What is TDS? What is Tax Deducted at Source (TDS)? When should TDS be deducted, and who is liable to deduct it?

TDS

1. What is TDS?

2. What is Tax Deducted at Source (TDS)?

3. When should TDS be deducted, and who is liable to deduct it?

4. How Does TDS Work?

5. Types of TDS?

What is TDS?

TDS or Tax deducted at source, is a government procedure to collect taxes directly from income sources, payers deduct a certain percentage of tax from payments to receivers, remitting it to the government. It applies to various income categories like salaries, interest, rent, and commissions, aiming to prevent tax evasion. Understanding TDS is crucial for both payers and receivers in India. Deductors, responsible for deduction and deposit, follow rates set by the tax department. TDS is deducted regardless of payment mode and is linked to PAN for both deductor and deducted.

What is Tax Deducted at Source (TDS)?

TDS meaning or Tax deducted at Source, is when income tax is deducted from specified payments like rent, commission, or salary at the time of payment. It ensures advance tax deduction by the payer, relieving the recipient of the hassle.

The recipient receives the net amount after TDS deduction, which is then added to their income, TDS functions on the “pay as you earn” principle, with the payer deducting a percentage and remitting it to the government. For instance, ABC Pvt.Ltd. deduts 10% TDS (Rs. 10,000) from a payment of Rs. 1,00,000 to RTC Pvt. Ltd, remitting Rs. 90,000 to them.

When should TDS be deducted, and who is liable to deduct it?

The IT department introduced TDS (Tax Deducted at Source) to deduct tax from payments received and deposit the money in a government account. The payer is responsible for withholding and depositing the tax with the government. There are two parties in action: the deductee is the one whose income is deducted, and the deductor is the one who is deducting. Here’s how the deduction cycle of TDS works:

· As per the income tax act, all the payments that fall under the act are liable for TDS. The only exemption is for the individual or the Hindu Undivided Family. Furthermore, an audit is not required.

· Any individual or Hindu Undivided Family (HUF) paying rent above Rs. 50,000 is required to pay 5% TDS. Regardless of whether your books are audited, the tax will be subtracted, people or companies falling under the 5% TDS bracket are not liable to apply for a tax Deduction Account Number.

· The answer to “What is TDS in salary” depends on the income tax bracket the employee belongs to, employee may deduct TDS. The bank will deduct 10% of your income from the respective employer. However, there is a 20% deduction if your PAN isn’t linked to the bank. According to the TDS rates outlined in the Income tax act, the deductor can withhold the salary and submit it to the government later.

· If employees release their total income to their employer and confirm that they do not fall under taxable income, the tax deducted at source (TDS) wouldn’t be levied. People falling below the taxable threshold can submit forms 15H and 15G to the bank to get an exemption from the TDS. In doing so, the bank will not deduct TDS from your income.

· In case you can’t submit froms to the bank or reveal your total income to the employer, you can file for a refund. However, it would help if you revealed your total income tax department to claim a refund.

How Does TDS Work?

TDS is deducted by the payer, known as the deductor, with a TAN number. The recipient, or deductee, receives the payment after deduction. The deducted amount is deposited via Challan 281 to the government by the 7^th of the following month.

The deductee verifies TDS from form 16/16A and claims while filing taxes. Excess TDS can be refunded. TDS applies to various payment like salary, interest, rent, ect., with rates varying. The deductor issues a TDS certificate and deposits tax within due dates. TDS doesn’t exempt from filing ITR if income exceeds the exemption.

Types of TDS?

TDS applies according to transaction types, each having its own applicable rate. Various sources eligible for TDS deductions include:

· Rent

· Dividends

· Sale of property

· Bank interest

· Insurance commissions, etc.

· Salary income

· Professional fees

· Contractor payment

· Transfer of immovable property

· Interest on fixed deposits (FD)

· Commission or brokerage

· Winning form games like a crossword puzzle, lottery, etc.

Overview of TDS Rate Chart for the FY 2023-24 and FY 2024-25.

Section	Nature of transaction	Threshold Limit (RS)	TDS Rate
192	Payment of Salary	Basic exemption limit of employee	Normal Slab Rates
192A	Premature withdrawal from EDF	50,000	With PAN: 10% Without PAN: 20%
193	Interest on Securities	Debentures-5,000
		8% Saving (Taxable) Bonds 2003 or 7.75% Savings (Taxable) Bonds 2018-10,000	10%
		Other Securities-No Limit
194	Payment of any Dividend	5,000	10%
194A	· Interest other than interest form securities (from deposits with banks/post office/co-operative society)	Senior Citizens 50,000 other 40,000	10%
194A	· Interest from other than interest on securities u/s 193 and interest from banks/post office/co-operative society · For e.g., interest from friends and relatives	5,000	10%
194B	Income from lottery winnings, card games, crossword puzzles etc.	Aggregate income from lottery winnings, card games, crossword puzzles etc-10,000 Online gaming refer 194BA	30%
194BA	Income from online games	Nil	30%
194BB	Income from horse race winnings	10,000 (Aggregate winnings during a financial year not single transaction)	30%
194C	Payment to contractor/sub-contractor:-	Single Transaction-30,000 Aggregate transaction-1,00,000
	A) Individuals/HUF		1%
	B) Other than individuals/HU		2%
194D	Insurance commission to:	15,000
	A) Domestic companies		10%
	B) Other than companies		5%
194DA	Insurance pay-out in respect of a life insurance policy	1,00,000	5% (Before 1^st October 2024) 2% (form 1^st October 2024)
194E	Payment to non-resident sportsmen/sports association	No Limit	20% + surcharge + 4% cess
194EE	Payment of amount standing to the credit of a person under national saving scheme (NSS)	2,500	10%
194F	Payment for the repurchase of the unit by unit trust of India (UTI) or a Mutual fund	No Limit	20% This Section is omitted with effect from 1^st October 2024
194G	Payments, commission, etc., on the sale of lottery tickets	15,000	5% (Before 1^st October 2024) 2% (from 1^st October 2024)
194H	Commission or brokerage	15,000	5% (Before 1^st October 2024) 2% (from 1^st October 2024)
194-I	Rent:	2,40,000
	194-I (A) Rent on plant and machinery		2%
	194-I (B) Rent on land/building/furniture/fitting		10%
194-IA	Payment in consideration of transfer of certain immovable property other than agricultural land.	50,00,000	1%
194-IB	Rent payment by an individual or HUF not covered U/S. 194-I	50,000 Per Month	5% (Before 1^st October 2024) 2% (from 1^st October 2024)
194-IC	Payment under joint development agreements (JDA) to individual/HUF	No Limit	10%
194J	Any Sum Paid by way of for professional services	30,000	10%
194J	Any sum paid by way of remuneration/fee/commission to a director	30,000	10%
194J	Any sum paid for not carrying out any activity concerning any business	30,000	10%
194J	Any sum paid for not sharing any know-how, patent, copyringt, etc.	30,000	10%
194J	Any sum paid as a fee for technical services	30,000	2%
194J	Any sum paid by way of royalty towards the sale or distribution, or exhibition of cinematographic films	30,000	2%
194J	Any sum paid as fees for technical services, but the payee is engaged in the business of operation of the call center.	30,000	2%
194K	Payment of any income for units of a mutual fund, for example, dividend	No Limit	10%
194LA	Payment in respect of compensation on acquiring certain immovable property	2,50,000	10%
194LB	Payment of interest on infrastructure bebt fund to Non-Resident	No Limit	5%
194LC	Payment of interest for the loan borrowed in foreign currency by an Indian company or business trust against loan agreement or the issue of long-term bonds	No Limit	5%
194LC	Payment of interest for the loan borrowed in foreign currency by an Indian company or business trust against the issue of long-term bonds listed in IFSC	No Limit	4%
194LD	Payment of interest on bond (rupee-denominated) to FII or a QFI	No Limit	5%
194LBA(1)	Certain income distributed by a business trust to its unitholder	No Limit	10%
194LBA(2)	Interest income of a business trust from SPV distribution to its unitholders	No Limit	5%
194LBA	Dividend income of a business trust from SPV in which it holds the entire share capital exempt the capital held by the government, and distribution to its unitholders	No Limit	10%
194LBA(3)	Rental income payment of assets owned by the business trust to the unitholders of such business trust	No Limit	30%
194LBA(3)	Rental income payment of assets owned by the business trust to the unitholders of such business tust	No Limit	40%
194LBB	Certain income paid to a unitholder in respect of units of an investment fund	No Limit	10%