WHAT EXACTLY THE TDS IS?
TDS stands for Tax Deducted at Source. It is a system introduced by the government to collect income tax at the source of income itself. Under this system, a person or entity making specific payments such as salary, rent, interest, professional fees, etc., is required to deduct a certain percentage of tax before making the payment to the recipient. The deducted tax amount is then remitted to the government on behalf of the recipient.
WHY IT IS IMPORTANT?
Due to following reasons:
Regular Revenue Collection: TDS ensures a regular and steady collection of taxes for the government throughout the financial year. Since tax is deducted at the time of payment itself, it helps in preventing tax evasion and ensures a consistent inflow of revenue.
Wider Tax Base: TDS expands the tax base by bringing more taxpayers into the system. Even those who might not be diligent in filing their income tax returns are still subjected to TDS when they receive certain payments, ensuring their contribution to the tax revenue.
Ensuring Tax Compliance: TDS helps in enforcing tax compliance as individuals and businesses are required to deduct and deposit taxes on behalf of the government. Failure to do so can lead to penalties, which encourages people to comply with tax laws.
Reducing Tax Evasion: By deducting tax at the source, TDS minimizes the scope for tax evasion. It acts as an effective check on underreporting of income, as the tax is withheld before the taxpayer receives the payment.
Ease of Tax Collection: TDS simplifies the tax collection process for the government. Instead of collecting taxes from individual taxpayers separately, it is collected at the source of income, making the process more efficient.
Timely Revenue for the Government: TDS ensures that the government receives tax revenue throughout the year, which helps in managing its finances and funding various development projects and public services.
Convenient for Taxpayers: TDS makes tax payment more convenient for individual taxpayers as they don’t have to worry about setting aside a lump sum for tax payments at the end of the year. It spreads the tax burden over multiple transactions, making it easier to manage.
Facilitates Tax Refunds: TDS helps in determining the actual tax liability of taxpayers accurately. If excess tax is deducted, taxpayers can claim refunds while filing their income tax returns.
Promotes Transparency: TDS adds transparency to financial transactions as both the deductor and deductee have proper records of tax deductions and payments. This reduces the scope for disputes or discrepancies.
TDS FORMS
The following are some of the commonly used TDS forms:
Form 16:
- Is a certificate issued by the employer to an employee.
- Provides details of the salary paid, taxes deducted, and other related information.
- Applicable to Salaried Individuals
Form 16A:
- Is a certificate issued by a deductor other than the employer, such as banks, tenants, or clients, for TDS deductions made on payments other than salary.
- Contains details of the payment, the deductor, and the deductee,
Form 16B:
- Is a certificate generated by the buyer of immovable property (such as land, house, or apartment) for TDS deductions made on the purchase price.
- Serves as proof of TDS compliance during property transactions.
Form 26AS:
- Is a consolidated tax credit statement that reflects all the TDS deductions made on behalf of a taxpayer.
- Includes TDS details from multiple sources, such as salary, interest, rent, etc.
- Taxpayers can view and verify the details mentioned in Form 26AS to ensure accuracy while filing their tax returns.
Form AIS:
i. Annual Information Statement (AIS) is comprehensive view of information for a taxpayer displayed in Form 26AS.
ii. Taxpayer can provide feedback on information displayed in AIS.
iii. AIS shows both reported value and modified value (i.e., value after considering taxpayer feedback) under each section (i.e., TDS, SFT, Other information).
iv. The objectives of AIS are:
a. Displays complete information to the taxpayer with a facility to capture online feedback
b. Promotes voluntary compliance and enable seamless prefilling of return
c. Deters non-compliance
Form 27Q:
- Applicable to NRI taxpayers and is used to report TDS deductions made on payments such as interest, dividends, or any other income.
- Includes details of both the deductor and the deductee.
Form 27EQ:
- Used for reporting TDS deductions made on tax collected at source (TCS) transactions.
- TCS is a similar concept to TDS but applies to specified transactions where the seller collects tax from the buyer at the time of sale.
TDS Challans
- Are payment instruments used to remit the TDS amount to the government.
- Serve as proof of payment and facilitate the reconciliation of TDS credits.
There are two common types of TDS challans:
Challan 281:
- Is used for depositing TDS deducted on regular payments like salaries, interest, rent, etc.
- Contains details such as the taxpayer’s name, TAN (Tax Deduction and Collection Account Number), assessment year, type of payment, and the amount of TDS being deposited.
Challan 280:
- Used for depositing TDS deducted on advance tax, self-assessment tax, or any other tax payments.
- It is not specific to TDS deductions and can be used for various tax liabilities.
The challan includes details like:
- Taxpayer’s name,
- PAN
- Type of tax payment
- Assessment year, and
- Amount being deposited.
Both types of challans can be generated and submitted,
- Physically at authorized banks or
- Through online payment modes like net banking, debit cards, or credit cards.
Consequences of Non-Compliance:
It is crucial to maintain accuracy and timeliness. Failure to comply with the prescribed procedures may lead to penalties and interest charges.
TDS RETURN AND PAYMENT DUE DATES
Form 24Q:
| TDS On Salaries | Due date for filing Return in Form 24Q |
| Q1 – April to June | 31st July |
| Q2 – July to September | 31st October |
| Q3 – October to December | 31st January |
| Q4 – January to March | 31st May |
Form 26Q:
| TDS On Payment other than salary | Due date for filing Return in Form 26Q |
| Q1 – April to June | 31st July |
| Q2 – July to September | 31st October |
| Q3 – October to December | 31st January |
| Q4 – January to March | 31st May |
Form 27Q:
| TDS On Payment made to NRI | Due date for filing Return in Form 27Q |
| Q1 – April to June | 31st July |
| Q2 – July to September | 31st October |
| Q3 – October to December | 31st January |
| Q4 – January to March | 31st May |
Form 27EQ:
| TCS Deductions | Due date for filing Return in Form 27EQ |
| Q1 – April to June | 31st July |
| Q2 – July to September | 31st October |
| Q3 – October to December | 31st January |
| Q4 – January to March | 31st May |
The general due dates for TDS payment in India are as follows:
For all types of TDS deductions:
- March – 30th April
- Other months – 7th of next month
It is important to note that TDS payments must be made before filing the corresponding TDS returns.
TDS RATES AND THRESHOLDS – Vary depending on the nature of the payment and the recipient of the income.
Here are some examples of commonly applicable TDS rates:
| Salary: TDS on salary is deducted as per the individual’s income tax slab rates. |
| Interest on Fixed Deposits: TDS is applicable if the interest income exceeds Rs. 10,000 in a financial year. The TDS rate is 10% for individuals. |
| Rent: TDS is deducted at 10% if the annual rent exceeds Rs. 2,40,000. |
| Professional Fees: TDS is deducted at 10% for individuals and 10% or 2% for other entities, depending on the nature of the professional fees. |
TDS CERTIFICATE
A TDS certificate is issued by the deductor to the deductee as proof of tax deducted and deposited. There are different types of TDS certificates, such as Form 16, Form 16A, Form 16B, and Form 16C, depending on the nature of the payment and the deductor.
The TDS certificate contains details such as:
- Name
- PAN of the deductee,
- TDS amount deducted,
- TDS rate,
- TDS deposited, and
- Other relevant information.
The deductee must ensure they receive the TDS certificate from the deductor, as it is required for filing income tax returns and claiming tax credits.
TDS EXEMPTIONS AND REBATES
Certain payments are either exempt from TDS or eligible for lower deduction rates. The Income Tax Act provides specific provisions for exemptions and rebates on various payments.
Some examples of TDS exemptions and rebates include:
Threshold Exemption: For certain types of payments, TDS is not applicable if the amount paid does not exceed a specified threshold. For example, TDS is not applicable on interest paid by banks if it does not exceed Rs. 10,000 in a financial year.
Lower Deduction Certificate: A taxpayer can apply for a lower deduction certificate from the income tax authorities if they believe that the actual tax liability is lower than the TDS rate. If approved, the deductor will deduct TDS at the lower rate mentioned in the certificate.
Consequences of Non-Compliance with TDS Provisions
Non-compliance with TDS (Tax Deduction at Source) regulations can have several consequences for both the deductor and the deductee.
Interest and Penalties: The deductor may be liable to pay interest on the amount of TDS not deducted, or deducted but not paid to the government, at a rate specified by the tax authorities.
Additionally, penalties may be imposed for late filing of TDS returns or incorrect reporting of TDS details.
Disallowance of Expenses: If TDS is not deducted or not deposited with the government, the tax authorities have the power to disallow the corresponding expenses claimed by the deductor.
This disallowance can lead to an increase in the taxable income of the deductor, resulting in higher tax liability.
Prosecution Proceedings: In cases of wilful or intentional non-compliance, the tax authorities may initiate prosecution proceedings against the deductor.
This can result in legal action, including fines and imprisonment.
IN CONCLUSION
Understanding Tax Deducted at Source (TDS) is vital for every taxpayer as it is an integral aspect of the income tax system. TDS ensures the smooth collection of taxes, promotes tax compliance, and expands the tax base. By deducting tax at the source of income, it reduces the scope for tax evasion and provides a regular revenue stream for the government.
Staying informed about the latest updates in TDS regulations is crucial to avoid penalties and interest for non-compliance. Maintaining proper records of TDS deductions and payments promotes transparency and minimizes the chances of disputes.
So, every taxpayer should be proactive in understanding and adhering to the rules governing Tax Deducted at Source to ensure a smooth and hassle-free tax experience.
Author Bio
In AIS Statement which Transactions details are to be considered when you file a ITR 1. How to get Individual transaction details when Pre-Filled ITR-1 details for Other Source of Income amount is shown. This amount is consolidated – Fixed Deposit Interest / Savings Bank Interest etc. The amount considered in Pre-filled ITR-1 does NOT tally with Consolidated Bank’s Interest Certificate.