What is TDS

Understand TDS rules to simplify your tax obligations.
What is TDS
3 min
23-March-2024

Taxes are the fuel that keeps the engine of our nation running, but figuring out how and when to pay them can be complicated. India's Tax Deducted at Source (TDS) system simplifies the process by collecting a portion of taxes upfront, directly at the income source. This not only streamlines things for the government but also helps taxpayers spread out their obligations.

What is TDS?

TDS, or Tax Deducted at Source, is a method introduced by the Indian government to collect taxes at the very point where income is generated. The concept is simple: instead of the entire tax liability resting on an individual or business when they file their annual returns, a portion of the tax is deducted upfront by the payer and directly deposited with the government. This streamlines tax collection and minimises tax evasion.

When should TDS be deducted, and who is liable to deduct it?

If you are making specific payments mentioned in the Income Tax Act, you must deduct TDS when making those payments. Individuals or HUFs whose books do not require an audit are exempt from deducting TDS.

Individuals and HUFs must deduct 5% TDS on rent payments exceeding Rs. 50,000 per month, even if your income falls below the taxable audit threshold. You don't need to obtain a TAN for this purpose.

Most TDS rates are predefined in the income tax act, and the payer deducts TDS accordingly. If you provide investment proofs to your employer and your taxable income is below the limit, no tax or TDS is deducted. Submitting Form 15G or Form 15H to the bank exempts TDS on interest income if your total income is below the taxable limit. If TDS is deducted but your total income is below the limit, you can claim a refund.

Let's say you earn Rs. 20,000 in a year from bank interest, and the taxable income limit is Rs. 2,50,000. If you submit Form 15G or Form 15H to your bank, they won't deduct tax (TDS) on your interest income because you earn less than the taxable limit. But if the bank already deducted tax from your interest and you earn less than Rs. 2,50,000 you can ask for a tax refund.

Types of TDS

Tax Deducted at Source (TDS) is a system that ensures taxes are collected upfront on various types of income. For example, when you earn interest on a fixed deposit (FD), the bank will deduct a portion as TDS before crediting the remaining amount to you. TDS applies to many other income sources, including:

  • Salary
  • Interest from banks
  • Brokerage or commission
  • Commission payments
  • Compensation for acquiring real estate
  • Deemed dividends
  • Payments to contractors
  • Insurance commission
  • Rent payments
  • Interest on securities
  • Interest other than interest on securities
  • Winnings from games, such as lottery prizes

Example of TDS

Tax Deduction at Source (TDS) can seem confusing. Let us break it down with a simple example:

Imagine a startup company, Company ABC, renting office space for Rs. 80,000 a month. The applicable TDS rate for rent payments is 10%. Here is how TDS works in this scenario:

  • Deduction and payment: Company ABC calculate 10% of Rs. 80,000, which is Rs. 8,000. They deduct this amount and pay the remaining Rs. 72,000 to the landlord.
  • TDS to the government: It is Company ABC who is responsible to deposit the deducted Rs. 8,000 TDS directly to the government.

Different TDS certificates are issued against different TDS forms

TDS certificate

TDS form

Form 16

Form 24Q

Form 16A

Form 26Q

Form 16B

Form 26QB

Form 16C

Form 26QC


How to know the deducted TDS amount

Step 1: Registration

  • Visit the official Income Tax Department website.
  • If you are a first-time user, click "Register Yourself" and provide your PAN and other required details.

Step 2: Log in

  • Log in with your registered ID and password.
  • Navigate to the "My Account" section and select "View Form 26AS (Tax Credit Statement)".

Step 3: Form 26AS

  • Form 26AS is your consolidated tax statement. It summarises TDS deducted under your PAN across different sources, along with other tax payments you have made throughout the financial year.

Step 4: Access TDS details

  • You will be taken to the TRACES (TDS Reconciliation Analysis and Correction Enabling System) portal. This shows comprehensive details of all your tax-related transactions.

Conclusion

By now, you have a clearer understanding of the TDS system in India. Whether you are an employer, a small business owner, or simply someone earning interest on bank deposits, knowing about TDS helps you handle your tax obligations effectively.

Disclaimer

As regards deposit taking activity of Bajaj Finance Ltd (BFL), the viewers may refer to the advertisement in the Indian Express (Mumbai Edition) and Loksatta (Pune Edition) furnished in the application form for soliciting public deposits or refer https://www.bajajfinserv.in/fixed-deposit-archives
The company is having a valid Certificate of Registration dated March 5, 1998 issued by the Reserve Bank of India under section 45 IA of the Reserve Bank of India Act, 1934. However, the RBI does not accept any responsibility or guarantee about the present position as to the financial soundness of the company or for the correctness of any of the statements or representations made or opinions expressed by the company and for repayment of deposits/discharge of the liabilities by the company.

For the FD calculator the actual returns may vary slightly if the Fixed Deposit tenure includes a leap year.