Tax Deducted at Source (TDS)

What is Tax Deducted at Source (TDS)?

Tax deducted at source, also known as TDS, is a form of direct tax. It is a percentage amount deducted from a salaried individual’s income. Income Tax Act defines it as “any company or person making a payment is required to deduct tax at source if the payment exceeds certain threshold limits.”

The person or company that makes the payment after deducting TDS is called deductor, and the company or person that receives the payment is called deductee. Thus, it is the deductor’s responsibility to deduct the TDS before making the payment and depositing it with the government, irrespective of the mode of payment (including cash, cheque, or credit).

Who is liable to deduct TDS?

who is liable to deduct tax

According to the Income Tax Act, any person, whether an individual or HUF (Hindu undivided family), firm, or NRI (Non-resident Indian), are liable to deduct TDS under the following conditions:

  • Any payment made under the provisions of the act requires a tax deduction. This criterion is not liable for individuals and HUFs.
  • If an individual pays rent of more than Rs. 50,000 a month, a TDS of 5% is deducted.
  • Employers deduct TDS from the salary of their employees whose income exceeds the minimum exemption limit.
  • Banks will deduct TDS at 10% from the interest payments on fixed deposits. Individuals with salaries below the maximum exemption threshold can submit Form 15G and 15H to avoid it.

What are the types of TDS?

types of tds

The income sources that qualify for TDS under the First Schedule to the Finance Act are:

  1. Payments covered under Salary (Section 193)
  2. Payments other than salary/fixed rate:
  • For interest on security (Section 194)
  • For dividend (Section 194)
  • For interest other than interest on securities (Section 194 A)
  • For winning from the lottery, crossword puzzles etc. (Section194 B)
  • To contractors or sub-contractors (Section 194 C)
  • For Life Insurance Policy (Section 194 D)
  • For rent (Section 194 I)
  • For a professional or technical fee (Section 194 J)

What are the rules of TDS deductions?

The Union Government has mentioned changes in the TDS rules from April 1, 2023. They are as follows:

  • TDS on Online Gaming Winnings: Tax will be deducted on withdrawals or at the end of the financial year, irrespective of the amount won. This amendment to the previous rule that mentioned the minimum threshold to be Rs. 10,000.
  • Removal of TDS Exemption on Interest Payments on Listed Debentures: According to the latest amendment, all interest payments on listed debentures will be subject to TDS deductions. So, debenture holders must bear the cost of TDS deductions before interest payments are credited to their accounts.
  • TDS on EPF Withdrawals: This applies to all EPF withdrawals and in case the recipient fails to provide their PAN, they will be subjected to 20% of TDS, instead of the maximum marginal rate.
  • TDS on Incomes paid to Non-residents or Foreign Companies: The TDS rate charged will be either 20% or the rate mentioned in the tax treaty, whichever is lower. It is important to remember that this applies to all modes of payments made or income received.

Thus, these updates are rather distinctive changes from the existing framework and will impact the lives of taxpayers, companies, and individuals alike.

Frequently Asked Questions (FAQs)

Q1. What is a TDS certificate?

A TDS certificate is a document comprising details of tax deductions and government deposits made by the deductor on behalf of the deductee.

Q2. Who issues a TDS certificate?

A TDS certificate is issued by the deductor (the entity making the payments) to the deductee (the receiver of the payments) as proof of TDS deductions.

Q3. How do you check the tax deducted at source?

Access Form 26AS on the Income Tax Department’s official website to check the TDS.

Q4. How do you claim tax deducted at source?

To claim tax deducted at source, ensure all the TDS details are correctly recorded in Form 26AS, and use it to claim TDS credit.

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