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

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 2024-25. 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.

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 to implement 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 to implement 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 the 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 that 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 receives the balance money after the deduction of tax at the 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, HUF Firm, AOP, 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 table below, you can simply click on the relevant section to learn more about it indetail.

*R means Resident, and NR means Non-Resident

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

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

What happens after TDS deduction?

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

• 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, for March).
• File TDS Return: The deductor is also required to file TDS returns (quarterly), where he declares the financial details of all the deductees 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 claims 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 results in tax refund/TDS refund as well).
Now, you must be having many questions regarding the process discussed above. Just relax! The next set of questions will solve all your queries.

What is the due date for 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 a 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:

How to deposit TDS?

The procedure for payment of TDS is almost the 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 on the Online e-Tax website. Click here to visit.

What is the Penalty for 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 below:

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

Interest- late deposit interest @ 1% per month or part of the 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, the 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 be 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 imprisonment of a minimum 3 months or a maximum 7 years, along with fine.

What is a TDS certificate?

A person who deducts tax (TDS) is required to issue an acknowledgment ( ‘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 a 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:

What is Form 26AS?

Form 26AS is simply a summarized annual statement that 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 that has been deducted and deposited with the government on your behalf (like various TDS) then all such details will be available on Form 26AS.

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

If you want to know about Form 26AS further in detail, like how to download it? Is it important? 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 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 the 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, the wrong information at that place impacts your 26AS, which in turn will impact your ITR.
Hence, in such case, you need to get in touch with the TDS deductor and get all the corrections/updations done and then file ITR (or revise in some cases).

How to claim credit of TDS?

It is very simple to claim the benefit of TDS while filing an Income Tax Return. Simply download your Form 26AS, consider all the details that it shows, and update them in your return 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 that can help a resident citizen avoid TDS liability on interest income. These are:

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

You need to use these forms when a particular income exceeds the threshold limit specified under the individual section, but your overall income remains within the 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 to avoid 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.

Want to maximize your TDS refund? The key to maximizing your tax refund is tax planning. Therefore, it is advisable to seek assistance from tax experts who can help you plan your taxes and maximize your tax refund. Book an Online CA Now!