TDS (Tax Deducted at Source)

Most of us are well versed with the abbreviation TDS, but not many know what it literally means? TDS is Tax deducted at source and was introduced by the Income Tax department, with an aim to collect tax from the very source of income. Which means a person (deductor) who is liable to make payment of specified nature to any other person (deductee) shall deduct tax at source and remit the same into the account of the Central Government.

What is TDS?

TDS is a method of collecting Income Tax in India as per the provisions of the Income Tax Act of 1961. The Central Board for Direct Taxes (CBDT) is responsible for managing it. TDS is applicable on followings TDS on salary, commission, brokerage, royalty payments, contract payments, interest earned on several financial investments, earnings from lotteries, rent income and professional fees etc. Apart from that, TDS is collected in order to keep the revenue source stable for the govt. throughout the year which prevents people from evading taxes.

What is the importance of TDS?

Paying a huge amount of tax at one go is not a feasible option for everyone, therefore TDS enables you to pay your tax on your income as and when you earn it. However, if you feel that TDS deduction is an unnecessary burden on the salaried people then you may be wrong, as it has a set of advantages.

Advantages of TDS

TDS is deducted when you start earning and is dependent on the amount you earn. Besides, TDS benefits both the Government and the Tax payers. Following are the advantages of TDS.

  • • TDS reduces the chances of tax evasion (avoidance) as the tax is collected at source.
  • • It is one of the steadiest sources of revenue for the government.
  • • The tax collection base is widened as most of the people have to pay TDS in some or the other form.
  • • It is convenient for the individuals as the tax gets deducted automatically.
TDS Calculation

The percentage of tax that is calculated is different for each kind of income. Since TDS is collected at source without the calculation of investment that is eligible for tax deductions, an individual, in that case, has an opportunity to declare and hand over his proof of investment while filing a return and claiming TDS refund. And payments such as the commission, salaries, interest payment, fees to lawyers and freelancers are subject to TDS.

TDS Deduction

In case an individual has paid a surplus amount as compared to the liable tax amount, the payee can file a claim for a refund of the excess amount. Also, the TDS deductions are calculated based on various factors for individuals from different types of income categories.

How is TDS deducted?

Both income and expenditure such as the salary, lotteries, interests from banks, rent payment, payment of commissions, and payments to free lancers etc. fall under the range of TDS. Therefore, when a payment is made under these segments, a percentage of the overall payment is withheld by the source that is making the payments. This source can be a person or an organization, known as the ‘Deductor’. And the person whose payment is getting deducted is called the Deductee.

For example:

Sanjib works for an organization named ABK Corporation. In this case, ABK Corporation is a deductor who is paying salary to the employee who is the deductee.

Note: Under the laws stated by the Government, any kind of payment made from one party to another will be subject to TDS while complying with the provisions of the Income Tax Act, 1961. Here, the tax will be deducted at source and will be deposited to the Department of Income Tax.

Following are the Rates for tax deduction at source for current Assessment year.
► Tax And Tds Rates
In which cases the TDS is exempted There are certain incomes on which TDS is not collected, at source, like the following:
  • • Interest which is paid to the central or the state financial organizations.
  • • Institutions which are notified under no-TDS.
  • • Interest earned on KVP, NSC or Indira Vikas Patra schemes.
  • • Interest earned on NRE accounts.
  • • Interest earned on KVP, NSC or Indira Vikas Patra schemes
  • • Interest earned from Recurring Deposits or Savings Account opened in co-operative societies.
  • • Interest earned from Recurring Deposits or Savings Account opened in co-operative societies.
  • • UTI, LIC and other insurance or co-operative societies.

Note: A complete list of institutions which are not subject to TDS are available on the official Income Tax website.

TDS Return

It is essential to file a TDS Return to maintain a healthy financial record and one can file it by visiting the Income Tax website i.e. www.incometaxindia.gov.in

One has to sign in to the website by using the existing credential or by registering for the services. Since there are specific deadlines, it is important that an individual ensures that the TDS is filled with in due time.

Also, an individual has to make sure that forms are filled as per his/her income category. Further, they have to provide required documents to process the refund. And post submitting the return, he/she will have to validate the TDS return file. This validation can be done by using the free software provided by the Income Tax Department.

However, in case you are looking for the refund of access for the TDS paid, then you will have to file through TDS return to receive a refund for the excess amount.

What is Challan TDS Payment?

The ITNS 281 is a challan for the payment of TDS (Tax deducted at source) and TCS (Tax Collected at Source) or you can refer Challan ITNS 281 to a bill receipt, invoice or an official summon. This tax is managed directly by the Central Board of Indirect Taxes. The online version of collecting tax was introduced in the year 2004, with an intention to minimize human intervention, thereby reducing errors. It also facilitated online transmission of details of tax collected, deposited, refunded etc.

Due dates for payment of TDS
  • • TDS deducted on payments (excluding the purchase of property): 7th of the subsequent month
  • • TDS deducted on the purchase of property: 30th of the subsequent month
  • • TDS deducted in the month of March: 30th April

If there is a delay in deposit of tax, an interest is levied at the rate of 1.5% per month or part of the month, from the date of deduction.

Process of Filing Challan ITNS 281 Online process

One has to visit the tin-nsdl or onlineservices.tin.egov-nsdl.com and select Challan No/ITNS 281. The following details are to be filled at the time of payment of taxes in Challan ITNS 281.

Select the Deductee: One has to select an appropriate deductee i.e.: on whose behalf the payment has been deducted.

  • 1) 0020: Company deductees
  • 2) 0021: Non-company deductees

AY (Assessment Year): Select an appropriate AY for which the payment is made.

Example: In case the payment is made on 30th June 2017 (i.e. relating to FY 2017-18), the relevant AY will be 2018-19.

Tax Deduction Account Number (TAN): TAN is a 10-digit alphanumeric number issued to the persons who are required to deduct or collect tax.

Type of payment
  • • 200: Should be selected if the TDS/ TCS is a regular transaction
  • • 400: Should be selected if the payment is being made for a demand raised by the income tax authorities.

Nature of Payment: One has to select the section under which TDS/TCS has been deducted. This can be done from the drop-down list.

Details of Payment: One has to enter the income tax surcharge and late filing fees (in case applicable). However, this needs to be entered along with the date and bank branch.

Once you have filled all the details, click on submit to the bank and you will be redirected to the bank’s portal to process for payment. Once the transaction is successful a challan counterfoil shall be displayed containing the CIN No., payment details, and bank name through which e-payment has been made.

Offline Process

With regards to the offline process, the taxpayer can make payment by personally submitting a challan and visiting a bank. The payment can be made via cash or cheque. Post the submission of the challan, the bank will issue a counterfoil/ receipt back stamped as a proof of submission.

How to check the status of Challan ITNS 281?

The taxpayers who intend to check the status of Challan online can do so by visiting tin-nsdl portal. There are two modes to view the status:

  • • CIN based view
  • • TAN based view

One to enter the following details to view the status through the CIN based mode

  • • BSR code
  • • Challan date
  • • Challan serial number
  • • Amount

To view the status through the TAN based mode, enter the following details from your challan:

  • • TAN
  • • Challan date
Penalty for Late Filing of TDS Return

In case you fail to file TDS return within the due time, you are liable to pay a fine of Rs. 200 per day until the return is filed. Also, the fee is applicable for every day until the fine amount is equal to the total liable TDS amount. On late deposit of TDS, interest becomes payable under section 201(1A) at the rate of 1.5% per month from the date at which TDS was deducted to the actual date of deposit. Besides, if the taxpayer exceeds the one-year limit to file the TDS return or furnishes incorrect details of PAN, TDS amount, he/she will need to pay a penalty of minimum Rs.10,000 to Rs.1 lakh under section 271H.

Reimbursement of Expenses Related to TDS

One can consider the following reimbursement of expenses (taxable) for TDS:

  • • Audit fee is taxable
  • • Traveling expenses are non-taxable, however, if it is taxable for FTS
  • • Management expenses to parent company are non-taxable
  • • Infrastructure expenses are non-taxable, etc.
  • • The reimbursement for visit of a foreign artist is non-taxable
  • • Relocation expenses for employees are non-taxable
  • • Management expenses to parent company are non-taxable
  • • The reimbursement for visit of a foreign artist is non-taxable
  • • Consultant fees are non-taxable
TDS Exemption

In case your TDS is deducted under section 192, 193, 194, 194A, 194C, 194D, 194G, 194H, 194I, 194J, 194LA and 195 and you feel you are not eligible to pay TDS, then in order to claim, a tax deducted at source exemption, one has to follow the following procedure.

  • • Apply to the Income tax department/Assessing Officer (AO) in Form 13 to grant permission.
  • • The assessing officer has to unload the applications within a time frame of 30 days from the end of the month in which application was submitted.
  • • The taxpayers are requested to file complete details in the first instance itself which is required for the processing of Form 13. And if the assessing officer is satisfied, then he will expedite the issuance of certificate u/s 197.
  • • Also, in order to claim the exemption, a copy of this certificate can be attached to the invoice raised to the client.
  • • However, this certificate is valid until the assessing officer does not cancel it
TDS Certificate

Every person deducting tax at source is required to furnish a certificate as per Section 203 to the payee to the effect that tax has been deducted along with certain other particulars. This certificate is usually called the TDS certificate. Also, this certificate is also offered by the banks making deductions on pension payments etc.

Note: Individuals are advised to request for TDS certificate wherever applicable, and if not already provided.

Refund of Excess TDS Deductions

In case the person is subject to excess TDS deductions, the deductor can make claims for refund of the excess amount.

Note: The difference between the tax deducted and the actual payments made by the deductor, whichever is higher, is accepted as the excess payment. However, this amount will be refunded after adjusting against any tax liabilities under Direct Tax Acts.

Points to remember
  • • TDS- is tax deductions at a source of an individual’s income/payments. Here, the deductor (employer) is the person who is making payments to the deductee (employee, stockbroker etc.)
  • • TDS not only ensures stable revenue for the government but also helps in reducing tax filing burdens for a deductee.
  • • TDS certificate is issued wherever TDS has been collected, generally by the deductor or a bank.
  • • The TDS is collected after a certain threshold limit of earnings has been crossed. But a highest TDS (of 30%) is applicable on winnings from horse races, and lotteries and other games.
  • • Also, TDS is exempted on some payments made to government, RBI, cooperative societies etc.
Different between TDS and Income Tax
TDS INCOME TAX
TDS is a small amount of tax that can be deducted monthly, annually, periodically or occasionally from the earning of an individual or a business (the earning is not limited to salary but also includes interest, commission, fee etc.) Note: The earning could be regular or irregular in nature. Income tax is levied on the total income (salary) on an annual basis for individuals as well as businesses.

Apart from this you can also contact with AKB to file your TDS returns with fees depending on the volume of the job.

You can also write to us at akbtax2005@gmail.com or speak to our team at +91 87 3886 3886 who will assist you.