Tax Deducted at Source Calculations, Savings and Procedures

TDS is tax deducted at source. This is a method through which the government makes sure you pay the tax while receiving he income rather than paying it latter. There are various situations where TDS is applicable to the income you receive.

TDS eases the burden on the person who receives the income as he does not need to worry about calculating taxes. But the burden falls over the organization or person who deducts the tax. The entity has to pay the tax to the government fill lengthy forms and has to face monetary risk if they reduce less tax. So why do entities need to go through all the work and deduct TDS, the can instead let the individuals pay their own taxes. This is where the government has compulsory rules for select source of money to be subject to TDS. If it is not done so the respective expenses will be declared invalid at the time of income tax computation. So refusal to deduct TDS will lead to legal consequences.

The biggest advantage for imposing TDS is the government can effectively avoid tax evasions and receive taxes well in advance. It also eases the burden of calculating taxes for the salaried classes and other who are subjected to this type of tax.

Here are the following situations where TDS is deducted:

1. Salaries
2. Interest on debentures- limit of INR 5,000
3. Deemed dividend – limit of 2,500 if the recipient is an individual
4. Over interest earned other than those on securities. – INR 10,000 for banks and INR 5,000 for others
5. Lottery/cross word puzzle- limit of INR 5,000
6. Money earned over horse race- limit of INR 5,000
7. Compensation on sale of lottery tickets- limit of INR 5,000
8. Remuneration or payment made to the director of a company-  Rs. 30000/-
9. Rent( land, building, equipment)- limit of INR 1.8 lakh
10. Payments out of deposits under NSS.- limit of INR 2,500
11. Payment to contractors or sub-contractors- limit of INR 30,000
12. Professional/ technical charges- limit of INR 30,000
13. Compensation on acquisition of immovable property- INR 50 lakhs
14. Insurance commission- limit of INR 20,000

How is TDS calculated for salaried class?

TDS is levied on gross monthly income, which is a sum of basic allowances and prerequisites.  However there are exemptions over House rent allowance (HRA), medical care and leave travel allowance (LTA). So tax is levied over your gross income minus the exemptions.

If the person receiving the salary has another source or deduction of income like house rent and expenditures like loss on interest paid over loan then he or she can add/subtract this with the gross income.

Investments for the year fall under the category of chapter VI-A of ITA and it can be deducted from the gross income. An exemption of up to 1.5 lakh under section 80 C is possible for investments in the avenue such as PPF, life insurance, premiums, mutual funds, home loan repayment.

If after all this calculations the income level crosses INR 2.5 lakh and is below 5 lakh the tax rate is 10 percent, in the bracket of 5 lakhs to 10 lakhs the rate is 20 percent. All income above this will pay income tax at 30 percent.

The tax slab rate differs for senior citizens and comes with more exemptions.

TDS on foreign income

The income received in foreign currency will be converted into the Indian currency based on the value on the day when tax has to be paid.

How to reduce the TDS

Submit proof your investments made to your employee to claim deductions.

If you receive income below the taxable limit submit the form 15G and form 15H to your bank to avoid deductions over the interest amount earned. Banks deduct 10 percent if you have interest over INR 10,000 if you have provided PAN details or a flat rate of 20 percent.

EPF withdrawals within the lock-in period of 5 years will lead to taxation at 10 percent. So make sure you don’t touch EPF for 5 years to avoid TDS.

TDS for NRIs

Non resident Indians have to pay TDS over all the income earned here and they do not have any threshold limits. The rates are as applicable

• 30 percent on interest income
• 20 percent from corporate deposits
• 15 percent on short term capital gains
• 10 percent on long term capital gains
• 20 percent on all property sales.

NRIs cannot submit forms (15G or 15 H) for any exemption like the resident Indians can.

How is TDS handled by the entity which deduces?

The entity which extracts TDS has the right to the appropriate amount of tax and pays the net salary to the employee or receiver

The entity can decide the applicable amount and rate of interest based on their interpretation.

After that the entity has deducted the TDS they need to deposit it to the government within a month.

The entity has to issue TDS certificate to the person whom they have deduced.

TDS returns

The returns have to be filled by the entities in a quarterly basis. The due dates are as following:

Table

Apart from the entity if you want to claim returns, in case you did not submit proof regarding your investments to your bank or employee, you can file returns and claim back your money.

Forms                          

The salary deductions should be filled in the form 24Q.

In case of other payments to Indian citizens the form 26Q has to be filled.

Payments from non resident Indians have to be filled in the form 27Q.

TDS and PAN

If you are subject to TDS, you can verify all the deductions by going through the form 26AS. As TDS and PAN are interlinked, all your TDS will list here so it is necessary to provide appropriate PAN details.

Author Bio:

Anand Rajendran is a freelance writer living in Chennai, India. His interest in personal finance and budgeting began when he was earning an MFA in theater, living in one of the most expensive cities in the country (Chennai, TN) on a student’s budget. Today, he writes for a number of websites and keeps up his own Tax Consultancy Services named Uptra Consultancy Services