TDS - Tax Deducted at Source

TDS or Tax Deducted at Source is income tax reduced from the money paid at the time of making specified payments such as rent, commission, professional fees, salary, interest etc. by the persons making such payments. Usually, the person receiving income is liable to pay income tax. But the government with the help of Tax Deducted at Source provisions makes sure that income tax is deducted in advance from the payments being made by you. The recipient of income receives the net amount (after reducing TDS). The recipient will add the gross amount to his income and the amount of TDS is adjusted against his final tax liability. The recipient takes credit for the amount already deducted and paid on his behalf. This will help the government to collect the taxes in advance and to track the transactions in an effective manner. It reduces the chance of tax evasion by the payee.

Any person making specified payments mentioned under the Income Tax Act is required to deduct TDS at the time of making such specified payment. But no TDS has to be deducted if the person making the payment is an individual or HUF whose sales from business or profession doesn’t exceed Rs.1 crore or Rs.50 lakhs, respectively.

However, in case of rent payments made by individuals and HUF exceeding Rs 50,000 per month, are required to deduct TDS @ 5% even if the individual or HUF is not liable for a tax audit. Also, such Individuals and HUF liable to deduct TDS @ 5% need not apply for TAN. Your employer deducts TDS at the income tax slab rates applicable. Banks deduct TDS @10%. Or they may deduct @ 20% if they do not have your PAN information.

For most payments rates of TDS are set in the income tax act and TDS is deducted by the payer basis of these specified rates. If you submit investment proofs (for claiming deductions) to your employer and your total taxable income is below the taxable limit – you do not have to pay any tax. And therefore no TDS should be deducted from your income.

Similarly, you can submit Form 15G and Form 15H to the bank if your total income is below the taxable limit so that they don’t deduct TDS on your interest income. In case you have not been able to submit proofs to your employer or if your employer or bank has already deducted TDS and your total income is below the taxable limit) – you can file a return and claim a refund of this TDS. The complete list of Specified Payments eligible for TDS deduction along with the rate of TDS.

Filing Tax Deducted at Source returns is mandatory for all the persons who have deducted TDS. TDS return is to be submitted quarterly and various details need to be furnished like TAN, amount of TDS deducted, type of payment, PAN of deductee, etc. Also, different forms are prescribed for filing returns depending upon the purpose of the deduction of TDS.

Form 16, Form 16A, Form 16B and Form 16C are all TDS certificates. TDS certificates have to be issued by a person deducting TDS to the assessee from whose income TDS was deducted while making payment. For instance, banks issue Form 16A to the depositor when TDS is deducted on interest from fixed deposits. Form 16 is issued by the employer to the employee.

TDS or Tax Deducted at Source is income tax reduced from the money paid at the time of making specified payments such as rent, commission, professional fees, salary, interest etc. by the persons making such payments. Usually, the person receiving income is liable to pay income tax. But the government with the help of Tax Deducted at Source provisions makes sure that income tax is deducted in advance from the payments being made by you. The recipient of income receives the net amount (after reducing TDS). The recipient will add the gross amount to his income and the amount of TDS is adjusted against his final tax liability. The recipient takes credit for the amount already deducted and paid on his behalf. This will help the government to collect the taxes in advance and to track the transactions in an effective manner. It reduces the chance of tax evasion by the payee.

Shine Pvt Ltd makes a payment for office rent of Rs 80,000 per month to the owner of the property. TDS is required to be deducted at 10%. Shine Pvt ltd must deduct TDS of Rs 8000 and pay the balance of Rs 72,000 to the owner of the property. Thus, the recipient of income i.e. the owner of the property in the above case receives the net amount of Rs 72,000 after deduction of tax at the source. He will add the gross amount i.e. Rs 80,000 to his income and can take credit of the amount already deducted i.e. Rs 8,000 by shine Pvt ltd against his final tax liability.

Any person making specified payments mentioned under the Income Tax Act is required to deduct TDS at the time of making such specified payment. But no TDS has to be deducted if the person making the payment is an individual or HUF whose sales from business or profession doesn’t exceed Rs.1 crore or Rs.50 lakhs, respectively.

However, in case of rent payments made by individuals and HUF exceeding Rs 50,000 per month, are required to deduct TDS @ 5% even if the individual or HUF is not liable for a tax audit. Also, such Individuals and HUF liable to deduct TDS @ 5% need not apply for TAN. Your employer deducts TDS at the income tax slab rates applicable. Banks deduct TDS @10%. Or they may deduct @ 20% if they do not have your PAN information.

For most payments rates of TDS are set in the income tax act and TDS is deducted by the payer basis of these specified rates. If you submit investment proofs (for claiming deductions) to your employer and your total taxable income is below the taxable limit – you do not have to pay any tax. And therefore no TDS should be deducted from your income.

Similarly, you can submit Form 15G and Form 15H to the bank if your total income is below the taxable limit so that they don’t deduct TDS on your interest income. In case you have not been able to submit proofs to your employer or if your employer or bank has already deducted TDS and your total income is below the taxable limit) – you can file a return and claim a refund of this TDS. The complete list of Specified Payments eligible for TDS deduction along with the rate of TDS.

The Tax Deducted at Source must be deposited to the government by the 7th of the subsequent month.

For instance: TDS deducted in the month of June must be paid to the government by the 7th of July. However, the TDS deducted in the month of March can be deposited till 30th April. For TDS deducted on purchase of property, the TDS payment due date is 30 days from the end of the month in which TDS is deducted.

Tax Deducted at Source has to be deposited via Income Tax Portal based on the TAN login. Direct tax payments facility has been migrated from OLTAS 'e-payment: Pay Taxes Online' to e-Pay Tax facility of e-Filing portal.

Filing Tax Deducted at Source returns is mandatory for all the persons who have deducted TDS. TDS return is to be submitted quarterly and various details need to be furnished like TAN, amount of TDS deducted, type of payment, PAN of deductee, etc. Also, different forms are prescribed for filing returns depending upon the purpose of the deduction of TDS. Various types of return forms are as follows:

Form No

Transactions reported in the return

Due date

Form 26Q

TDS on all payments except salaries

Q1 – 31st July

Q2 – 31st October

Q3 – 31st January

Q4 – 31st May

Form 24Q

TDS on Salary

Q1 – 31st July

Q2 – 31st October

Q3 – 31st January

Q4 – 31st May

Form 27Q

TDS on all payments made to non-residents except salaries

Q1 – 31st July

Q2 – 31st October

Q3 – 31st January

Q4 – 31st May

Form 26QB

TDS on sale of property

30 days from the end of the month in which TDS is deducted

Form 26QC

TDS on rent

30 days from the end of the month in which TDS is deducted

What is a TDS Certificate?

Form 16, Form 16A, Form 16B and Form 16C are all TDS certificates. TDS certificates have to be issued by a person deducting TDS to the assessee from whose income TDS was deducted while making payment. For instance, banks issue Form 16A to the depositor when TDS is deducted on interest from fixed deposits. Form 16 is issued by the employer to the employee.

Form Certificate of Frequency Due date

Form 16 TDS on salary payment Yearly 31st May

Form 16A TDS on non-salary payments Quarterly 15 days from due date of filing return

Form 16B TDS on sale of property Every transaction 15 days from due date of filing return

Form 16C TDS on rent Every transaction 15 days from due date of filing return

TDS Credits in Form 26AS

It is important to understand how TDS is linked to your PAN. TDS deductions are linked to PAN numbers for both the deductor and deductee. If TDS has been deducted from any of your income you must go through the Tax Credit Form 26AS. This form is a consolidated tax statement that is available to all PAN holders.

Since all TDS is linked to your PAN, this form lists out the details of TDS deducted on your income by each deductor for all kinds of payments made to you – whether those are salaries or interest income – all TDS linked to your PAN is reported here. This form also has income tax directly paid by you – as advance tax or self-assessment tax (From FY 2022-23 it is made available in AIS). Therefore, it becomes important for you to mention your PAN correctly, wherever TDS may be applicable to your income.

An inaccurate claim of TDS credit can result in defective notice from the income tax department. Hence it is very important to reconcile the TDS credits in form 26AS with TDS receivables accounted in books, applicable mainly when TDS is made by multiple customers/vendors involved in business.

It can easily file your TDS returns through ClearTax software i.e. ClearTDS. It is an online TDS software that requires no download or desktop installation or software update. It helps you to prepare regular & correct e-TDS statements online easily with just a few clicks on your computer. It is also compatible with TDS returns of previous financial years for easy import. Also, you can generate your TDS certificates using ClearTDS.