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TDS is a type of tax that is deducted right at the source of income. The person making the payment is supposed to deduct the TDS and deposit it with the government. It involves deducting income tax from payments like rent, salary, and more at the source of income. In this guide, we will understand what Tax Deducted at Source is, when and how TDS should be deducted, the due dates for depositing TDS, and the process of TDS return filing.
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.
Any individual who makes a specified payment has to deduct TDS at the time of making such 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.
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 of 30th April. Similarly, in the case of TDS deducted on 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.
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
| Total Annual Income | Rs.12,00,000 |
| Estimated Deduction (under chapter VIA) | Rs. 1,00,000 |
| Income Chargeable to Tax | Rs.11,00,000 |
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
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.
| Form No | Transactions to be reported | Due date |
|---|---|---|
| Form 24Q | TDS on Salary |
Q1 – 31st July Q2 – 31st October Q3 – 31st January Q4 – 31st May |
| Form 27Q | TDS on payments made to non-residents other than salaries |
Q1 – 31st July Q2 – 31st October Q3 – 31st January Q4 – 31st May |
| Form 26QB | TDS on property sale | 30 days from the last date of the month in which TDS is deducted |
| Form 26QC | TDS on rent | 30 days from the last day of the month in which TDS is 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.
Ideally, a person is required to pay income tax if his/her total income is more than the basic exemption limit. However, paying the entire amount together at the same time can be difficult for many individuals. Therefore, TDS helps individuals pay income tax as and when they earn it.
The person making the payment is required to deduct TDS from the amount. According to the Income Tax Act, any person must deduct tax at source if the money paid is more than the specified limit. The person receiving the payment is also liable to pay income tax.
A TDS refund is given when the tax paid in the form of TDS exceeds the actual tax payable, as calculated in the financial year. It is calculated by consolidating the income from different sources.
