Tax Deducted at Source - TDS

Definition and meaning

Tax Deducted at Source (TDS) may be a system introduced by tax Department, where person behind for creating specified payments like salary, commission, professional fees, interest, rent, etc. is susceptible to deduct an exact percentage of tax before making payment fully to the receiver of the payment.

Who pays TDS?

TDS stands for tax deducted at source. As per the income tax Act, any company or person making a payment is required to deduct tax at source if the payment exceeds certain threshold limits. TDS must be deducted at the rates prescribed by the tax department.

The company or person who makes the payment after deducting TDS is named a deductor and therefore the company or person receiving the payment is named the deductee. It’s the deductor’s responsibility to deduct TDS before making the payment and deposit an equivalent with the govt.

TDS is deducted regardless of the mode of payment–cash, cheque or credit–and is linked to the PAN of the deductor and deducted.

However, individuals aren't required to deduct TDS once they make rent payments or pay fees to professionals like lawyers and doctors.

TDS is one quite advance tax. Its tax that's to be deposited with the govt periodically and also the onus of the doing an equivalent on time lies with the deductor. For the deductee, the deducted TDS are often claimed within the sort of a tax refund after they file their ITR.

                                                                                 

TDS is deducted on the subsequent forms of payments

• Salaries

• Interest payments by banks

• Commission payments

• Rent payments

• Consultation fees

• Professional fees

What is TDS return?

• A deductor needs to deposit the deducted TDS to the govt and therefore the details of an equivalent need to be filed within the sort of a TDS return. A TDS return has got to be filed quarterly. Differing types of TDS deductions need to be filed using different TDS return forms.

How To Calculate TDS Deducted on salary:-

Employers can calculate TDS using the subsequent method:

Calculate total earning:

• Calculate the entire earning of an employee over the year (including perks, commission, bonus etc)

Collect declaration:

• Collect declaration from employees about the investments they decide to make. At the top of the year, collect proof of investment. Without it, the employer cannot approve tax exemptions.

Calculate total amount eligible for tax exemption:

• Consider all exemptions that an employee is eligible for. Reduce allowable exemptions from the gross annual salary. This is often the taxable income. Supported the tax slab, the employer must deduct tax at source appropriately.

Deposit TDS collections:

• Deposit the collected TDS with the central government within the stipulated time. The ‘basic salary’ component of the CTC is fully taxable; looking on the income tax bracket a personal comes under. However, some exemptions for payments made as allowances & perks are available. Here’s how a private can calculate TDS on income:

• Add basic income, allowances and perquisites to calculate gross monthly income

• Compute the available exemptions under Section 10 of the income tax Act (ITA)

• Subtract exemptions found in step (2) from the gross monthly income calculated in step (1)

• Multiply the amount obtained from the above calculation by 12, as TDS is calculated on yearly income. This is often your taxable income from salary

• If you have got the other income (e.g. income from house rent or interest), then add this amount to the amount obtained in step (4)

• Reduce investments made under 80C and 80D from the amount obtained in step (5) (for eg: you'll get exemptions up to Rs 1.5 lakh under 80C for investments in ELSS, PPF, NSC, repayment of housing loan etc.)

• Now, for the amount obtained in (6), check which tax slab you come under.

For example, if you're under 60 and your total taxable income is Rs. 5 lakh, you need to pay 5% of Rs 2.5 lakh as tax (income up to Rs 2.5 lakh isn't taxable). Please note, TDS is deducted each month by your employer. So, your expected liabilities over the year is split by 12 and picked up each month.

Rates prescribed for various sorts of payments

There are different rates for TDS described within the different sections of the Act, looking on the character of the payments. A number of the incomes subject to TDS are as follows:

Nature of payment Relevant Section TDS rate (rate at which tax is to be deducted at source)

Character of payment	Character of payment	TDS rate (rate at which tax is to be deducted at source)
Salary	Section 192	applicable on income tax rates, including of cess
Received accumulated taxable part of PF	Section 192A	10%
Interest received- securities	Section 193	10%
Deemed Dividend	Section 194	10%
Interest other than interest on security	Section 194A	10%
Winnings from lotteries, crossword or any other game	Section 194B	30%
Winning from horse race	Section 194BB	30%
Insurance commission received by an person	Section 194D	5%
Life insurance policy is not exempt under section 10(10)D	Section 194DA	5% of income component and not the gross payment
Commission or brokerage received except for insurance commission	Section 194H	5% incase payment in FY exceeds Rs. 15,000
Payment done while purchasing land or property	Section 194IA	1%
Payment of rent by individual or HUF exceeding Rs.50,000 par month	Section 194IB	5%
Payment made to professional or commission or brokerage of Rs 50 lakh and above	194M	5%
Cash withdrawal exceeding Rs 1 crore	194N	2%

Source: tax website

TDS only applicable above intensity:-

One must remember that TDS on specified transactions is deducted only the worth of payment is above the required intensity. No TDS are going to be deducted if the worth doesn't cross the required level.

Different threshold levels are specified by the tax department for various payments like salaries, interest received etc. for instance, deductee is required to supply his PAN details to avoid tax write-off at the upper rates.

1. what's TDS?

TDS stands for tax deducted at source. The payer of income deducts the tax from the gross payment due and pays internet amount (i.e. net of tax).

2. No, TDS isn't deducted at an equivalent rate from all incomes which are subject to TDS. There are different TDS rates for various sorts of incomes.

3. Who are deductor and deductee?

A deductor is that the author for deducting tax. The one that receives the payment after the deduction of tax is named the deductee.

4. How am i able to check if TDS is deposited with the government?

Once the TDS is deposited with the govt by the deductor, then the TDS amount deposited are going to be reflected in your Form 26AS. Further, the deductor is required to issue you a TDS certificate.

5. what's the speed at which TDS on salaries is deducted?

According to tax laws, TDS on salary is deducted at the tax rates applicable to one's incomes inclusive of cess.

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