Tax Deducted at Source (TDS) is a procedure implemented by the Indian government to collect taxes at the source of income. A certain percentage of tax is deducted by the payer at the time of making payments to the receiver, and this amount is then remitted to the government. TDS is applicable to a wide range of income categories such as salaries, interest on fixed deposits, rent, commissions, etc. TDS helps prevent tax evasion and understanding it is crucial for both payers and receivers of income in India.
TDS has to be deducted at the rates prescribed by the tax department. The company or person that makes the payment after deducting TDS is called a deductor and the company or person receiving the payment is called the deducted.
It is the deductor’s responsibility to deduct TDS before making the payment and deposit the same with the government. TDS is deducted irrespective of the mode of payment–cash, cheque or credit–and is linked to the PAN of the deductor and deducted.
Interim Budget 2024 updates
Finance Minister has announced that the same tax rates will be retained in FY 2024 - 25 for direct taxes. Hence, there will be no changes concerning tax deducted at source rates either.
Union Budget 2023 updates
- Leave Encashment: The exemption threshold for Leave encashment has been increased to ₹25 lakh from ₹3 lakh for non-government employees. Thus, at the time of retirement, leave encashment of up to ₹25 lakhs for a maximum period of 10 months is tax-free under Section 10(10AA).
- TDS on EPF Withdrawal: TDS rate has been reduced to 20% from 30% on taxable withdrawal of EPF.
- Payment Based Deduction: Payments to MSMEs must be made within the time frame agreed upon in writing, with a maximum limit of 45 days. If there is no written agreement, the time frame is 15 days. Any payment made outside this time frame can only be deducted (as expenditure) in the year it is actually paid.
- No Penalty: Where a loan is accepted or repaid by a primary agricultural credit society or a primary co-operative agricultural and rural development bank to its members or vice versa, no penalty would arise under Section 269SS or 269ST.
- Capital Gains Exemption limit: The capital gains tax exemption under Section 54 to 54F is restricted to Rs.10 crores. Earlier, there was no threshold.
- Online Gaming: Net winnings from online gaming will be taxed at 30%. From 1 July 2023, TDS will be withheld on such net winnings (currently the rate is 30%).
- Section 80G donations: Donations made to the following funds will not be eligible for 80G deductions:
- Jawaharlal Nehru Memorial Fund
- Indira Gandhi Memorial Trust and
- Rajiv Gandhi Foundation
TDS is deducted on the following types of payments:
- Salaries
- Interest payments by banks
- Commission payments
- Rent payments
- Consultation fees
- Professional fees
However, individuals are not required to deduct TDS when they make rent payments or pay fees to professionals like lawyers and doctors.
TDS is one kind of advance tax. It is tax that is to be deposited with the government periodically, and the deductor is responsible for making the deposit on time.
For the deductee, the deducted TDS can be claimed in the form of a tax refund after they file their ITR.
What is a TDS return?
A deductor has to deposit the deducted TDS to the government and the details of the same have to be filed in the form of a TDS return.
A TDS return has to be filed quarterly. Different types of TDS deductions have to be filed using different TDS return forms.
Preparing TDS returns can be done easily using the ClearTDS software. Reach out to us if you need any help with your TDS returns.