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When Should TDS be Deducted and Who is Liable to Deduct it?

Tax deduction at source (TDS) is done by the employer while paying its employee (salary/wages) on taxable income; at the time of payment. This then creates a TDS Certificate for filing TDS return.

  • Feb 08, 2022

TDS was established with the intention of direct taxation straight from the original income. As per this theory, the deductor who is compelled to make a specific type of payment to the deductee must recoup tax at the origin and transfer it to the Central Government’s fund. The deductee whose taxable income has been deducted at origin is eligible for a rebate for the sum so deducted depending on the details filled in the deductor’s Form 26AS or the TDS certificate.

When Is TDS Deducted and Who Is Responsible for It

Individuals who make certain payments, as defined by the Income Tax Act, are required to pay TDS just at the time of transaction. No TDS should be collected if the person making the payment is a person or a HUF whose finances are not required to be audited. Even if the person or HUF is not subject to a financial audit, people and HUFs who pay rent in excess of ₹50,000 per month must pay TDS at the rate of 5%.

People and HUFs who must deduct TDS at a rate of 5% are exempt from applying for TAN (Tax deduction account number). Your corporation deducts TDS at the applicable income tax slab rates. TDS is collected by banks at a rate of 10%. Furthermore, they can collect 20% if they don’t have your PAN credentials.

For most payments, TDS rates are specified in the income tax legislation, and TDS is deducted by the payer based on these rates. You will not have to pay any tax if you provide investment proof (for claiming deductions) to your company, and your total tax payable is less than the tax limitation. As a result, you should not have any TDS deducted from your wages. Similarly, if your total income is substantially below the tax threshold, you can file Form 15G and Form 15H with your bank to avoid TDS being taken from your interest income.

TDS On Insurance Premium

Most insurance plans, whether life insurance or term insurance, do not charge any kind of TDS on premium provided the following conditions are met:

  • TDS on insurance is exempted if the policies were granted on or before March 31, 2012, with an amount assured of at least five times the annual premium paid.
  • The policies, which were issued on or after April 1, 2012, have an amount assured of at least ten times the yearly premium paid.

TDS On Insurance is Applicable Under The Following Conditions

The exemptions under Section 10 (10D) do not apply if the maturity amount from a life insurance payout exceeds ₹1,00,000 in a year. In this case, the maturity amount will be taxable as usual. TDS is deducted from the maturity amount of a life insurance policy in line with Section 194 DA.

TDS Refund Claim

Whenever the tax paid through TDS exceeds the actual tax payable determined for the financial year, a TDS Refund claim is filed. It’s computed by adding together all of your earnings from various sources. As taxpayers, we are all classified into different tax brackets and are required to pay tax in accordance with that.

To conclude, mastering the fundamentals of TDS will make it simpler to manage your money and make smarter investments to increase your wealth over the long term.

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  • Increasing Life Cover*
  • Guaranteed^ Maturity Benefits
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Ref. No. KLI/22-23/E-BB/999


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  • Enhanced Protection Through Riders
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Ref. No. KLI/22-23/E-BB/490


- A Consumer Education Initiative series by Kotak Life

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