What is TDS?

What is TDS (Tax Deducted at Source)?

TDS is a mechanism under the Income Tax Act, 1961, where the payer (deductor) deducts tax at the time of making specific payments such as salaries, interest, rent, professional fees, commissions, etc. The deducted amount is then deposited with the Income Tax Department.

For example, if a company pays a consultant ₹50,000 and the applicable TDS rate is 10%, the company deducts ₹5,000 and pays the consultant ₹45,000. The deducted ₹5,000 is deposited with the Income Tax Department.

This process ensures timely tax collection and prevents tax evasion.
 

Who Needs to Deduct TDS?

TDS is deducted by:

• Employers paying salaries exceeding the taxable limit.
• Businesses and Companies making specified payments such as professional fees, rent, or contract payments.
• Banks and Financial Institutions on interest earned above a certain threshold.
• E-commerce platforms deducting TDS on seller earnings.
• Individuals paying rent above ₹50,000 per month (under Section 194IB).
• Listed Companies making dividend payments
• Racecourses deducting TDS on winnings from horse races (Section 194BB).
• Gaming platforms and lottery operators deducting TDS on winnings from games, betting, and lottery (Section 194B and 194BA).
   

TDS Applicability and Rates

The Income Tax Department has specified TDS rates under various sections of the Income Tax Act. Here are some key TDS rates applicable in India:

The deductor is responsible for depositing the TDS amount with the government and issuing TDS certificates (Form 16, Form 16A, etc.) to the payee.
 

How is TDS Calculated?

TDS calculation depends on:

• Nature of Payment – Different payments have different TDS rates.
• Threshold Limit – TDS applies only when the amount exceeds the minimum taxable limit.
• Exemptions & Deductions – Some individuals may submit Form 15G/15H to avoid TDS deduction if their total income is below the taxable limit.

Example Calculation:
If an individual earns ₹10 lakh as professional income, and the TDS rate is 10%, the TDS deducted will be:

₹10,00,000 × 10% = ₹1,00,000

Thus, the person will receive ₹9,00,000 after TDS deduction, and the deducted ₹1,00,000 is deposited with the Income Tax Department.
 

TDS Deduction and Payment Process

Step 1: Deduction of TDS
TDS is deducted at the time of payment or credit, whichever is earlier.

Step 2: Deposit TDS with the Government

• TDS must be deposited before the 7th of the following month using Challan ITNS 281.
• Payments can be made online through the Income Tax e-filing portal or at authorized bank branches.

Step 3: File TDS Returns

• TDS returns must be filed quarterly in Form 24Q (salaries) or Form 26Q (non-salaries).
• The deadline for filing quarterly TDS returns:
• Q1 (Apr-Jun): 31st July
• Q2 (Jul-Sep): 31st October
• Q3 (Oct-Dec): 31st January
• Q4 (Jan-Mar): 31st May

Step 4: Issuance of TDS Certificates

• Employers issue Form 16 to employees showing salary details and TDS deductions.
• Banks and institutions issue Form 16A for non-salary TDS.
   

Penalty for Non-Payment of TDS

Non-compliance with TDS rules results in penalties and interest:
 

How to Check TDS Online?

You can check TDS status online through the Income Tax e-Filing portal or the TRACES website:

• Login to the Income Tax Portal – Visit www.incometax.gov.in.
• Go to "View Form 26AS" – Check TDS deducted against your PAN.
• Download Form 26AS – Verify TDS credits and claim them while filing Income Tax Returns (ITR).
   

Claiming TDS Refund: How to Apply for your TDS Refund

If excess TDS has been deducted from your income, you can claim a TDS refund by following these steps:

1. File Your Income Tax Return (ITR)

• Log in to the Income Tax e-Filing Portal (www.incometax.gov.in).
• Choose the appropriate ITR form based on your income.
• Enter your total income, deductions, and TDS details as per Form 26AS.
• If your tax liability is lower than the TDS deducted, the system will show a refund amount.

2. Verify and Submit Your ITR

• After filing, verify your return using Aadhaar OTP, Net Banking, or Digital Signature Certificate (DSC).
• The Income Tax Department will process your return and calculate the refund.

3. Track Your Refund Status

• Visit the ITR Refund Status Portal (www.incometax.gov.in).
• Enter your PAN and Assessment Year to check the refund status.
• Refunds are processed within 30-45 days after ITR processing.

4. Receive Your Refund

• The refund amount will be credited directly to your bank account via NEFT or RTGS.
• Ensure your bank details (IFSC, account number) are correctly updated in your ITR.
• If there is a delay or issue, you can raise a complaint on the Income Tax portal or contact the Income Tax Helpline.
   

Conclusion

TDS is an important tax collection mechanism that ensures compliance and reduces tax evasion. Whether you are a business owner, employer, freelancer, or investor, understanding TDS rules, rates, and compliance requirements is essential to avoid penalties and streamline tax payments.

For hassle-free TDS filing and compliance, consult a tax professional or Chartered Accountant to manage your tax obligations effectively. Stay compliant, and ensure seamless financial management for your business and investments.