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ARN. No. KLI/23-24/E-BB/1201
Features
Ref. No. KLI/22-23/E-BB/999
TDS is a crucial mechanism for collecting income tax in India. It ensures the government receives tax revenue as income is earned rather than waiting until the end of the financial year.
TDS, or Tax Deduction at Source, is integral to the Indian tax system, ensuring timely and efficient tax collection. By understanding how TDS works, the types of income it applies to, and the process for filing returns and claiming refunds, taxpayers can better manage their tax liabilities and avoid penalties.
TDS meaning in tax, is the collection of tax at the source of income itself. This means that the payer (the person or entity making the payment) withholds a part of your income before it reaches you. This deducted amount is then deposited to the government on your behalf. TDS is a tool for advanced tax collection and helps streamline the process.
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 from a customer’s interest income on their deposits.
The TDS full form stands for Tax Deducted at Source, the tax deducted from an individual’s salary before the amount is credited to their account. The employers make this deduction every month. You can claim a TDS refund if the TDS collected is more than what you owe the government.
Various types of TDS (Tax Deduction at Source) are applicable based on the nature of the payment and the income. Here are the primary kinds of TDS along with their corresponding section numbers under the Indian Income Tax Act, 1961:
TDS works on the principle of “pay as you earn.” The person making the payment deducts a certain tax percentage 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 ₹50,000 per month. If the TDS rate is 10%, your employer will deduct ₹5,000 as TDS and deposit it with the government. You will receive the remaining ₹45,000 as your net salary.
TDS on salary is one of the most common forms of TDS in India. The employer deducts it on behalf of the employee. The TDS rate on salary depends on the employee’s income and the tax slab under which they fall. The TDS rate can range from 0% to 30%, depending on the chosen tax regime.
TDS is also deducted from interest income earned 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 ₹40,000 in a financial year, TDS will be deducted at 10%. If the interest earned on recurring deposits or savings accounts is more than ₹10,000 in a financial year, TDS will be deducted at 10%.
TDS is a way to collect income tax in advance. It is deducted by the person making the payment, and the person receiving it receives the net amount. However, TDS is not the taxpayer’s final tax liability. The taxpayer must 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: how to claim a refund for excess TDS deducted.
The TDS rate is the percentage of tax deducted at source. It varies based on the type and nature of the payment. The TDS rates are prescribed by the Income Tax Act and are subject to change occasionally.
For example, the TDS rate on salary varies based on income and the tax slab, and the TDS rate on interest income varies based on the source of income.
A TDS (Tax Deducted at Source or Tax Deduction at Source) Return is a quarterly statement submitted by deductors to the Income Tax Department of India detailing the TDS deducted and deposited during the quarter. The return includes information such as the deductor’s and deductees’ PANs, the amount of TDS deducted, and the TDS payment details.
Let us take an example scenario of TDS return for salary income to understand TDS returns better. For example, Mr. Verma works for ABC Pvt Ltd. In this scenario, company ABC Pvt Ltd is the TDS deductor while the employee Mr. Verma is the TDS payee for their salary.
Scenario: Mr. Verma is an employee of ABC Pvt Ltd. During the financial year 2023-24, Verma’s annual salary was ₹7,00,000. He has submitted investment proofs for ₹1,50,000 under Section 80C (tax-saving schemes). Based on his tax bracket and deductions, the applicable TDS rate for his salary income is 10%.
TDS calculations will be as follows:
Taxable income after deductions = ₹7,00,000 - ₹1,50,000 = ₹5,50,000
TDS to be deducted (10% of ₹5,50,000) = ₹55,000
In this case, ABC Pvt Ltd, as the deductor, is responsible for filing the TDS return for the quarter in which the TDS was deducted. The return will include details like Mr. Verma’s PAN, amount paid (salary), TDS deducted (₹55,000), and challan details (proof of TDS payment to the government). The TDS return will be filed electronically on the Income Tax Department’s portal.
Certain types of payments are exempt from TDS (Tax Deduction at Source) under the Income Tax Act. These exemptions are in place to simplify the tax process and avoid double taxation in some cases. Here are the primary types of payments that are exempt from TDS:
The TDS rates for different types of payments are prescribed under various sections of the Income Tax Act. Here are the TDS rates for some common types of payments:
TDS is deducted based on the applicable income tax slab rates.
10% on interest on securities. 10% on dividend income exceeding ₹5,000.
30% on winnings from lotteries, crossword puzzles, etc., if the amount exceeds ₹10,000. 30% on winnings from horse races (Section 194BB) if the amount exceeds ₹10,000.
5% on the income component of the payment (if the amount exceeds ₹1 lakh).
10% on professional, technical, royalty, and non-compete fees. 2% on payments for call center operations.
1% on the transfer of immovable property (other than agricultural land) if the sale consideration exceeds ₹50 lakh.
Rates vary based on the type of income (e.g., 20% on royalties and 10% on fees for technical services).
You must file a TDS refund claim when the employer deducts more tax than the actual liability. The difference amount can be claimed by filing an income tax return. For successful processing, you must provide the bank account number, bank name, and Indian Financial System Code (IFSC) details. 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.
You can do it online if you also wonder how to claim a TDS refund on your salary. Claiming a TDS refund online is simple and involves filing income tax returns. It includes the following steps:
Another thing you need to know is how to claim a TDS refund in case of a 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 IT 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.
As a taxpayer, knowing TDS (Tax Deduction at Source) payment due dates is essential to avoid penalties and ensure a smooth tax filing process. Here’s a table summarizing TDS due dates:
| Quarter |
Quarter Period |
Last Date of Filing |
| 1st quarter |
1st April to 30th June |
31st July |
| 2nd quarter |
1st July to 30th September |
31st October |
| 3rd quarter |
1st October to 31st December |
31st January |
| 4th quarter |
1st January to 31st March |
31st May |
Filing TDS (Tax Deduction at Source) returns on time is crucial to avoid penalties and ensure smooth tax processing. Here is a breakdown of the penalties you might face for various TDS filing issues:
This scenario applies if you fail to file the TDS return entirely by the due date. A penalty of ₹100 per day of delay is imposed, capped at the lower total TDS amount deductible or ₹10,000.
A penalty of ₹200 per day of delay is charged for delayed or non-filing TDS returns. This fine applies if you file the TDS return late, even if you deposited the TDS on time.
The Assessing Officer imposes this penalty for late or non-filing the TDS statement, which is a more detailed report than the return. The minimum fine is ₹10,000.
The penalty for filing incorrect details on TDS returns is a minimum ₹10,000, which can be extended to ₹1,00,000. For example, you can pay this penalty if you submit a TDS return with inaccurate information, such as PAN details and the deducted amount.
A penalty of up to 300% of the tax amount is applied with an interest rate of 1.5% per month on the unpaid TDS amount from the due date till payment. It applies if you deduct TDS but fail to deposit it to the government by the due date.
Visiting the online e-filing portal helps you know the refund status. You can do so by following the steps mentioned below:
A TDS certificate, or a TDS deduction certificate, is a document issued by the tax deductor (the person or entity who deducted TDS from your income) that shows the amount of tax deducted at source (TDS) on a specific payment made to you.
The information in the TDS certificate helps you reconcile your income and taxes deducted. If the TDS deducted is more than your tax liability, you can claim a tax refund while filing the Income Tax Return (ITR). The TDS certificate helps substantiate your claim.
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. A TDS (Tax Deduction at Source) refund is issued when the amount of tax deducted exceeds the actual tax liability. 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 income tax you must pay for that year.
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.
TDS (Tax Deduction at Source) offers several benefits both for taxpayers and the government. Here is how TDS can benefit you as a taxpayer:
TDS facilitates the timely payment of taxes as the tax is deducted at the source of income. It helps taxpayers avoid a significant tax liability at the end of the financial year.
By deducting tax in smaller amounts from each payment, TDS spreads the tax burden over the year, making it more manageable for taxpayers.
Tax is deducted automatically from various income sources, ensuring compliance and reducing the risk of non-payment or underpayment of taxes.
TDS (Tax Deduction at Source) checks against tax evasion by ensuring that tax is collected at the source of income generation, reducing the chances of individuals and businesses hiding income.
EPF members can claim an EPF refund on withdrawal if their income is less than ₹2,50,000 in a financial year. The taxpayer must show the EPF withdrawal as salary income while filing their tax returns.
TDS (Tax Deduction at Source) 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 (Tax Deduction at Source) and your actual tax due, you must file an income tax return. Provide the bank account number, the bank’s name, and the IFSC code. After you file a return claiming a TDS refund, the income tax officer takes a few months to sanction it.
To claim TDS (Tax Deduction at Source) refunds from previous years, you have to follow these easy steps:
Ensure you have filed ITRs for the years you’re claiming a refund. Refiled returns can ensure the refund process is completed on time.
If any discrepancies in your ITRs cause the excess TDS, you can file a revised ITR (Form 16) highlighting the corrections.
Verify your ITR filing electronically using Aadhaar or other methods.
You can track your refund status online using the Income Tax Department’s e-filing portal with your PAN details.
Yes, the TDS amount deducted from your salary or other payments can change during the financial year (FY) for a few reasons:
Compliance with TDS (Tax Deduction at Source) regulations benefits the government by securing steady revenue. It also helps taxpayers spread their tax burden over the year, preventing large lump-sum payments at the end of the financial year. Staying informed about TDS rates, exemptions, and filing deadlines is essential for smooth financial and tax management.
1
The TDS (Tax Deduction at Source) limit depends on the payment type and the deductee’s PAN status. There’s no single limit, but it often applies when exceeding a certain annual threshold (e.g., interest on bank deposits).
2
TDS is tax deducted from certain payments at the source (payer) before crediting the payee’s account.
3
Your employer deducts TDS from your salary based on your tax bracket and investment declarations. You can claim some of it back while filing your income tax return.
4
Yes, TDS can be refundable if the tax deducted exceeds your tax liability. You can claim it when filing your income tax return.
5
The TDS amount depends on your tax bracket, investments, and rebates. To estimate it, you can use online tax calculators.
6
PAN is mandatory for most transactions where TDS is applicable. The deduction rate may be higher without PAN.
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.
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
Pay 10,000/month for 10 years, Get 1,65,805/Year* for next 15 years.
ARN. No. KLI/23-24/E-BB/1201
Features
Ref. No. KLI/22-23/E-BB/999
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.
