Tax Deducted At Source: Meaning, Returns, Filing And Due Dates

  • Income Tax

TABLE OF CONTENTS

What is TDS?

TDS is deducted from different types of payment that is made to an individual. Whether it is salary, rent, any type of fees, commission, interest, etc. The payer deducts the TDS while making the payment. There are different income tax slabs and accordingly, the TDS is deducted during the time of payment.

Types of TDS

Listed below are some of the sources of income that qualify for TDS, full form Tax Deducted at Source:

  • Receiving accumulated taxable part of PF
  • Interest received on securities
  • Dividends received on the company's shares and on mutual funds
  • Interest other than interest on securities (fixed deposit interest)
  • Winnings from crosswords, lotteries or any game
  • Winnings from horse races
  • Payment of contractors and sub-contractors
  • Payments on account of repurchase of units by mutual funds or UTI
  • Payment in respect of deposits under the National Savings Scheme
  • Life insurance policies not exempt under Section 10(10D)
  • Insurance commission received by an individual
  • Commission, prize etc., on sale of lottery tickets
  • Commission received except for Insurance Commission
  • Payment done while purchasing property or land
  • Rent payment by HUF or individual exceeding ₹50,000 per month
  • Cash withdrawal
  • Payment of professional fees, etc.
  • Rent for machinery and plant
  • Rent for a property that is immovable

TDS Rates

There are over 20 sections that affect the TDS payments. Listed below are the TDS rates for some common ones:

Section

Type of Payment

Rate of TDS

Sec 192

Salary Income

No-specific rate

Sec 194

Dividend u/s 2(22)

10

Sec 194 A

Interest Income (except securities)

10

Sec 194 C

Credit/Payment to a resident contractor or sub-contractor

1 (for HUF and individuals)
2 (for others)

Sec 194 D

Insurance Commission

5 (for HUF and individuals)
10 (for others)

Sec 194 G

Commission on sale of lottery tickets

10

Sec 194 H

Commission or Brokerage

5


TDS calculation formula as per new tax regime

As discussed, typically it is the employer who deducts the TDS from the salary of the employee

  • Formula
    A general formula to calculate TDS is as follows –
    Average Income Tax Rate = Income Tax Payable (computed through slab rates) / Estimated income for the financial year
  • Description
    The monthly income of an individual is liable for TDS as per the latest income tax slab. 4% cess is added in the monthly income. Hence the total taxable income + cess is liable for the TDS. For instance, if the income is above Rs. 10 Lakh per year, the chargeable TDS will be 20%. Let's understand it with the help of an example.
  • Example
    Assume your monthly gross income is Rs.1,00,000 which comprises of - basic pay Rs. 50,000, HRA of Rs. 30,000, travel allowance of Rs. 800, medical allowance of Rs.1,250, Children Education Allowance (CEA) of Rs.200 and other allowances totalling 17,750.

    If you stay at your own home, then your monthly exemption from allowances will be Rs.2,250 (800+1250+200). Therefore, your yearly taxable amount comes to (Rs.1,00,000 - Rs.2,250)*12, which totals Rs.11,73,000.

    Now, let's assume that you received an income of Rs.1 lakh as house rent for your other property over the year. Adding this amount to the taxable income, your taxable income becomes Rs.12,73,000.

    Suppose you have invested Rs.1.5 lakhs in various categories that are exempted under Section 80C. So, the resulting Rs.1.5 lakhs is exempted from taxes. Deducting this amount from the gross taxable income calculated above, your taxable income becomes Rs.11,23,000.

    Therefore, the final TDS to be deducted on your yearly income is Rs.25,000 (2.5L – 5L at 10%) + Rs.1,00,000 (5,00,00 – 10,00,000 at 20%) + 36,900 (11,23,000 – 10,00,000 at 30%) which comes to Rs. 1,61,900 for current year's income, or Rs. 13,492 per month.

How Interest is Calculated for Late TDS Payment?

TDS payment can be done even if the deadline has crossed. However, interest is charged on the late payment of the TDS. From the date the TDS was deducted to the date of deposit, the interest on late payment is calculated at 1.5% interest per month.

For instance, if the TDS amount is ₹ 8,000 and deduction is 15th March 2021 and the payment for this on 20th November 2021, then the interest will be calculated as follows –
8000 x 1.5% x 8 months
= 120 x 8
= ₹960

The interest amount that is payable should always be from the date at which TDS was deducted to the date at which TDS is paid to the Government.

Example, if the TDS payment is 10th May for a TDS amount deducted on 17th April, and if the TDS payment is delayed, then the interest will be calculated from 17th April and not 10th May. In this case, the interest will calculated using calendar months and in this case it will be considered as 2 months. So, the interest payable is 1.5% x 2 = 3%, and so on.

How can you save on taxes?

  • Leave Travel Allowance
    If you don't already have a travelling allowance from your employer, you can request your employer to include funding in your salary breakup. So, you can claim a tax deduction on your travelling expenses.
  • Mediclaim Premium
    Suppose you have a mediclaim and want an exemption on tax. In that case, you can request your insurance policy provider to provide you with an 80D certificate. You need to submit bank statements to prove that you spend some of your income on mediclaim premiums.
  • House Rent Allowance
    To get a tax exemption through this allowance, you will need to present your name, address, landlord's name and PAN number. If the landlord does not have a PAN card, you must present Form 60. Keep in mind that the HRA cannot be more than 50% of your basic salary.
  • Residential Loan Interest
    If you have a home loan, you can save tax on the interest you pay on the payment. You would have to submit your name, address, PAN of the loan lender and a certificate or bank proof stating that you pay the premiums.
  • Food Coupons
    If your employer does not provide you with a food allowance, you can ask them for it. A food coupon can give you 50 rupees for a meal. If you work for 25 days in a month, you can get tax benefit1 up to INR 2,500 for meals. You can also save tax on this expense.
  • Tuition Fees
    If you have children in school, you can save some tax on their education expenses. However, you will have to produce a fee receipt from the school with a valid school stamp.
  • Donations
    If you have donated a certain amount to a trusted organisation, temple, or prim minister relief funds. You can exempt your taxes on that money too. However, you would have to submit your name, address, organisation's PAN, and registration number.
  • National Pension System (NPS)
    National Pension System is a government investment scheme for the elderly. You won't have to pay taxes on the premiums. Plus, when you retire, you will receive the plan's returns.
  • Section 80C Benefits
    There are many tax savings and investment schemes introduced by the Indian government. Examples of such schemes are National Pension Plan, Public Provident Fund, Sukanya Samridhi Yojana, etc.

How and when to file TDS returns?

TDS or Tax Deduced at Source is the tool that government uses to collect taxes from the citizens. This tool also prevents tax leakage. The deductor must submit the TDS returns every three months to the government. If the deductor fails to do so before the due date, there are subject to a penalty for late payment. In keeping with advancements in technology, the government now offers an online facility to file TDS. You simply need to submit the required forms online.

Let's see how can one file for TDS returns online:

  1. Fill in the form 27A, and accurately enter the information in every column.
  2. Now you will have to enter the tax that was deducted at the source along with the total amount.
  3. Enter the correct TAN of the organisation in the form.
  4. You would also have to provide the tax details, challan number, and payment mode. Ensure you enter the correct challan number; an incorrect challan number may lead to rejection of the form.
  5. If all the information you have entered is correct, you will receive confirmation and receipt. This means you have filed your TDS return successfully.
  6. If in case your application is rejected, you will receive a rejection memo with a reason for rejection. You will have to resubmit the submission with the correct information for filing the TDS return.

Eligibility Criteria

An organisation or employer with a registered TAN number can file a TDS return. Under the Income Tax Act, any employer who makes payment to its employees should deduct the TDS at the time of payment. All the TDS filings should be done before the due date.

Forms Required

  • Form 24Q
    According to section 192 of income tax, an employer must deduct the TDS from its employee's salary at the time of payment. And it is mandatory for the employer to file the TDS return quarterly. In form 24Q the employer needs to fill in the correct information about the tax details, the total amount paid by the employee and the mode of payment used.
  • Form 26Q
    26Q is used to deduct taxes on payments other than the salary of the employee. The TDS deducted and the total amount paid should be included on the form. A 26 Q must also be filed every three months.
  • Form 27Q
    For foreigners and NRIs form 27Q is used for deduction of the TDS. The form should be filed quarterly a year and before the due date. The information on the form must include the payment details like total amount paid, tax deducted and mode of payment.
  • Form 27EQ
    Form 27EQ has every detail of the tax collected at the source. Filing the 27EQ quarterly is mandatory for both private and government organisations.

Due dates

  • 1ˢᵗ Quarter: 31 July 2022
  • 2ⁿᵈ Quarter: 31 October 2022
  • 3ʳᵈ Quarter: 31 January 2023
  • 4ᵗʰ Quarter: 31 May 2023

Important dates for TDS payment 2022

A TDS Certificate has to be issued by the Deductor to the assessee. Let us take a look at some of the important dates for TDS payment 2022:

Form

Frequency

Due Date

Form 16 - TDS on Salary Payment

Annual

May 31

Form 16 A - TDS on Non-Salary Payments

Quarterly

15 days from the date of return filing

Form 16 B - TDS on Property Sale

Every transaction

15 days from the date of return filing

Form 16 C- TDS on Rent

Every transaction

15 days from the date of return filing

Frequently Asked Questions

  • What is a TDS SMS alert?

    Launched on 25th October 2016 by the then Finance Minister Mr Arun Jaitley, the TDS SMS alert helps you stay updated about your TDS Deductions. At the end of the financial year, you can match your salary slip and the SMS that you receive on your registered mobile number and clarify all your concerns.

  • What is TDS credit in form 26AS?

    When it comes to Tax Deducted at Source, Form 26AS acts like an acknowledgement. The form is an annual statement that shows you the amount that has been deducted and is now available as a credit against your Income Tax liability.

  • What is a TDS certificate?

    Also known as Form 16, TDS Certificate or the Tax Deducted at Source Certificate is an annual statement. It is issued to employees for the tax that is deducted by the employer while giving the salary. Getting a TDS certificate is important to file your Income Tax Return and claim exemptions.

  • How to download the TDS certificate?

    The process to download your TDC Certificate is straightforward. You need to visit the Income Tax Department's official website. And go to the Downloads tab. Here, you need to click on Form 16/16A and fill in your details, once done you can click on Go. The Certificate can be downloaded on your system/ or mailed to your id.

  • What is tax liability in a case where TDS is already deducted from Income?

    If you earn a salary, your tax liability depends on the income slab you fall in. In case you have other sources income, the TDS is deducted after considering tax liability on such income from other sources.

  • What is the responsibility of the person deducting tax at source?

    As a deductor, you must have a TAN, which stands for Tax Deduction Account Number. This 10 digit number must be quoted in every Income Tax related-correspondence. You also need to ensure that the tax is deducted at the correct rate and correct statements are filed.

  • How to apply for a TDS refund?

    In case your tax deducted is more than your tax liability you can file a refund. A mismatch will be reflected in your account at the end of the financial year. When you have to apply for a TDS rebate claim a refund, you need to visit the Income Tax Department’s portal to file the income tax refund. Log into your account, go to My Account and check your TDS refund status.

  • What is the TDS correction process?

    If you wish to rectify a TDS statement, follow the given steps:

    • Download the Consolidated TDS file from TRACES/ www.tdscpc.gov.in and import it
    • PAs per your category, prepare a correction statement
    • Fill in the provisional receipt number
    • Validate it through FVU (File Validation Utility)
    • Furnish the validated statement through the NSDL portal
  • What is the difference between Form 16 and Form 16A?

    Though often used synonymously, Form 16 and Form 16A are not the same. Form 16 is an employer-issued certificate that states the tax that is deducted by the employer on the employee’s salary. Form 16A is also a TDS Certificate, but Form 16 is applicable only for your salary, 16A is for TDS which is for income apart from salary.

  • When is TDS deducted?

    TDS, that is Tax Deducted at Source, is deleted at source. The TDS is deducted by the deductor when a payment is made. The mode of payment can be cash/ credit/ cheque and has to be linked to the PAN. The deductor has to deposit the amount with the government.

  • Who is responsible to deduct TDS?

    As per the Income Tax Act, 1961, any company or individual who is making specified payments must deduct tax before paying. TDS cannot be collected if the individual making the payment is a person/ HUF whose annual turnover from business does not cross ₹1 crore or income from profession does not cross ₹50 lakh/year.

  • What Are the Penalty Provisions for Late or Non Filing of TDS?

    Under Section 234E, if you fail to file your TDS on time, you would be accountable to pay a late filing fee of INR 200 for every day that you fail to make the payment. Keep in mind that the late fee must not exceed the total amount of TDS. Under Section 271H, if you fail to file the TDS, the assessing officer can direct you to pay a penalty from anywhere between INR 10,000 to INR 1 lakh over and above the fine.

  • What happens in case of errors in the TDS return file?

    In such a case you can file a complaint with the Income Tax Department. You would have to make the TDS corrected via TRACES, the TDS Reconciliation Analysis and Correction Enabling System. You would have to make digital signatures for the registration and challan correction.

¹ Tax benefits are subject to changes in tax laws. Kindly consult your financial advisor for more details.
ADV/7/22-23/682

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