How is TDS Deducted?

How is TDS Deducted?

Income and expenditure such as salary, lotteries, interests from banks, payment of commissions, rent payment, payments to freelancers, etc. fall under the ambit of TDS. When making payments under these segments, a percentage of the overall payment is withheld by the source that is making the payments. This source, which can be a person or an organization, is known as the Deductor. The person whose payment is getting deducted is called the Deductee. For instance, a deductor is the employer paying salary to an employee (the deductee).

Under the law stated by TDS, any kind of payment being made from one party to another will be subject to TDS while complying with the provisions of the Income Tax Act, 1961. The tax will be deducted at source and will thereon be deposited to the department of Income Tax.

Union Budget 2019-20 changes on TDS 

For the Union Budget 2019, the Finance Minister proposed to increase the tax deducted at source (TDS) limit on interest income from banks and post offices to Rs.40,000 from an earlier limit of Rs.10,000 per annum. This is a four-fold increase in the TDS limit applicable on income from interests pertaining to bank or post office deposits. The move is likely to benefit small depositors and senior citizens whose primary income is the interest earned from bank deposits.

Rates for tax deduction at source 2017-18

Particulars	TDS Rates (in %)
Section 192: Payment of salary	According to Income Slab as specified above
Section 192A: Payment of accumulated balance of provident fund which is taxable in the hands of an employee (with effect from 01.06.2015).	10
Section 193: Interest on securities
a) any debentures or securities for money issued by or on behalf of any local authority or a corporation established by a Central, State or Provincial Act;	10
b) any debentures issued by a company where such debentures are listed on a recognized stock exchange in accordance with the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and any rules made thereunder;	10
c) any security of the Central or State Government;	10
d) interest on any other security	10
Section 194: Dividend other than the dividend as referred to in Section 115-O	10
Section 194A: Income by way of interest other than "Interest on securities" from banks and other sources	10
Section 194B: Income by way of winnings from lotteries, crossword puzzles, card games and other games of any sort	30
Section 194BB: Income by way of winnings from horse races	30
Section 194C: Payment to contractor/sub-contractor
a) HUF/Individuals	1
b) Others	2
Section 194C:	Payments made to transporters (44AE), coupled with its declaration with a PAN number
Section 194D: Insurance commission	5 (10% till Assessment year 2016-17)
Section 194DA: Payment in respect of life insurance policy	1 (2% till 31-5-2016)
Section 194EE: Payment in respect of deposit under National Savings scheme	10 (20% till 31-5-2016)
Section 194F: Payment on account of repurchase of unit by Mutual Fund or Unit Trust of India	20
Section 194G: Commission, etc., on sale of lottery tickets	5 (10% till 31-5-2016)
Section 194H: Commission or brokerage	5 (10% till 31-5-2016)
Section 194-I: Rent
a) Plant & Machinery	2
b) Land or building or furniture or fitting	10
Section 194-IA: Payment on transfer of certain immovable property other than agricultural land	1
Section 194J: Any sum paid by way of a) Fee for professional services, b) Fee for technical services c) Royalty, d) Remuneration/fee/commission to a director or e) For not carrying out any activity in relation to any business f) For not sharing any know-how, patent, copyright etc.	10
Section 194LA: Payment of compensation on acquisition of certain immovable property	10
Section 194LBA(1): Business trust shall deduct tax while distributing, any interest received or receivable by it from an SPV or any income received from renting or leasing or letting out any real estate asset owned directly by it, to its unitholders.	10
Section 194LBB: Investment fund paying an income to a unitholder [other than income which is exempt under Section 10(23FBB)]	10
Section 194LBC: Income in respect of investment made in a securitization trust (specified in Explanation of Section 115TCA)	25% in case of Individual or HUF 30% in case of other individual
Any Other Income	10

TDS Return

An individual is required to file TDS return in order to receive TDS refunds and to maintain a healthy financial record. The TDS return can be carried out over the internet by visiting the website - www.incometaxindia.gov.in

The individual will need to sign onto the website by using the existing credential or by registering for the services. There are specific deadlines that an individual will be required to follow to ensure the TDS returns are filed within the due time. Depending on the income category, the individual will need to fill up the necessary form and provide required documents for the refund process to begin.

Once the individual has registered and submitted the return, he/she will need to validate the TDS Return File. The validation can be done by using the free software provided by the Income Tax Department.

If you are wondering about the possibilities of receiving a refund for the excess TDS paid, you will need to file the claim through TDS return to receive a refund for the excess amount.

Challan for TDS Payment

Challan ITNS 281 is the Challan form for payment of TDS (Tax Deducted at Source) and TCS (Tax Collected at Source). Challan No. 281 is applicable for Tax Deducted at Source / Tax Collected at Source (TDS/TCS) from corporates as well as non-corporates. TDS exception is essentially a mechanism developed by the Indian Government where in there is a tax deduction at the source of an income, calculated at a specific rate and thereby becomes payable to the department of Income Tax.

TDS Payment Challan: Filing Dates

• If the concerned assessee is a Non-Government official: March’s tax by 30 April and the tax for some other month is calculated on the seventh day of the following month.
• If the concerned assessee is a Government official: If you are depositing the amount without Challan 281, then you have to file the challan on the same day, but, if you are depositing the tax with the challan, you will be required to file for the same on the seventh day of the following month.

Challan TDS 281

The challan no. 281 is used for deposits of TDS/TCS. By using the form, you will need to mention the correct 10-digit Tax Deduction Account Number (TAN), name, and address of the deductor on each challan used for depositing tax. You can verify the TAN details from Income Tax Department website - www.incometaxindia.gov.in prior to depositing TDS/TCS. As a taxpayer, you will require using separate challans to deposit tax deducted under each section and indicate the correct nature of payment code in the relevant column in the challan.

File Challan 281 Offline:

• Challan 281 has a certain format containing its features. Download the same.
• Fill up the following information - Assessment Year, TAN number, your full name, then enter the mode of payment and any other additional information that you think might be required. Note: You have to enter the code of payment once you have mentioned your payment mode.
• Get the information on a paper via print out (of Challan 281).
• Once you are done filling up all the information, you will need to submit the same to the bank along with your total tax payable.
• Post all this, the bank will issue a receipt which will have the Challan Identification Number.

e-Filing of TDS Return

• Follow the instruction below for the e-filing of TDS return:
• Choose the appropriate file format.
• The file should be in a clean text ASCII format with 'txt' as the filename extension. You can also download the free software to prepare the return file using the Return Preparation Utility provided by NSDL or any other third party software.
• Once the file is prepared, validate the file using the File Validation Utility (FVU) provided by NSDL.
• Rectify the errors, if found by FVU.
• Generated .fvu file can either be submitted at TIN-FC or uploaded at www.tin-nsdl.com website