What is TDS (Tax Deducted at Source)?
TDS (Tax Deducted at Source) was introduced to collect tax from the source of income. Tax deduction takes place at the time of payment; therefore, it reduces tax evasion. If any person or company is making a payment is required to deduct tax at source if the payment exceeds a certain limit. This rate or limit is prescribed by the income tax department. TDS is managed by the Central Board of Direct Taxes (CBDT), which comes under the Department of Revenue.
The company or the person deducting the tax is called a deductor and the company or the person receiving the deducted payment is the deductee. The deductor is required to remit the tax into the account of the Union government and the deductee would be entitled to get the credit of the amount taxed on the basis of Form 26AS.
TDS is deducted on various types of payments. It is deducted on salaries, interest payments by banks, commission payments, rent payments, consultation fees, and professional fees. TDS is not required to be paid on rent payments or on fees paid to professionals like doctors, lawyers.
Understanding the TDS Process
- A seller (Deductee) provides services to the buyer (Deductor).
- The buyer deducts the Tax at the time of payment of advances or while accounting for the Bills received.
- The buyer deposits the deducted amount to the designated branches of the authorized bank.
- The buyer issues Form No.16A to the Deductee.
- The buyer files annual returns electronically to the Income Tax department.
- The seller files a return, along with Form 16A claiming the credit of the Tax deducted at source.
What is TDS Return?
TDS Return is a quarterly statement that has to be submitted to Income Tax Department. Every deductor should mandatorily file the TDS return on time. TDS return contains the details of the deductions and has to be filed by the deductor. The statement shows a summary of all the entries for TDS collected by the deductor and the TDS paid by the deductor to the Income Tax Authority. The TDS return filed should contain details of the TAN and PAN number of the deductor, PAN number of the payee, amount of tax paid, details of TDS challan, mode of payment, etc. To file TDS return the employer or the organization deducting TDS must have a valid Tax Collection and Deduction Account Number (TAN).
Steps in filing TDS Returns
- Firstly, Form 27A has multiple columns that must be filled. This hard copy of the form is verified with the e-TDS return filed electronically.
- The totals of the amount paid and the tax deducted at the source have to be correctly filled and tallied with the respective forms.
- Form 27A must contain the TAN number of the organization filing the TDS return. Any error in filling the TAN number can make matching and verification difficult.
- The TDS return must mention the details of tax paid with the mode of payment and the appropriate challan number. Again, any mistake in filling the challan numbers or dates of payment can lead to a mismatch at a later date and the need to re-file.
- The basic form that has been used for e-TDS return recommended by the department is mandatory to bring consistency. Input the 7-digit BSR (Basic Statistical Return) code precisely to enable easy tallying with the actual tax deposited.
- In the case of physical TDS returns, they can be submitted at any TIN-FC’s (Tax Information Network) managed by NSDL (National Securities Depository Limited). If returns are filed online, they can be submitted directly at the NSDL TIN website. In this case, the deductor has to mandatorily sign the return using a level 2 digital signature.
- If all the information mentioned in the TDS return is accurate, a provisional receipt/token number will be issued. This is an acknowledgment, stating that the return has been filed. In case, the return is rejected, a non-acceptance memo is issued along with the reasons for rejections. In that case, the returns will have to be re-filed.
TDS Slab Rates for different groups of taxpayers
Different groups of taxpayers are grouped according to their taxable income. Different groups have different tax rates as per the tax laws. These groups are called income-tax slabs.
For the Assessment Year 2020-21, the slabs for deduction of income tax are as follows:
| INCOME | TAX RATE |
|---|---|
| Up to '2,50,000 | Nil. |
| '2,50,001 to '5,00,000 | 5% |
| '5,00,001 to '10,00,00 | '12,500 + 20% of Income exceeding '500,000 |
| Above '10,00,000 | '1,12,500 + 30% of Income exceeding of '10,00,000 |
Senior Citizen:
| INCOME | TAX RATE |
|---|---|
| Up to '3,00,000 | Nil. |
| '3,00,001 to '5,00,000 | 5% |
| '5,00,001 to '10,00,00 | '10,000 + 20% of Income exceeding '500,000 |
| Above '10,00,000 | '1,10,000 + 30% of Income exceeding of '10,00,000 |
Very Senior Citizen:
| INCOME | TAX RATE |
|---|---|
| Up to '5,00,000 | Nil. |
| '5,00,000 to '10,00,000 | 20% |
| Above '10,00,000 | '1,00,000 + 30% of Income exceeding of '10,00,000 |
How to file TDS return online?
In order to file your TDS return, there are a few things you must ensure. They are as follows:
- You must have a valid Tax Deduction and Collection Account Number (TAN) and make sure it is registered for e-filing.
- Prepare your TDS statements using Return Preparation Utility before validating the same using File Validation Utility.
- You must have a valid Digital Signature Certificate that is registered for e-filing in case you want to upload your returns using DSC.
- Provide the Demat account or bank account details of your principal contact, or ensure that his/her PAN is linked with his/her Aadhaar in case you want to upload your returns using Electronic Verification Code.
Steps to upload TDS Statement
Below are the steps to upload your TDS statements on the official website of the Income Tax Department :
- Visit https://www.incometaxindiaefiling.gov.in/home. On the right side of the page, you will see ‘Registered User’ followed by the ‘Login Here’ option.
- Click on the aforementioned option and fill in your login information before clicking on ‘Login’. Your TAN will be your user ID.
- After you have logged in, locate the ‘TDS’ drop-down menu where you will have to select ‘Upload TDS’.
- A form will appear, and you will have to choose the right details before clicking on ‘Validate’.
- You will then have to validate your returns using either DSC or EVC (Digital Signature Certificate) or (Electronic Verification Code).
How to claim TDS Refund?
- Individual who files income tax returns and whose TDS refund is shown, can claim TDS refund on the income tax website.
- Once the ITR is filed, the TDS refund will be processed by the Income Tax Department.
- This refund amount is credited to bank account within 6 months.
Individual can also check the status of the refund on the official website of Income Tax Department.
What is TDS certificate and what is the purpose of it?
TDS certificates are of 2 types:
- Form 16
- Form 16A
The deductor is liable to provide a certificate to the deductee showing the amount that has been subtracted as tax under section 203 of the Income Tax Act.
Form 16
Form 16 is provided for salaried employees which shows the amount that has been deducted as TDS. Form 16 contains a detail such as computation of tax, deduction of tax, and payment of TDS. Form 16 is issued by an employer to his employees. Employers must issue this form to their employees before May 31st of the following financial year.
Form 16A
Form 16A is provided for the non-salaried classes. Here deductor provides this form to the deductee. Just like Form 16, it contains all the details regarding the computation of tax, deduction of tax, and payments.
The Advantages of TDS
Some of the advantages of TDS are:
- It ensures that people do not evade the payment of taxes.
- TDS acts as a steady source of revenue for the Government.
- It is much more convenient for the deductee as the tax amount payable is automatically deducted.
- The burden on Tax Collection Agencies to collect tax significantly reduces.
What is Form 15G & Form 15H and its difference?
Form 15G and Form 15H are self-declaration forms that an individual submits to the bank requesting not to deduct TDS on interest income as their income is below the basic exemption limit. For this, providing PAN is compulsory. Some banks allow you to submit these forms online through the bank’s website.
Tax calculated on total income is Nil (For both the forms).
Form 15G is for individuals or HUF or trust but not companies with age less than 60 years. Here the exemption limit is Rs.2.5 lakh.
Form 15H is for individuals or HUF or trust but not companies with age more than 60 years but under the age group of 80. Here the exemption limit is Rs.3 lakh.
