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What is the Percentage of Tax Deducted at Source (TDS)?

As a fundamental mechanism, TDS serves as a measure to withhold appropriate taxes from various payments, ranging from salary and incentives to interest, rent, and other regular sources of income.

  • 3,189 Views | Updated on: Mar 18, 2024

The percentage of Tax Deducted at Source (TDS) varies depending on several factors, including type of income, taxable income, residency status, non-compliance with regulations, and applicability of surcharges. TDS rates for salaried employees emphasize the responsibility of corporations to deduct taxes from employee wages.

TDS (Tax Deducted at Source) is a taxation procedure in which the person or an organization in charge of making a payment deducts the appropriate tax before allocating the payment to the receiver. Salary, incentive, commission, FD interest, rental income, and other regular payments that are taxed using the TDS technique are some examples of the same. The TDS rates that apply to particular payments are specified in the Income Tax Act of 1961; for instance, in most circumstances, TDS on insurance claims in the event of maturity is applicable.

Concept of TDS Rates for Salaried Employees

Any corporation has the discretion to deduct tax at source when issuing a payment to an employee. When employees are paid, most employers subtract taxes from their wages, and the TDS deducted from an employee’s entire income is eligible for tax claims. TDS is not collected if your overall income is less than ₹2,50,000. Both men and women under the age of 60 are eligible for this amount. It is generally taken from a person’s pay and ranges anywhere between 10% to 30%.

Percentage Chart for TDS Calculator FY 2023-24 (AY 2024-25)

Type of Payment

Section

TDS Rates for HUF/Individuals (Indian Citizens)

TDS Rates for NRIs in India

Salary

192

0% - 30% (depending on taxable income)

20% - 30% (depending on tax treaty and residency status)

Interest on Fixed Deposits

194A

10% (if PAN provided)

20% (if PAN not provided)

Rent

194-IB

5% (if annual rent exceeds ₹2.4 Lakhs)

30% (if PAN not provided)

Professional Fees

194C

10% (if exceeding ₹50,000)

30% (if PAN not provided)

Commission

194D

5% (if exceeding ₹10,000)

30% (if PAN not provided)

Royalty

194J

10% (if exceeding ₹50,000)

20% - 30% (depending on tax treaty and residency status)

Technical Services Fee

194J

10% (if exceeding ₹2.5 Lakhs)

10% - 40% (depending on tax treaty and residency status)

Payment to Contractors

194C

2% (if exceeding ₹50,000)

30% (if PAN not provided)

Dividends

194

20% (except for the new tax regime with deduction at source)

20% - 30% (depending on tax treaty and residency status)

Lottery Winnings

194B

30%

30%

Tax Exemptions for TDS

Tax exemptions for TDS offer relief from having tax deducted at source (TDS) on your income. This can be beneficial if you fall under certain categories or have already paid enough tax through other means. Here is a breakdown of some common exemptions:

General Exemptions

  • Below Taxable Income Limit: If your total taxable income falls below the basic exemption limit (₹2,50,000 for FY 23-24), you are exempt from TDS on all income sources.
  • Senior Citizens: Individuals aged 60 years and above are exempt from TDS on interest income from fixed deposits, savings accounts, and post office deposits up to ₹50,000 per financial year.
  • Deduction under Specific Sections: Income received under specific sections like 80C (investments), 80D (medical insurance), and 80G (donations) is exempt from TDS if claimed through appropriate forms like 15G and 15H.

Specific Exemptions

  • Salary: If your salary income after deductions falls below the taxable threshold, you can submit Form 16 to your employer to avoid a TDS deduction.
  • Rent: If you are a resident individual and your annual rent income is less than ₹2.4 lakhs, you are exempt from TDS.
  • Interest on Bank Deposits: If your annual interest income from fixed deposits, savings accounts, and post office deposits is less than ₹10,000, you are exempt from TDS.
  • Investments: Investments in specific instruments like certain government bonds and tax-free infrastructure bonds are exempt from TDS.

When is it Necessary to Deduct TDS, and Who is Responsible for the Deduction?

If you are engaged in transactions specified under the Income Tax Act, TDS will be subtracted at the time of these payments. However, individuals or Hindu Undivided Families (HUFs) whose books are not required to undergo an audit are exempt from TDS deduction.

For rent payments made by an individual or HUF member exceeding ₹50,000, a 5% TDS will be deducted, even if their books are not subject to a tax audit. Obtaining a Tax Deduction Account Number (TAN) is not necessary for those liable to have 5% TDS deducted.

Professionals employed by a company will have TDS deducted by their employer based on the applicable income tax slab rates. Banks where individuals hold working accounts will deduct TDS at 10%, but if PAN details are not provided, the deduction rate will be 20%. The Income Tax Act determines TDS rates for most payments, and the payer deducts TDS according to the applicable rates.

Submitting investment proofs to the employer ensures no tax liability if the total taxable income falls below the threshold. In such cases, no TDS will be deducted. Alternatively, individuals can submit Form 15G or Form 15H to the bank if their total taxable income is below the limit, preventing TDS deduction on interest income.

If investment proofs are not submitted, and TDS is deducted by the bank, individuals can file a return to claim a refund, provided their total taxable income is below the threshold.

Final Thoughts

The necessity and responsibilities surrounding TDS deduction highlight the importance of compliance with the Income Tax Act. Whether engaged in transactions specified by the Act or subject to rent payments exceeding specified thresholds, individuals and Hindu Undivided Families (HUFs) must be aware of their obligations. Individuals are encouraged to proactively manage their tax liabilities through the submission of investment proofs, utilizing applicable forms, and, if necessary, filing returns to claim refunds.

Key Takeaways

  • TDS is deducted from various income sources, including salary, incentives, commissions, FD interest, rental income, and other regular payments.
  • Professionals’ TDS is deducted by employers based on income tax slab rates, while banks deduct TDS at 10%, or 20% without PAN details.
  • Submitting investment proofs to employers can eliminate TDS if total taxable income is below the threshold.
  • Form 15G or Form 15H submission to the bank prevents TDS deduction on interest income if total taxable income is below the limit.

- A Consumer Education Initiative series by Kotak Life

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

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