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What is TDS?
Introduction
TDS stands for Tax Deducted at Source. It is a system under the Income Tax Act where tax is deducted by the person making specified payments such as salary, rent, interest, commission, or professional fees.
The person deducting tax is known as the deductor, and the person receiving the payment is the deductee.
The deducted amount is deposited with the Income Tax Department against the deductee’s PAN.
While the deductee receives the net payment (after TDS), the gross income is used to calculate total tax liability.
The TDS deducted is credited against the final tax payable. If the total TDS is more than the actual tax liability, the excess is refunded after filing the income tax return.
Applicability of TDS
Any person making specified payments mentioned under the Income Tax Act is required to deduct TDS at the time of making such payments.
Different types of payments are governed by different TDS provisions, and there is threshold limit is fixed for different types of payments. If the total payment made do not exceed the threshold limit during the financial year, no TDS needs to be deducted.
If the payee declares for 15G or 15H, stating that his taxable income for the financial year would be below the taxable limits, then no TDS needs to be deducted.
TDS Due Dates
TDS must be deposited to the government on or before the 7th of the following month in which the tax is deducted.
- For example, TDS deducted in June must be deposited by 7th July.
- TDS deducted in March, however, can be deposited up to 31st May.
- In the case of TDS on purchase of property (Section 194-IA), the due date is 30 days from the end of the month in which TDS is deducted.
The TDS statements have to be furnished on a quarterly basis as follows:
| Quarter | Due Date |
|---|---|
| April to June -Q1 | 31st July |
| July to September - Q2 | 31st Oct |
| October to December-Q3 | 31st Jan |
| January to March- Q4 | 31st May |
TDS Returns
TDS return is to be submitted quarterly and various details need to be furnished like TAN, amount of TDS deducted, type of payment, PAN of deductee, etc. Various types of return forms are as follows:
| Form No | Transactions reported in the return | Due date |
|---|---|---|
| Form 26Q | TDS on all payments except salaries | Q1 – 31st July Q2 – 31st October Q3 – 31st January Q4 – 31st May |
| Form 24Q | TDS on Salary | Q1 – 31st July Q2 – 31st October Q3 – 31st January Q4 – 31st May |
| Form 27Q | TDS on all payments made to non-residents except salaries | Q1 – 31st July Q2 – 31st October Q3 – 31st January Q4 – 31st May |
| Form 26QB | TDS on sale of property | 30 days from the end of the month in which TDS is deducted |
| Form 26QC | TDS on rent | 30 days from the end of the month in which TDS is deducted |
What is a TDS Certificate?
TDS certificates have to be issued by a person deducting TDS to the assessee from whose income TDS was deducted while making payment. Form 16, Form 16A, Form 16B and Form 16C are all TDS certificates.
| Form | Certificate of | Frequency | Due date |
|---|---|---|---|
| Form 16 | TDS on salary payment | Yearly | 31st May |
| Form 16A | TDS on non-salary payments | Quarterly | 15 days from due date of filing return |
| Form 16B | TDS on sale of property | Every transaction | 15 days from due date of filing return |
| Form 16C | TDS on rent | Every transaction | 15 days from due date of filing return |
TDS Credits in Form 26AS
TDS deductions are directly linked to the PAN of both the deductor and the deductee. If TDS has been deducted from your income, you must refer to Form 26AS, a consolidated tax statement available to all PAN holders on the income tax portal.
Form 26AS provides a complete summary of all TDS deducted and deposited against your PAN, including payments like salary, interest, commission, etc. It also reflects advance tax or self-assessment tax paid by you.
Since TDS credit can only be claimed for amounts that appear in Form 26AS, it is crucial to ensure your PAN is correctly quoted wherever TDS is applicable. Regularly checking your 26AS helps you verify whether the deductor has accurately deposited the TDS.
Failing to reconcile TDS credits may lead to incorrect claims and notices from the Income Tax Department. This is especially important for businesses where multiple clients or vendors deduct TDS.
Penalty for Late Filing of TDS Returns
A late fee of ₹200 per day is levied under Section 234E for the delayed submission of TDS/TCS returns to the Income Tax Department (ITD). This means that the fee accumulates for each day the return is late, up to a maximum limit equal to the total TDS amount. It's important to pay this late fee before submitting the TDS/TCS return.
Difference Between TDS and Income Tax
| Basis | TDS | Income Tax |
|---|---|---|
| Definition | Tax deducted at the time of payment by the payer | Tax paid by an individual or entity on total income earned |
| When Collected | At the time of making specified payments | After computing total income and applying applicable tax slab rates |
| Purpose | To collect tax in advance from the recipient of income | To collect tax on total income earned by an individual or entity |
| Deductor | Person/entity making the payment | Taxpayer who earns income |
| Deductee | Person/entity receiving the payment | Person/entity liable to pay tax on their income |
| Filing | Deductor files TDS returns periodically | Taxpayer files Income Tax Return (ITR) annually |
| Applicability | On specified transactions such as salary, rent, commission, interest, etc. | On total income earned from all sources |
| Penalty for Non-compliance | Penalties for non-deduction or late payment of TDS | Penalties and interest for non-payment or under-reporting of income tax |
| Recovery of Tax | Acts as advance tax; deducted amount is adjusted against total tax liability | Final tax liability after all calculations and deductions |
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