Tax Deducted at Source (TDS) is a mechanism introduced by the government to collect tax at the point of income generation. It ensures tax compliance, prevents tax evasion, and facilitates smooth tax collection.
Importance of TDS
- Prevents tax evasion.
- Ensures a steady revenue source for the government.
- Reduces the tax burden during filing.
- Encourages timely payment of taxes.
How TDS Works?
When making specific payments like salary, rent, or professional fees, the payer deducts tax before paying the recipient and deposits it to the government.
TDS Rates for Different Payments
| Payment Type | TDS Rate |
| Salary | As per income slab |
| Interest on FD | 10% |
| Rent | 10% (individuals), 2% (companies) |
| Professional Fees | 10% |
| Commission & Brokerage | 5% |
| Dividends | 10% |
TDS Calculation on Salary
TDS on salary is calculated based on income tax slabs after deductions under sections 80C, 80D, etc.
Example Calculation:
- Salary: ₹12,00,000
- Deductions: ₹2,00,000 (80C, 80D)
- Taxable Income: ₹10,00,000
- Tax Calculation as per slabs: ₹1,12,500
- TDS = ₹1,12,500 / 12 months = ₹9,375 per month
TDS Calculation on Fixed Deposits (FDs)
Banks deduct TDS @10% if the interest exceeds ₹40,000 (₹50,000 for senior citizens) per annum.
TDS Calculation on Rent
If rent exceeds ₹2,40,000 per annum, TDS @10% applies for individuals and @2% for companies.
TDS on Professional Fees
TDS is deducted at 10% on payments exceeding ₹30,000 annually to professionals.
TDS on Commission and Brokerage
TDS @5% applies to commission and brokerage payments exceeding ₹15,000 per annum.
TDS on Dividends
Companies deduct TDS @10% on dividends exceeding ₹5,000 paid to shareholders.
TDS Exemptions & Threshold Limits
- TDS is not deducted if the recipient provides Form 15G/15H (for individuals with income below the taxable limit).
- Certain income types are exempt from TDS, such as agricultural income and specific government payments.
How to Deduct and Deposit TDS?
- Calculate TDS using applicable rates.
- Deposit via Challan ITNS 281 before the due date.
- File quarterly TDS returns (Form 24Q/26Q/27Q).
TDS Return Filing Process
- Form 24Q for salary TDS
- Form 26Q for non-salary TDS
- Form 27Q for NRI payments
- Due dates: 31st July, 31st Oct, 31st Jan, 31st May
Consequences of Non-Deduction of TDS
- Disallowance of expenses.
- Interest @1% per month for late deduction.
- Penalty under Section 271C.
How to Claim TDS Refund?
If excess TDS is deducted, claim a refund while filing an ITR. Refunds are credited to the taxpayer’s bank account after processing.
Common Mistakes in TDS Calculation
- Not deducting TDS on applicable payments.
- Incorrect TDS rate application.
- Late deposit of TDS.
- Non-filing of TDS returns.
- Mismatch in PAN details.
FAQs
Q1. What happens if TDS is not deducted?
A1. The expense may be disallowed, and penalties may apply.
Q2. How do I check my TDS deduction?
A2. You can check TDS in Form 26AS via the Income Tax portal.
Q3. Can I claim a refund for deducted TDS?
A3. Yes, if your total tax liability is lower than the TDS deducted.
Q4. Is TDS applicable on freelance income?
A4. Yes, TDS @10% applies on professional fees above ₹30,000.
Q5. What is the due date for TDS payment?
A5. The 7th of the following month; for March, it’s April 30.
Q6. Can TDS be paid online?
A6. Yes, via the NSDL website using Challan ITNS 281.
Q7. How can I avoid TDS deduction?
A7. Submit Form 15G/15H if eligible.
Q8. What if my employer doesn’t deduct TDS?
A8. You must pay self-assessment tax.
Conclusion
Understanding TDS calculation is crucial for tax compliance. Whether you’re an employer, professional, or investor, knowing TDS rates, exemptions, and filing procedures helps avoid penalties and ensures a smooth tax process.
