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Tax Deducted at Source or TDS is the amount of tax deducted while making payments by the deductor.

These payments include and are not limited to professional fees, interest, salary, commission, and rent.

The person who receives payment is liable to pay income tax to the government. For certain reasons this tax sometimes gets skipped thus making a loss for the government.

The government of India hence has taken steps like TDS to make sure that the Tax is paid well in advance to eliminate the chaos.

Let us take a look at TDS and its component in detail.

What is Tax Deducted at Source or TDS?

TDS or Tax Deducted at Source is the tax liability that is deducted while making a payment. It is only applicable when the payment crosses a certain threshold limit.

TDS or Tax Deduction at SourceThe tax department has set rates for different payment slabs.

This is decided and regulated by the Income Tax department of India.

A deductor is a person who makes the TDS and the one who receives the updated payment is the deductee.

If you own a company, then usually you make deductions from the employee’s share before depositing the salary in the employee’s bank account.

Also, you need to deposit the same amount to the government by the stipulated time provided by the administration.

It does not rely on payment mode. Thus, if the payment is made through credit, cheque, or cash, you need to deduct TDS.

If you are a recipient of the payment then you are liable to get the amount after the Tax Deductions and thus you don’t have to go through the hassle of filing income tax.

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    Who & When should you do TDS?

    Any individual or a company who makes payments that are mentioned in the Income Tax act of the Indian constitution is liable to make TDS.

    If you are an individual who does not require an audit need not deduct TDS. In case of rent payments exceeding 50k Indian Rupees are liable to deduct at the rate of 5%.

    A company paying salary to the employee deducts tax at the prescribed slab rates. These rates can be found under the Indian Tax Act under the Indian Constitution.

    Banks usually deduct 10% TDS which can go up to 20% if there is no information about the PAN of the payee. Here you can get exemptions from Tax when you show Tax Investments proof of certificate.

    These Tax Saving Instruments are included under the Income Tax Act of the Indian Constitution. You can also get Tax Exemptions on interest income if you file Form 15H and Form 15G to the bank.

    There is however a catch here which is, your taxable income has to be under taxable limits to get exemptions from Tax.

    If you are unable to show proof of Investment to the bank or the employer and it gets deducted even if you are not under taxable limits, then you can claim a return.

    Here is a detailed TDS rate for various payments

    • Fixed Deposit Interest – 10%
    • Bonds – 10%
    • Insurance Commissions – 5%
    • Property- 1%
    • Brokerage- 5%
    • Professional and Technical Services- 10%
    • Contractor Services- 1%/2%
    • Rent – 2%/10%/5%
    • Shares/Mutual Funds – Not Applicable
    • Savings Account Interest – Not Applicable
    • NCDs listed on the exchange – Not Applicable

    The above rates for TDS deduction are only for the individuals who have provided their Permanent Account Number details to the deductor.

    There are some special deductions for special payments. This is for taxpayers who do not fall on the list given above. Let, take a look at these deductions in detail.

    TDS Deductions made on Salary

    A company that provides a salary to its employees deducts TDS which is as per the Tax slabs of the employee.

    The minimum TDS to be deducted by the employer is that of 5% which is applicable if your salary is between Rs 2,50,000 and Rs 5,00,000.

    Employers ask for proof of investments and investment declarations at the end of the financial year and the beginning of the financial year respectively.

    Declaring your investments helps your employer to calculate your tax exempted salary for that financial year.

    TDS deductions made on Interest Income /Fixed Deposit Income

    You are liable to pay Tax on your Interest Income occurring through Fixed Deposits. This is listed in section 194A of The Income Tax Act.

    Here banks will deduct TDS directly from the interest amount, only if the interest amount exceeds 10k Indian Rupees.

    The TDS deducted will be cumulative interest generated from all fixed deposits with the bank. The rates are as follows:

    20% Deduction – If PAN details not shared with the bank

    10% Deduction – If PAN details are shared with the bank

    No Deduction– If a person files form 15G/15H with the bank

    Senior Citizen personals have to submit the form 15H to get Tax relaxations on Interest Income. If you are an individual other than a Senior citizen then you have to submit 15G to get Tax relaxations.

    TDS on Interest received from bonds

    The taxable Bonds are liable for TDS deductions from interest received at the rate of 10% which includes Government bonds as well.

    The provision will not apply to bonds where Tax is not applicable under the Income Tax Act 1961.

    TDS on Insurance Commission

    TDS is applicable on Insurance commission received. This is listed in Section 194D of the Income Tax Act.

    If you provide PAN details, then the rate of deduction is 5%. If you are not an Individual and HUF then TDS will be at the rate of 10%, provided, you have submitted your PAN details.

    In case you have not submitted the PAN details then you will be liable to pay 20% of the commission received on Insurance.

    You will not be liable to pay if you earn a commission of less than 15,000 rupees yearly.

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    TDS on interest received from Savings Bank Account

    There are no TDS deductions on interest received from deposits done on the Savings Bank account.

    If you are receiving 10,000 rupees yearly interest on deposits done to Savings Bank Account, then it is available as a deduction under the 80 TTA section.

    The same deduction policy is different for citizens earning more than 50,000 rupees yearly.

    TDS deducted on Rent

    If you are a Rent payer then you have to deduct TDS and pay the remaining rent to the owner after deducting. The slab for this deduction will be 1.8 lakh Indian Rupees yearly.

    There is a 2% deduction rate for use of Plant, machinery, and equipment. If you pay rent for buildings, land, fittings, and furniture then you are liable to deduct TDS at a 10% rate annually.

    TDS deducted on property purchases

    You can deduct TDS on property purchases and submit the same with the Government. The property value has to exceed 50 Lakh rupees and thus it will be charged at 1% of the total value.

    If the seller does not provide PAN details then the tax deducted will be at the rate of 20% of the total value of the purchase.

    As a deductor, you have to submit the deducted TDS within 30 Days from the date of deductions with necessary documents as such and with Form 26QB mandatorily.

    After submitting the form 26QB, you need to provide the TDS certificate to the Seller within 15 days.

    TDS deducted on Brokerage

    You are liable to deduct TDS from the brokerage you are paying and provide the remaining amount to the broker as such.

    The TDS deducted at the time of payment should be 5% of the total value. If the broker does not provide PAN details, then you are liable to deduct TDS at 20%.

    There will be no deductions if the amount payable is less than 15000 Indian rupees.

    TDS on payment for Technical and Professional services

    If you are an individual paying fees for technical or professional service of a person then you are liable to deduct the tax and deposit the tax with the Government of India.

    The TDS should be made at the time of payment to the payee. The rate at which the TDS will be made is 20% if the PAN details are not furnished to you.

    Other than that, it is deducted at 10%. If the fee in a financial year is less than 30000 rupees in a year, then you are not liable to deduct Tax.

    TDS deductions for Contractors

    You are liable for TDS deductions if you are a contractor undertaking various types of projects.

    These projects and works include construction projects for local bodies, co-operatives, and other government levels.

    Advertising companies and Catering companies are also liable for deductions. For individuals, the rate of TDS deduction is 1% and 2% for others.

    You have to provide PAN details to get these rates of deduction. If you don’t provide PAN details then you are liable to pay TDS at 20%.

    Contractors are not liable for deduction if the payment is under 30,000 and 1, 00,000 for individuals and companies respectively.

    Procedure to Pay TDS Online

    Here is the Step by Step process –

    1st Step – Firstly you have to register to the NSDL portal of India

    2nd Step – Once you have registered for an account with NSDL, you have to log in to the account

    3rd Step – Next, select the option which says Challan no ITNS 281.

    4th Step – On the next step you have to select deductee. Thereafter you have to provide the Collection Account Number.

    Also, you have to submit the assessment year details which will be the year you have made the payment on.

    5th Step – Next, select the type of payee whether the taxpayer made the payment or not

    6th Step – Then, type the mode payment and click on submit to proceed.

    7th Step – Next, you have to confirm the details of the payee for whom the TDS is deducted.

    8th Step – After confirming, you will be directed to the mode of payment you choose which usually is, net banking. Contact your bank to know more about Net Banking.

    9th Step – After following the net banking procedures and making the payment the payment gateway will redirect you back to the NSDL portal.

    10th Step – Once you are back in the portal, you will get a success message with a receipt as payment proof. Keep this proof of payment with you safely for future assessments.

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    Important dates to remember for TDS Payment

    The last date for submission of TDS is the 7th of every month for the payments made before this date and after the 7th of the previous month.

    Next, you have to file a TDS return by the last day of the following month after the payment is cleared. Here are some dates to help you more on this matter

    • For quarter January to March, the payment date is 7th Feb, 7th March, and 30th April while the last date is 31st May.
    • For quarter of April and June the TDS payment date is 7th May, 7th June, and 7th July while the last date is 31st July.
    • In the quarter of July and September the payment date is 7th August, 7th, September, 7th October while the last date is 31st October.
    • In the quarter of October and December the payment date is 7th November, 7th December, 7th January while the last date is 31st January.

    Conclusion – TDS or Tax Deducted at Source

    TDS or Tax Deducted at Source is a major addition to the tax department of India. Only companies paying salaries to their employees care more about Tax deductions than others.

    There are lots of benefits if you do deductions and submit the same with the government of India. There are some exceptions as well like TDS on mutual funds and shares is nil.

    If there is an excess of TDS then you can file for a return. You need to file the return before 31st July of a financial year.

    TDS FAQs

    Ques – What is the TAN and why we need it for TDS filing?

    Answer – TAN is known as the Tax Deduction Number, it is a 10 digit number that is obligatory to be obtained by every citizen who is responsible for deduction or collecting the tax.

    Ques – What is TRACES? How does it help deductors be TDS compliant?

    Answer – Traces is a government designed facility that is exclusively provided with an objective to facilitate the payers as well as the deductors of TDS to check their paid taxes online.

    Ques – When is tax deducted? What challan is used to pay TDS?

    Answer – Tax deduction works in a way that it lowers or deducts your taxable income or the gross total income and thus that leads to reduce your tax.  The challan no. 281 is used to deposit one’s TDS.

    Ques – When is the TDS deposited to the credit of the government?

    Answer – As per following the tax deduction treaty, the last date for the deposit of TDS is the 7th of every month for the payments which were made before this date and subsequent to the 7th of the previous month.

    Ques – What is the format of TDS certificate and the frequency for its issuance?

    Answer – One can wish to issue a TDS certificate once every year, through the form no. 16, thus issuance of the TDS certificate is annually.

    Ques – What are the contents of a TDS certificate?

    Answer – The first and the foremost thing which one must know is that the TDS certificate must be downloaded from the TRACES. Given the contents of the TDS certificate, it involves ones PAN details, the TDS amount.

    Ques – What is statement of TDS and in which form is it furnished?

    Answer – When the deductor submits a quarterly generated statement to the Income Tax Department it is called TDS.  It should be duly noted by every deductor that the TDS is furnished is a separate CD along with properly filled and signed form 27A.

    Ques – What is the format of the TDS filing statement?

    Answer – The TDS file consists of various templates created adove live cycle designer as well as a form authoring tool. However, TDS files are created to store templates that can be used in favour of production of forms as well.

    Ques – What if I filed incorrect information by mistake?

    Answer – If there happens to be any kind of mistake in filling tax return the individual need to rectify it with the IRS.  However if the individual fails to correct the mistake they might be charged by means of some sort of penalties.

    Ques – What is the due date for issuance of TDS certificate?

    Answer – Following the chartered accountants the TDS certificate has to be issued before 31st May. On the other hand the individuals are obliged to take in note the form that should be used for issuance is form 16.

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