Everything You Need to Know About TDS: Full Form, Meaning, Filing, Return & Due Dates

Notes:

• TCS on remittances for educational purposes will be removed if financed through loans from specified financial institutions (Section 80E).
• TCS on the purchase of goods will be removed, effective from April 1, 2025.
• The higher TDS rate will apply only in cases where taxpayers fail to provide their PAN.

What is TDS?

TDS Meaning and Full Form:

TDS, or Tax Deducted at Source, is a method by which the government collects tax at the source of income. TDS is the income tax deducted from the total amount at the time of making the payment. TDS has to be deducted from payments such as rent, commission, salary, professional fees, interest, etc.

The person making the payment is required to deduct TDS from the amount before making the payment. In simple words, TDS is the tax that has to be deducted by the person making the payment at the time of making the payment and pay the net amount (after deducting TDS) to the receiver.

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Example of TDS

Pooja earns ₹12,00,000 annually. Her employer, ABC Pvt Ltd, calculates his taxable income after deductions and finds her tax liability is ₹1,12,500. Instead of paying Pooja the full amount at year-end, ABC Pvt Ltd deducts a monthly TDS of ₹9,375 from her salary and deposits it with the government. This ensures regular tax collection and reduces the financial burden on the individual at the end of the financial year.

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Example of TDS

TDS, or Tax Deducted at Source, is a method using which the government collects tax at the source of income. TDS is the income tax deducted from the total amount at the time of making the payment. TDS has to be deducted from payments such as rent, commission, salary, professional fees, interest, etc.

The person making the payment is required to deduct TDS from the amount before making the payment. In simple words, TDS is the tax that has to be deducted by the person making the payment at the time of making the payment and pay the net amount (after deducting TDS) to the receiver.

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Who Should Deduct TDS and When?

Any individual who makes a specified payment has to deduct TDS at the time of making such a payment. However, if the payment is made by an individual or a HUF who is not required to be audited, then there is no need to deduct TDS.

If an individual or a HUF makes rent payments exceeding Rs.50,000 per month, they are required to deduct TDS @5%, even if they are not liable for a tax audit. Such individuals do not need to apply for TAN. Banks deduct TDS @10%; however, if you have not submitted your PAN number, banks may deduct TDS @20%.

The payer deducts the TDS based on the TDS rates specified by the Income Tax Department. However, if you submit proof of investments and your total income is below the taxable limit, then the employer does not have to deduct TDS.

Similarly, if your income is below the taxable limit and you submit Form 15G and 15H to the bank, then the bank won’t deduct TDS from your interest income.

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What is the TDS Due Date?

The TDS deducted at the time of payment has to be deposited to the government by the 7th of the subsequent month.

For example, if the TDS was deducted in the month of November, then it must be deposited to the government by the 7th of December. However, in the case of TDS deducted in March, the due date is 30th April. Similarly, in the case of TDS deducted on the purchase of property and rent, the due date for TDS payment is 30 days from the last day of the month in which TDS is deducted.

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How to do TDS Calculation?

Generally, the employer deducts TDS from the employee’s salary at the TDS rates applicable to his estimated total income.

The formula is:
Income Tax Rate = Income Tax Payable / Estimated income for the financial year

Let’s take an example -
Mr. A’s monthly salary is Rs.1,00,000

As per section 192, the TDS on your salary according to the current slab rates is Rs.1,42,500.
Add 4% education and higher education cess to this - 4% * 1,42,500 = Rs.5700
Total tax payable - Rs.1,48,200
Therefore, the average TDS rate on salary will be = 1,48,200 / 12,00,000 * 100 = 12.35%
TDS to be deducted from salary every month will be = 12.35% of Rs.1,00,000 = Rs.12,350

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How to Deposit TDS to the Government

Follow the below steps to deposit TDS with the government:

• Go to https://www.incometax.gov.in/.
• Log in using your TAN (Tax Deduction Account Number) and password.
• Click on "e-File" and then select "e-Pay Tax."
• Select "Proceed" under the "Pay TDS" tile.
• Enter the assessment year, PAN, and other required information.
• Provide details of the tax amount to be deposited.
• Choose your preferred payment method (net banking, debit card, credit card, etc.).
• Review the details, enter the OTP, and confirm the payment.

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What are the different sources from which TDS is to be deducted?

TDS is applicable depending on the type of transaction. Below are some income sources that are eligible for TDS deductions:

• Salary income
• Rent payment
• Interest on fixed deposits (FD)
• Professional fees
• Commission or brokerage
• Sale of property
• Bank interest
• Dividends
• Winning from games like lottery, a crossword puzzle, etc.
• Transfer of immovable property
• Insurance commissions, etc.
• Contractor payment

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What are the Latest Updates on TDS?

Budget 2023 Updates on TDS:

• Section 194BA: TDS has been introduced on income earned from online gaming.
• Section 192A: The TDS rate on PF withdrawals for employees without a PAN has been reduced to 20%, down from the maximum marginal rate.
• Section 196A: Starting from April 1st, 2023, non-residents receiving income from mutual funds in India can use a Tax Residency Certificate to benefit from TDS rates as per the tax treaty instead of the standard 20%.
• Section 194N: From April 1st, 2023, cooperative societies will have a higher TDS threshold on cash withdrawals. TDS will apply if the amount exceeds ₹3 crore, up from the previous limit of ₹1 crore.
• Section 193: Interest on listed debentures is no longer exempt from TDS, meaning tax must be deducted on interest from these securities.

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How and When to File TDS Return?

TDS return filing is mandatory for every individual who has deducted TDS. The deductor needs to submit the returns quarterly. This return includes details like type of payment, amount of TDS deducted, PAN of deductee, and TAN.

There are various types of TDS forms that can be filed depending on the purpose for which the TDS has been deducted.

TDS is the silent force behind consistent tax collection. It ensures taxes are paid as income is earned, supporting public services and governance. It helps prevent people from evading taxes, thus promoting a transparent taxation system.

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