revised in some cases).

How to claim credit of TDS?

It is very simple to claim the benefit of TDS while filing Income Tax Return. Simply download your Form 26AS, consider all the details which it shows and update them in your return and this will reduce your total tax liability (and it may also make you eligible for the income tax refund, if your TDS, advance tax etc exceeds total tax liability).

How can one get the exemption from TDS?

Well, the liability for TDS can be avoided only when your income is below the basic exemption limit. There are 2 forms which can help a resident citizen to avoid TDS liability on interest income. These are:

  • Form 15G (for Resident Citizen below 60 years & HUF)
  • Form 15H (for Resident Senior Citizens who are 60 years or above)

You need to use these forms when although a particular income is exceeding than the threshold limit specified in individual section but your overall limit is within basic exemption limit. To know about these forms in detail, refer to our guide.

Further, if the income of non-residents is also less than the basic exemption limit then for avoiding the TDS liability they need to file an application u/s 195(3) of the IT Act to the jurisdictional tax officer to obtain a certificate of non-deduction or lower deduction of taxes.

Frequently Asked Questions

Q- How can I deducted against the purchase of a flat?

If the sale price exceeds INR 50 lakh , then TDS @ 1%of consideration or SDV (whichever is higher) should be deducted under section 194IA.

Q- Can I file a NIL TDS return as my first TDS return?

As it is not mandatory to file Nil TDS return. But assessee can file Nil TDS return if no TDS is deducted by the assessee during the relevant quarter.

Q- Will a consultant get reimbursed 10% TDS deducted by the company when he files his return?

Yes, the tax deducted can be claimed as a refund if eligible

Q- What is the treatment of TDS on an LIC maturity amount when the premium amount is below 10%?

In case premium is less than 10% of the sum assured than maturity amount will be exempt u/s 10(10D). Hence not liable to deduct TDS.

Q- How do I pay TDS individually if not deducted by an employer?

Self assessment tax can be paid in case not deducted by the employer.

Q- Is it compulsory for Indian companies to deduct TDS on salary paid to employees or can their employees manage their taxes on their own?

In case of salaried persons, TDS will be deducted if total income exceeds the basic exemption limit. However, assessee can directly pay tax on their income in case not deducted by the employer.

Q- If toll tax is added to car hire bill on which amount TDS will be deducted?

TDS is not required to be deducted on toll tax as it is the reimbursement of expenses provided, supporting of toll tax should be there.

Q- What is the provision TDS on payment to transporters?

As per section 194C, No TDS shall be deducted on the amount paid to the transporter in case he owns 10 or less goods carriages at any time during the previous year and who furnishes a declaration to this effect along with his PAN

CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.