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What is Tax Deduction at Source (TDS)?

TDS or Tax Deducted at Source is a mechanism to collect income tax in India. It is a way of ensuring that the government collects tax as soon as the income is earned, rather than waiting for the end of the financial year. In this article, we will discuss TDS in detail, including how it works, how it affects your income tax liability, and how to claim a refund on excess TDS deducted.

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Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

What is TDS?

TDS is a mechanism for collecting income tax at the source of income. It is deducted by the person making the payment to another person. For example, an employer deducts TDS from the salary paid to an employee. Similarly, a bank deducts TDS on the interest income earned by a customer on their deposits.

The TDS full form stands for Tax Deducted at Source and it is the tax deducted from an individual’s salary before the amount is credited to their account. This deduction is made every month by the employers. You can claim a TDS refund if the TDS collected is more than what you owe the government. Let’s take a closer look at this concept.

How does TDS work?

TDS works on the principle of “pay as you earn.” The person making the payment deducts a certain percentage of tax from the payment and deposits it with the government. The person receiving the payment receives the net amount after deducting TDS.

For example, let’s say your employer pays you a salary of Rs. 50,000 per month. If the TDS rate is 10%, your employer will deduct Rs. 5,000 as TDS and deposit it with the government. You will receive the remaining Rs. 45,000 as your net salary.

TDS on Salary

TDS on salary is one of the most common forms of TDS in India. It is deducted by the employer on behalf of the employee. The TDS rate on salary depends on the employee’s income and the tax slab they fall under. The TDS rate can range from 0% to 30% and depends on the tax regime chosen.

What is Tax Deductions at Source (TDS)

TDS on Interest Income

TDS is also deducted from interest income earn by individuals from various sources such as fixed deposits, recurring deposits, and savings accounts. The TDS rate on interest income also varies based on the source of income.

For example, if the interest earned on fixed deposits is more than Rs. 40,000 in a financial year, TDS will be deducted at the rate of 10%. If the interest earned on recurring deposits or savings accounts is more than Rs. 10,000 in a financial year, TDS will be deducted at the rate of 10%.

Income Tax Liability and TDS

TDS is a way to collect income tax in advance. It is deducted by the person making the payment, and the person receiving the payment receives the net amount. However, TDS is not the final tax liability of the taxpayer. The taxpayer is required to file an income tax return at the end of the financial year, and the TDS amount is adjusted against the final tax liability.

If the TDS deducted is more than the final tax liability, the taxpayer can claim a refund for the excess TDS deducted. This brings us to the next topic, which is how to claim a refund on excess TDS deducted.

TDS Rate

The TDS rate is the percentage of tax deducted at source. The TDS rate varies based on the type of payment and the nature of the payment. The TDS rates are prescribed by the Income Tax Act, and they are subject to change from time to time.

For example, the TDS rate on salary varies based on the income and the tax slab. The TDS rate on interest income varies based on the source of income.

Is TDS refundable? Claiming Refund on Excess TDS Deducted

If the TDS deducted is more than the final tax liability, the taxpayer can claim a refund for the excess TDS deducted. To claim a refund, the taxpayer needs to file an income tax return. The excess TDS deducted will be refunded to the taxpayer through direct credit to their bank account.

It is important to note that the taxpayer needs to file an income tax return to claim a refund on excess TDS deducted. If the taxpayer does not file an income tax return, they will not be able to claim a refund.

As mentioned above, if the TDS is more than the amount you owe, then you can avail the benefits of a TDS refund. However, not everyone can avail this refund. Individuals are eligible for TDS refund only if the financial declarations made at the start of the year are less than the proof of investment submitted at the end of the year. One noteworthy fact is that the sooner you file the income tax return, the earlier you can get the TDS refund.

What are the steps for filing a TDS return claim?

You need to file a TDS refund claim when the employer has deducted more tax than the actual liability. The difference amount can be claimed by filing an income tax return. For this, you will have to provide the bank account number, bank name, and the Indian Financial System Code (IFSC) details for successful processing. If you know that the TDS is payable in any financial year, you must file Form 13 under Section 197 to benefit from a lower income tax deduction.

How to Claim TDS Refund Online?

Did you know you can claim a TDS refund online on your salary? If you are also someone who is wondering about how to claim a TDS refund on salary, we have got you covered. However, claiming a TDS refund online is a simple process and involves filing income tax returns. It includes the following steps:

1. Sign in or sign up on the online e-filing portal of the Income Tax Department,

2. Fill in the relevant details in the applicable Income Tax Return (ITR) form.

3. On submission of the ITR, the portal generates an acknowledgement.

4. E-verify the acknowledgement through the digital signature, net banking account, or an Aadhaar-based One-Time Password (OTP).

How to Claim TDS Refund from bank?

Another thing you need to know is how to claim a TDS refund in case of deduction by the bank. If the income tax is less, but the bank has deducted more tax on your fixed deposit, you can claim a refund in two ways:

One way is to declare the income, and the I.T. department will refund the amount into the bank account.

The other way is to file a Form 15G with the bank so that there is no deduction at the source since your salary does not fall under any tax slab. Also, senior citizens are exempted from paying TDS on fixed deposit interests.

How to apply for the TDS rebate or Income Tax Return (ITR)?

Another commonly asked question is “how to apply for a TDS refund online in India”. As mentioned earlier, the TDS refund process is quite straightforward and involves some easy-to-follow steps. You just need to visit the income tax portal and log in to download the relevant form for an income tax refund. Then, enter all the particulars and submit the form. If the employer has deducted tax when you are not eligible for it, you can claim the amount by filing income tax returns (ITR). The department will review the taxable amount, and you will receive the amount directly in your bank account.

How to check TDS refund status?

Visiting the online e-filing portal helps in knowing the refund status. You can do so by following the steps mentioned below:

1. Log in to your account.

2. Check out the section labelled ‘My Account’ and select ‘Refund/Demand Status’.

3. This reflects the assessment year, the status and the mode of payment. In case of rejection, the corresponding reason is mentioned here as well.

How to verify the status of a TDS refund?

In case you do not receive the TDS refund in the above mentioned time frame, you can follow the steps given below:

1. Download Form 26AS and compare it with your income and TDS details. In case of any mismatch, get in touch with the TDS deductor to check on the accuracy of the TDS returns they filed.

2. Contact the concerned income tax officer or the Ombudsman. Their contact details are available on the online e-filing portal.

What is the TDS refund period?

If the ITR is filed on time, you can expect the refund to get credited to your bank account in three to six months. The credit is also a function of the completion of the e-verification formality. When the amount of tax deducted exceeds the actual tax liability, a TDS refund is issued. Investment predictions made at the start of a financial year generally do not match the actual investments made at the end of that year. A TDS refund occurs when there is a discrepancy between the total tax deducted at the end of a financial year and the amount of income tax you are required to pay for that year.

What are the steps for raising a complaint about the delay in receiving ITR?

You should receive your refund within 30-45 days after your income tax return (ITR) has been submitted. However, there are a variety of reasons why your refund may be delayed.

If you have not received the refund even after applying for ITR, you must contact the officer to file a dispute. Provide all the information and details. If there is no response, you can contact the Income Tax Ombudsman with your PAN, Form 16, bank statement, TDS certificate issued by the bank, and documents that show earnings and investment.

What is the interest on a TDS refund?

In case of delays in refunding the TDS amount, the Income Tax Act entitles you to receive interest. The interest is calculated at a simple rate of 6%. The interest accrual occurs from the first month of the financial year, i.e. April, and is taxable under ‘Income from Other Sources.’ However, the interest is not applicable where the refund amount is lower than 10% of the total tax payable.

What are the safeguards to avoid double claims?

While approving the refunds, the assessing officer takes due care to avoid double claims. If you encounter any errors while claiming the refund, you must have supporting documents to prove that it was genuine.

To prevent both the deductor and the deductee from claiming TDS twice, the Assessing Officer must take the following precautions:

Before the Assessing Officer, the application deductor must demonstrate that:

1.There was a real error that occurred inadvertently

2.The deductee(s) have not received the TDS certificate for the refund amount requested

3.The excess amount credit has not been claimed in the return of income by the deductee(s) or that the deductee(s) agrees not to claim it.

How to claim a refund on TDS deducted on PF withdrawal?

EPF members are entitled to claim an EPF refund on withdrawal if their income is less than ₹2,50,000 in a financial year. For this, the taxpayer in question needs to show the EPF withdrawal as salary income, while filing their tax returns.

How to claim a TDS refund on salary?

TDS on salary is the tax deducted by the employer from the employee’s salary. As a result, your employer deducted your money and deposited it with the government on your behalf. Follow the steps below to get a TDS refund on your salary:

If your employer deducts TDS in addition to your actual tax due, you must file an income tax return.Give the bank account number, the bank’s name, and the IFSC code.It takes a few months for the income tax officer to sanction your income tax return after you file an income tax return claiming a TDS refund.

How to claim a TDS refund of previous years?

Apply to the Chief Commissioner of the Income Tax Department.File an ITR form up to the previous years you need a refund for.Get clearance from the concerned authorities.Admit a belated application for a supplementary claim for condonation

Conclusion

If you missed claiming the refund while filing the return, you could file a revised return. Now that you are aware of the TDS refund procedure, you can go ahead and claim your rebate.

Key Takeaways

  • 1.The threshold for TDS deduction varies according to the payment types. Likewise, the rate of TDS varies in the case of salaries, professional fees, etc. The TDS rate also differs according to the nature of the payment.
  • 2.The refund is applicable when the paid TDS amount exceeds the tax liability.
  • 3.It is important to mention the details of the tax-saving instruments accurately in the ITR.
  • 4.The bank details should be properly entered to receive the refund in your bank account. Incorrect details can cause delays in receipt or non-receipt of the refund amount.

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