TDS – Tax Deduction at Source

TDS – Tax Deduction at Source

TDS or Tax Deducted at Source is income tax reduced from the money paid at the time of making specified payments such as rent, commission, professional fees, salary, interest etc. by the persons making such payments.

Usually, the person receiving income is liable to pay income tax. But the government with the help of Tax Deducted at Source provisions makes sure that income tax is deducted in advance from the payments being made by you.

The recipient of income receives the net amount (after reducing TDS). Resultantly, the recipient will add the gross amount to his income and the amount of TDS is adjusted against his final tax liability. Therefor the recipient takes credit of the amount already deducted and paid on his behalf.

TDS - deduction of tax at source
TDS – deduction of tax at source

 

When should TDS be deducted and by whom?

Any person making specified payments mentioned under the Income Tax Act are required to deduct TDS at the time of making such specified payment. But no TDS has to deducted if the person making the payment is an individual or HUF whose books are not required to be audited.

However, in case of rent payments made by individuals and HUF exceeding Rs 50,000 per month, are required to deduct TDS @ 5% even if the individual or HUF is not liable for a tax audit. Also, such Individuals and HUF liable to deduct TDS @ 5% need not apply for TAN.

Your employer deducts TDS at the income tax slab rates applicable. Banks deduct TDS @10%. Or they may deduct @ 20% if they do not have your PAN information. For most payments rates of TDS are set in the income tax act and TDS is deducted by payer basis these specified rates.

If you submit investment proofs (for claiming deductions) to your employer and your total taxable income is below the taxable limit – you do not have to pay any tax. And therefore, no TDS should be deducted on your income. Similarly, you can submit Form 15G and Form 15H to the bank if your total income is below taxable limit so that they don’t deduct TDS on your interest income.

TDS credits in Form 26AS

It is important to understand how TDS is linked to your PAN. TDS deductions are linked to PAN numbers for both the deductor and deductee. If TDS has been deducted from any of your income you must go through the Tax Credit Form 26AS. This form is a consolidated tax statement which is available to all PAN holders.

Since all TDS is linked to your PAN, this form lists out the details of TDS deducted on your income by each deductor for all kinds of payments made to you – whether those are salaries or interest income – all TDS linked to your PAN is reported here. This form also has income tax directly paid by you – as advance tax or self assessment tax. Therefore, it becomes important for you to mention your PAN correctly, wherever TDS may be applicable on your income.

You can easily file your TDS returns through Clear Tax software i.e. Cleats. It is an online TDS software that requires no download or desktop installation or software update. This helps you to prepare regular & correction e-TDS statements online easily with just a few clicks on your computer. It is also compatible with TDS returns of previous financial years for easy import.

Tax liability in a case where TDS is already deducted from Income

On salary, TDS is deducted based on the income tax slab applicable to you. In the case of other income types, the TDS rates are fixed and vary between 10% and 20%. The tax rates are not based on your total income. Hence, you would suffer a TDS on your receipts in certain cases.

Separately, you would be required to calculate your annual income by aggregating income from all sources. Your actual tax liability would be calculated on the total taxable income.

From the taxes calculated, you can claim credit for TDS deducted on your various receipts. Reduce the tax deducted at source from your actual tax liability to know the balance to be paid to the income tax department. You may have a refund too. In both cases, you have to file an income tax return and pay the tax due or claim a refund.

TDS Return filing Process

The following points are required to be considered to make sure that an error-free TDS return is submitted :

Form 27A contains a control chart whose all columns must be filled. This form is then verified in hard copy form with the e-TDS return filed electronically. The totals of the amount paid and the tax deducted at source have to be correctly filled and the same has to be filled in all the forms, including Form No. 27A, Form No. 24, Form No. 26 and Form No. 27.

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Tax deduction account number

The assessees are required to mention their Tax Deduction Account Number (TAN) in Form No. 27A. This is similar to what is done in case of e-TDS return. This is dictated by ‘sub-section (2) of section 203A of the I-T Act in India’.

At the time of filing the TDS return, ensure that details relating to the depositing of tax deducted at source have been mentioned accurately.

The basic form that has been used for e-TDS return recommended by the department is compulsory to follow. This is because it brings consistency and better understanding in filling the forms. It is necessary to mention the Bank Branch Code or the BSR code. It is a 7-digit code provided to the banks by the Reserve Bank of India.

E-TDS return has to be filed in the ASCII clean text format. To avail this format, you can use software of your choice such as Computex, MS Excel or Tally. Also, you have an option of using the software available at NSDL website known as Return Prepare Utility (e-TDS RPU Light) for filing the return online. It is important to ensure that the online TDS file formats come with ‘txt’ as the filename extension.

Filing of hard copy of return

The physical returns are submitted at any TIN-FC’s managed by NSDL. TIN-FC’s are found at specified areas across the country.

If returns are filed online, then they can be submitted directly at NSDL TIN website. In this case, the deductor has to sign the return through digital signature.

While submitting the return, if all the information mentioned is accurate then a provisional receipt/token number would be issued. This provisional receipt/token number is considered as an acknowledgment, stating the fact that the return has been filed. In case, the return is not accepted, then a non-acceptance memo will be issued along with the reasons for rejections.

Due Date for Filing TDS Returns by Employers

TDS return must be filed with the Government every quarter as follows:

Quarter

Due Date for Filing TDS Return

April – May – June

July 31st

July – August – September

October 31st

October – November – December

January 31st

January – February – March

May 31st

Validation of the TDS Return File

The procedure for the validation of TDS return file is given below:

Fill in the required details in the file

After filling in the details, update it in the portal validation utility tool

The tool is available on NSDL website for free

In case any error is found in the file, FVU will provide a report for the same

Make the necessary changes and verify the file again through the FVU

Penalty for delay in filing TDS Return

According to Section234E, if an assessee fails to file his/her TDS Return before the due date, a penalty of Rs 200 per day shall be paid by the assessee until the time the default continues. However, the total penalty should not exceed the TDS amount.

Non-filing of TDS Return

If an assessee has not filed the return within 1 year from the due date of filing return or if a person has furnished incorrect information, he/she shall also be liable for penalty. The penalty levied should not be less than Rs 10,000 and not more than Rs 1,00,000.