All you need to know about TDS

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what is tds

What do you understand by TDS?

TDS deduction also known as Tax Deducted at Source is the TDS full form is a framework fabricated and designed by the the Income Tax Division of Central government. This amount is to be paid by the people accountable for clearing out predefined payments such as commission, salary, rent, interest, professional fee etc. which is accountable to subtract some fixed amount and or percentage of tax right before the payment is done in full to the person receiving the payment. As it could be understood from its name TDS is the Tax which is debited right at its source.

For understanding what is TDS it better let us assume the nature of the payment is executive fee wherein the rate of deduction is 10%

ABC Ltd makes a payment of Rs 500,000/- towards professional fees to Mr. XYZ, then ABC Ltd would deduct a tax amount of Rs 50,000/- and make a net payment of Rs 4,50000/- (50,000/- deducted by Rs 50000/-) to Mr. XYZ. The amount of 50000/- deducted by ABC Ltd will be directly deposited by ABC Ltd to the credit of the government.

So in this explanatory example of TDS we will go through the various aspects of the TDS and taxing system.

1. What do you mean by TAN and how can one apply for TAN?

TAN is the abbreviation for Tax Deduction Account Number. It can be further explained as a 10 digit long with a mixture of alpha and numeric characters which will be with every individual that are accountable to pay taxes or has been paying taxes. This falls under the section of 203A of IT act passed in 1961 which is compulsory to acknowledge TAN (Tax Deduction Account Number) provided by the ITD (Income Tax Department) on all the returns of TDS tax.

2. What do you mean by TDS Certificate?

The TDS certificates are legal documents that are discharged by the deducted to person deducting. There are in total 2 varieties of TDS certificates provided by the deductee. Therefore explaining the TDS deduction rules.

(1) Form 16:-

This one is issued to the employee by the employer which includes the details of the tax which is debited by employer in an entire year.

(2) Form 16A:-

A legal document for tax purposes which is given in any case other than salary.

3. When TDS is to be Debited?

The notion of TDS is structured on a simplistic concept i.e. tax which is to withdrawn at the time of the amount getting delayed or the real payment whichever falls earlier. A deposit of circumstances for will be of extreme help while the concept is being understood.

For instance let’s say XYZ Ltd needs to make a payment of 50000 to Mr. ABC in exchange of the expert services.

Mr. ABC was paid 300000 in advance in month of July, the 15th. XYZ acquired an invoice right after the completion of work on July 31st and the remaining payment is pending.

In such a scenario the company will deduct tax in the below method:

On July. 15th Rs 30000 – (@10 advance of Rs 300000)

And on July, 31st Rs 20000.

4. What is the amount of tax which will be debited from salary?

Individuals responsible for paying an amount are accountable to debit tax on a predefined slab at a rate of 15%

  1. Redemption Limit:

There is no tax needed to be debited at source until and unless the basic salary overreaches the fundamental exemption limit.

  1. Indemnity share:

Exemptions like HRA, LTC, travelling expenses etc. which is as per the pre mentioned boundaries and other major fringe not constituting a specific part of salary which would be withdrawn from entire salary while estimating salary which comes under tax slab

The few other deductions:

Various deductions like deductions such as

  1. 80CCC
  2. 80C
  3. 80CCD
  4. 80CCG
  5. 80DD
  6. 80D
  7. 80E
  8. 80DDB
  9. 80EE etc.

This is what is taken into consideration right before estimation of TDS deduction details of tax on salary.

5. What is the minimal package an individual should have for TDS deduction?

If even after the explanatory estimation of authorized expenses, taxable expenses and debits for VI-A, income originated from high paid salary jumps an amount of basic redemption limit. So the tax has to be withdrawn by the employer by the rate of 15%. Therefore the lawmakers of the TDS shall be applicable only if minimum salary is above exemption limit.

6. The rates of TDS

To be precise there are nearly 22-25 sections which describe various types of payments on which tax deducted at source.

  1. Section 192: Based on income slab
  2. Section 193: Income generated from securities-10%
  3. Section 194: Income generated from dividends-10%
  4. Section 194(A): Income from interests generated other than securities-10%
  5. Section 194(B): Lottery reward and or winnings-30%
  6. Section 194(C): Income from contacrts-1%
  7. Section 194(D): Amount generated as income from insurance-10%
  8. Section 194(E): NSS deposits-20%
  9. Section 194(F): Amount paid on procuring MT or UTI funds-20%
  10. Section 194(G): Income generated from selling lottery ticekts-10%
  11. Section 194(H): Earnings from brokerage-10%
  12. Section 194(I): Rent for plant (2%) and rent for other fixed assets (10%)
  13. Section 194(J): Charges for professional servvices-10%
  14. Section 194(L): When procuring an immovable property-10%

7. How TDS is calculated?

Various transactions which falls under the range of TDS section and computation of TDS can be really twisted when paid attention in various scenarios. Let us take an instance to understand of computation crystal clear.

Let’s say the interest credited or paid which is going to be via a banking firm or a financial institution to an individual year is 9000/- then there is no way that there are any chances of the amount to be deducted as it has not jumped the criteria which is 10000/-

8. The Due date for TDS

The credit of TDS every month and registration of quarterly return of the TDS are two different things and the due dates are different too.

The payment dates for TDS is 7th of every month. It is clear that the person deducting the tax from those payments in every November month which states that the person has to pay TDS before 7th December. The main thing here is that the due date is one and the same for any sort of assess no matter if it is a fixed income source or a non-salary based scenario.

  1. 7th of May 7th of June
  2. 7th of July 7th of August
  3. 7th of September 7th of October
  4. 7th of November 7th of December
  5. 7th of January 7th of February
  6. February7th of March 30th of April

9. How to know how much TDS has been withdrawn and whether it is credited back?

It is really simple to come to know how much TDS has been debited and whether it has been transferred back to you or no. Here is the simplest way to know

(A) Step 1

First an individual needs to log on the Income Tax electronic filing site and click on “Register Yourself” link.

(B) Step 2

One needs to enter the details in accordance with the PAN and other financial details and at last create a password.

(C) Step 3

After entering with the secure credentials onto the portal select “View Tax Credit Statement (26AS)”

(D) Step 4

After the link is clicked the individual will be redirected to the other site which is also known as TRACES (TDS reconciliation Analysis and correction enabling system)

10. How one can apply for refund of TDS?

This is the biggest gap of misunderstanding that the return of excess TDS does differ from a frequent income tax refund which is also known as TDS refund. Nevertheless the fact is that there is just one kind of return which one claims when filing the yearly income tax return. These days it is necessary to mention the bank details such as IFSC code, account number etc. when one files the return and not proving details will not be able to intricate an acceptable .xml file.

Conclusion

Does not matter in the slightest if you have slight or no information about accounting, taxation etc. to manage the tax defaulters can be a tough thing to do. A decent accounting application is something that could be of great help as it helps in getting rid of the (delay payment charge) late charges. This helps in understanding the true TDS meaning.