Last Updated on May 24, 2022 by

Tax Deducted at Source or TDS is a process where a specific amount of tax is deducted by the person or entity making the payment to another person or entity. The Government introduced TDS to reduce the possibility of tax evasion since the tax to be paid to the Government has already been deducted at the source, that is, at the time of the payment.

TDS is deducted by an employer or deductor at source and deposited with the Central Government. The person from whose income the tax is deducted is known as the deductee who can claim a credit of the same amount based on a TDS certificate issued by the deducting entity.

When is TDS deducted and who deducts it?

TDS deduction and filing is mandatory for anyone making specified payments under the Income Tax Act. It is deducted at the salary payment to an employer, rent, commission, professional fees, interest payment.

The only time a person making a payment is not required to deduct or file TDS is when they are an individual or a Hindu Undivided Family (HUF), and their books do not require auditing. No TDS is deducted if the employee submits their investment declaration to the employer and their total income falls under the taxable bracket. Employees can submit Form 15G and Form 15H if their total income is under the taxable bracket to avoid deducting TDS from their salary.

For rental payments over Rs. 50,000 per month made by an individual or HUF member, a TDS of 5% is deducted even though audits are not required. For employees, the TDS will be deducted by the employer. Banks will deduct TDS at the rate of 10% if they have your PAN information. In case the bank does not have the relevant PAN information, TDS will be deducted at a rate of 20%.

Different types of TDS

  • Salary paid to an employee by an employer
  • Interest paid to an investor on securities and assets
  • Brokerage or commission payments
  • Deemed dividend payments
  • Rent payment
  • Transfer and compensation on immovable property
  • Gains made from winning games, puzzles, lottery, etc.

TDS on salary

The TDS on the employee’s salary is based on their income tax slab. For working professionals with an income of less than Rs. 2.5 lakh , no TDS is deducted, while those earning Rs. 2.5 lakh to Rs. 5 lakh will be charged a TDS of 5%.  Similarly, those earning between Rs. 5 lakh to Rs. 10 lakh will have to pay a TDS of 20%, while those with a salary of over Rs. 10 lakh will pay a TDS at 30%.

However, with the new tax regime, the TDS taxation slabs are as follows:

  • Income of less than Rs. 2.5 lakh – No TDS
  • Income between Rs. 2.5 lakh and Rs. 5 lakh – 5% TDS
  • Income between Rs. 5 lakh and Rs. 7.5 lakh – 10% TDS
  • Income between Rs. 7.5 lakh and Rs. 10 lakh – 15% TDS
  • Income between Rs. 10 lakh and Rs. 12.5 lakh – 20% TDS
  • Income between Rs. 12.5 lakh and Rs. 15 lakh – 25% TDS
  • Income above Rs. 15 lakh – 30% TDS

How to pay TDS?

There are two ways of paying the TDS:

  1. Online mode
  2. Physical mode: Furnish the Challan 281 at the bank branch

How to file TDS online?

Employers and individuals who have deducted TDS have to deposit it quarterly. For filing the TDS, the deductor will need to have some important documents that will have to be mentioned in Form 26AS. These documents are:

  • PAN details of both the deductor and the deductee
  • Information of the Challan 281
  • The amount of the TDS that was deposited with the government
  • Other relevant paperwork

Steps to follow to file TDS:

  1. Fill the Form 26A.
  2. Correctly mention the amount of total tax that has been deducted at the source.
  3. Mention the correct TAN of the deductor.
  4. Mention the correct challan number, the mode of payment of TDS, and other details. Errors or mistakes in the details will result in the re-filing of the TDS.
  5. Enter the 7-digit Bank Branch Code or BSR, a unique number given to all banks by the RBI.
  6. If filing the TDS physically, submit it at the nearest TIN Facilitation Center, which the NSDL manages. If filing the TDS online, submit it on the NSDL TIN official website.
  7. If all the information entered is correct, a token number will be provided as proof of successful TDS filing.
  8. If the entered details are incorrect, a non-acceptance memo will be provided along with a reason for rejection.

How to upload TDS statements?

  1. Log into the Income Tax website
  2. Log in using your TAN as the login ID
  3. In the TDS dropdown menu, choose the ‘Upload TBS’ tab and click on it
  4. Mention the correct details in the form that pops up
  5. Click on ‘Validate’ tab

Penalty on late TDS filing

The deductor is obligated to submit and file TDS for the amount deducted from the deductee. If the deductor fails to submit the TDS to the government on time, a penalty of Rs. 200 per day will be levied from the final date of filing, subject to a maximum of the TDS amount.

If the deductor has not filed the TDS returns for a period of one year from the date of TDS filing deadline or submits incorrect details, they will be liable to a penalty of Rs. 10,000 to Rs. 1 lakh.

How to check TDS deduction status?

You can check the status of your TDS deduction on the Income Tax website. Look for the Form 26AS (Tax Credit) on your profile on the website. Select the year for which you seek the status, and download the PDF file.

Alternatively, you can also use net banking on your phone to check whether TDS has been deducted.

Types of TDS certificates

After the deductor has successfully submitted the TDS, the deductee can avail the TDS certificate from the deductor as proof of the submission.

For the salaried class, employers provide a Form 16 to the employee clearly mentioning the amount of TDS that has been deducted from their salary and submitted to the government.

For the non-salaried class, the deductor will furnish a Form 16A for the deductee.

The takeaway

TDS is a tool that was introduced to reduce tax evasion. Submitting TDS to the government is mandatory for all deductors and default on these payments is a punishable offence. Deductors can easily submit the TDS online by furnishing the correct details of the deductee within a few minutes.

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