What is TDS (Tax Deducted at Source)

What is TDS (Tax Deducted at Source)

TDS is the amount of tax which is deducted by the employer (or deductor) of an assessee and is deposited to the Income Tax Department on behalf of him/her. The TDS rates are set on the basis of the age bracket and income of different individuals.

Taxable Income from Salary

What is TDS?

Tax Deducted at Source or TDS is a type of tax that is deducted from an individual’s income on a periodic or occasional basis. TDS can be applicable for income that are regular as well as irregular in nature. Income Tax Act, 1961 regulates TDS in India through Central Board of Direct taxes (CBDT) under the Indian Revenue Services (IRS). TDS rule directs the payee or employer to deduct a certain amount of tax before making full payment to the receiver. TDS is applicable for salary, commission, professional fees, interest, rent, etc.

Since TDS is collected at the source of one’s income, it effectively minimises evasion of 

Where is TDS applicable?

Tax Deducted at Source or TDS is applicable in the following cases:

• Income from salary: The TDS is deducted by the employer from the salary and deposited on behalf of the employee. The salary is taken into consideration along with the deductions and exemptions. The rate of TDS varies from employee to employee on the basis of their income, deductions, and exemptions.
• Income from interest: The TDS is deducted in this case if the total income from interest is more than Rs.10,000 for a year. The tax on fixed deposits (FDs) and recurring deposits (RDs) is deducted and deposited by the banks on behalf of the individual. In this case, the rate of TDS is 10% if the details of Permanent Account Number or PAN is provided. Otherwise, it is 20% of the total income from interest.
• Income from sale of property: In case of disposal of a property, TDS will be applicable in case the value of the property is more than Rs.50 lakh. The rate of TDS will be 1% of the sale value if the PAN is provided. However, if the PAN is not provided, the TDS rate will be 20% of the sale value.
• Income from EPF withdrawals: TDS will be applicable to withdrawals from the Employees’ Provident Fund (EPF) if the withdrawal is made before the end of 5 years of service. However, if the amount of the withdrawal does not exceed the mark of Rs.30,000, TDS is not applicable. The rate of TDS is 10% in case the PAN is provided and it is 20% otherwise.

TDS Rate Chart

Whether the taxable income of an assessee is regular or irregular in nature, the Tax Deducted at Source or TDS is calculated on the basis of the TDS Rate Chart . The TDS Rates vary for different types of income and is mainly dependent on the slab under which the taxable income falls.

TDS Calculation

Payments such as salaries, interest payment, commission, fees to lawyers and freelancers etc. are subject to TDS. For salaries, the percentage of TDS will be based on income slabs rates. Similarly, each type of income has its own percentage of tax that is calculated when the amount meets certain limit.

Since TDS is collected at source without the calculation of investment that is eligible for tax deductions, hence, an individual can declare and submit his investment proof in order to file a return and claim for the TDS refund.

TDS Deduction

If an individual has paid excess TDS when compared to the liable tax amount, the deducted or payee can file a claim for a refund of the excess amount. The TDS deductions are calculated based on various factors for individuals from different types of income categories.