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TDS – Full Form
The full form of TDS is tax deduction at source.
What is TDS & Why?
TDS is a system which was introduced by Income Tax Department in which if there is a company or a person (payer) who is paying a specified payment (like salary, commission, professional fees, interest etc.) to a person , then a payer is required to deduct a specified percentage of tax before making a payment to the receiver.
Important point to remember is that Tax will be deducted at source only when there is tax liability is occurring in the hands of receiver of income.
When is TDS required to be deducted?
Payer must deduct the tax at source (TDS) on the incidence of the following two events whichever happens earlier
- at the time of payment, or
- at the time of crediting the account of the payee/ receiver
There are certain cases where TDS will be deducted only at the time of payment which are as follows:
- Salary- whenever employer pays salary to his employees, employer will deduct Tax from salary and then pay the remaining balance to his employees
- EPF payment- the amount of EPF at the time of withdrawal, will be paid by government or organization or Trust after deducting Tax
- Winnings/casual income – A lottery winner or any winnings earned will received his or her money after Tax has been deducted.
- Maturity of life insurance policy – On maturity of any LIC policy, the maturity amount will be received by policyholder after Tax has been deducted.
- Compensation on compulsory acquisition of property – Whenever government pays any compensation to the owners on compulsory acquisition of his property, they deduct Tax under relevant section and then pay the remaining amount
- Cash withdrawal from Bank above certain limits also attracts Tax deduction liability.
TDS rates
All rates are fixed by the Income Tax Department. But if the payment is made to NR/ Foreign Company, then surcharge & Health and Education cess shall also be deducted from the payment.
If receiver fails to furnish his Permanent Account Number PAN to payer then as per section 206AA, the TDS will be charged higher of the below:
- TDS rate shall be rate as per respective section or
- 20% whichever is higher.
Section 206AA will not apply to NR / Foreign Company(payee) if the payment is made for interest, dividend, royalty, fees for technical services to them and if they furnishes the following details to the deductor/ payer:
- Name, Email id , contact number
- Address in the country where the payee resides
- Residency certificate i.e. certificate of his being a resident of that country(if any)
- Tax identification number (TIN) of the payee in that country. If there is no tax identification number then a unique number on the basis of which the payee is recognized by the government of that country.
If payee/ receiver is Central government or state government, RBI, Statutory corporations then no TDS is required to be deducted.
Payment of TDS & TDS Certificate
The payer or deductor is required to deposit the deducted amount (TDS) to the government and give TDS certificate to the payee/receiver.
If tax is deducted during the months April to Feb, then tax should be deposited / paid by 7th of the next month.
If tax is deducted during the March month, then tax should be deposited / paid by 30th April of the next financial year.
Total 4 TDS returns are required to be filed in a FY.
Due date of TDS return
| Quarter ending | Due date of TDS return |
| 30 June | 31 July |
| 30 Sep | 31 Oct |
| 31 Dec | 31 Jan |
| 31 march | 31 may |
Section 234E (fees on late filing of return)
If there is delay in filing the TDS return then fees is levied of Rs. 200 per day after the due date till the actual date of furnishing the return. Fees cannot exceed Tax amount in that return.
If the Assessee fails to deduct TDS amount or fails to pay TDS to the government after deducting the amount, then Assessee is treated as Assessee in default.
The consequence of not abiding the law is that he has to pay interest amount on TDS not deducted or paid or both along with penalty upto maximum amount of tax amount not paid.
Interest for late deduction
Rate of interest is 1% per month or part of the month on the amount of TDS not deducted from the date when the payer was supposed to deduct tax till the time he actually deducted the tax at source.
Interest for late payment to government
Rate of interest is 1.5% per month or part of the month on the amount of TDS not paid from the date when the payer was supposed to pay tax to the government till the time he actually paid the tax at source
Form 26AS
This form reflects all the TDS amounts which is being deducted during the financial year along with the respective sections and rates. This form is available on the E – filing website of the Income Tax department.
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