TDS full form stands for Tax Deducted at Source, where the employer deducts a certain percentage of tax from the taxpayer's monthly income and deposits it with the IT Department on behalf of the taxpayer. This deduction is mandatory for individuals or organizations whose income exceeds a specified threshold, as per the Income Tax Act, 1961.

What is TDS?

Income taxes, known as "Tax Deducted at Source," or TDS, are withheld from various payments, including rent, salaries, commissions, interest, and professional fees. TDS should be subtracted from the amount paid by the payer.

According to the Income Tax Act, any firm or individual must deduct tax at the source if the amount paid is above a certain threshold. The recipient of the cash is also responsible for paying income taxes.

When completing their yearly ITR, the payee can deduct the credits they get from the TDS payments from their actual tax liability. The primary objective behind implementing TDS was to mitigate the risk of tax evasion on the part of the income recipient. Nevertheless, it also presents a few advantages for law-abiding taxpayers.

Types of TDS

There are many types of TDS: -

• Salary

• Amount under LIC

• Bank Interest

• Brokerage or Commission

• Commission payments

• Compensation for acquiring immovable property

• Contractor payments

• Remuneration paid to the director of a firm, etc

• Transfer of immovable property

• Winnings from games like a crossword puzzle, card, lottery

• Deemed Dividend

• Insurance Commission

• Interest apart from interest on securities

• Interest on securities

• Payment of rent

How Does TDS Work and Who Can Deduct It?

There will be a TDS deduction due from the payer. The person or entity is responsible for withholding the amount at a designated percentage and submitting it to the government throughout each fiscal year. Additionally, they are accountable for imposing tax deduction at the source at the subsequent rate.

TDS will be attracted at a rate of 20% in the absence of PAN unless a specific rate (such as MMR) is specified.

Example of TDS

• Assume for the moment that a startup pays the property's owner Rs. 90,000 in rent each month.

• Since the amount is subject to 10% TDS, the business must deduct Rs. 9,000 and give the property owner Rs. 81,000.

• In this instance, the property owner will get Rs. 81,000 after TDS. The owner is able to claim credit for Rs. 9,000, which the company has already deducted by adding the gross amount of Rs. 90,000 to his income.

How to deposit TDS?

It is necessary to deposit tax Deducted at Source through Challan ITNS-281 on the official website.

How and When to File TDS Returns?

For everyone who has deducted TDS, filing TDS returns is required. The TDS return must be filed on a quarterly basis and include a number of facts, including the PAN of the deductee, the payment type, the amount of TDS deducted, and the TAN. In addition, distinct forms must be used for filing based on the reason for the TDS deduction. The following are some examples of return form types: Form 26QTDS for all payments, with the exception of salary Q1, ends on July 31. Q2: October 31st Q3: January 31st Q4: May 31st.

How to Know the Deducted TDS Amount?

You can use the internet to find out if TDS has been credited to a specific taxpayer's account or not and whether it has been deducted. The following are the steps to learn about TDS online payment:

• Go to the Income Tax Department of India's official site and select the option to register as a new user.

• Create a password and enter the Permanent Account Number data.

• Choose to access the tax credit statement or Form 26AS after logging in with the registered ID and password.

• The website will take users to the TDS Reconciliation Analysis and Correction Enabling System page, where they may view comprehensive information about their tax liabilities, such as specifics about Tax Deducted at Source, advance tax paid, and other details.

What is a TDS Certificate?

When deducting tax (TDS), the person doing so must provide the person whose TDS is being deducted (the "deductee") with an acknowledgement (a "form") stating that he has taken out and deposited the tax with the government. The TDS certificate is the name given to this form/acknowledgement.

It includes payment data, deductor, and deductee information, the date of the tax deduction, and the date the money is credited to the government. TDS certificates are found on Forms 16, Form 16A, Form 16 B, and Form 16 C.

When completing their income tax return, the taxpayer (or deductee) can use this certificate to claim the credit or refund of taxes, if any.

How Can One Get the Exemption From TDS?

You can only avoid TDS liability if your income is below the basic exemption amount. A resident citizen may avoid TDS liability on interest income by using one of two forms. These are the following:

• Form 15G (for HUF & Residents Under 60 Years Old)

• Form 15H (for Senior Citizens Residency, 60 years of age or older)

You must use these forms when your income from a specific source exceeds the threshold limit specified in a section, yet your total income falls within the basic exemption limit.

Additionally, non-residents whose income is below the basic exemption limit must apply under section 195(3) of the IT Act to the jurisdictional tax officer to receive a certificate of non-deduction or a lesser deduction of taxes to avoid the TDS liability.

The Bottom Line

TDS is an important aspect of the Indian tax system. It is a way for the government to collect taxes in advance from the source of income and ensure that people do not evade taxes. TDS must be deducted by any person or entity making payments above a threshold limit as specified by the Income Tax Department. The filing process for TDS includes deducting the applicable tax percentage from the total amount being paid and filing quarterly returns using relevant forms. It is crucial to adhere to the specified due dates for TDS filing to avoid any penalties.

TTax Disclaimer: The details related to tax benefits are general information only. Investors are advised that before investing, consult their Tax Consultant or Financial Advisor to determine tax benefits applicable to them.

Kindly note that the details of Sec 80 C mentioned is applicable for old tax regime

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