7/26/2014 Basics of Tax Deducted at Source or TDS | Be Money Aware Blog

Basics of Tax Deducted at Source or TDS

Tax Deducted at Source or TDS is one of the modes of collection of taxes from the
people in India. This post is about What is TDS? Why TDS?TDS Rates Chart with
various sections and Threshold limit, How TDS is deducted and how often? What is TAN?
TDS Certificates Form 16, Form 16A, Tax Credit Statement or Form 26AS.

What is Tax Deducted at Source or TDS?

TDS is a certain percentage deducted at the time of payments of various kind such as
salary, commission, rent, interest on dividends etc and deducted amount is remitted to
the Government account. This withheld amount can be adjusted against tax
due. The person/organization deducting the tax is called as Deductor while the
person from whom the tax is deducted is called Deductee. Deductor is also termed
as Employer and Deductee is termed as an Employee in cases where the payments are
Salaries. It is governed under Indian Income Tax Act, 1961, by the Central Board for
Direct Taxes (CBDT) and is part of the Department of Revenue managed by Indian
Revenue Service (IRS), Ministry of Finance, Govt. of India

Why TDS?

The concept of TDS envisages the principle of pay as you earn. Tax must be deducted at
the time of payment in cash or cheque or credit to the payees account.

Advantages of TDS

It facilitates sharing of responsibility of tax collection between the Deductor and

the tax administration.
It ensures regular inflow of cash resources to the Government.
It acts as a powerful instrument to prevent tax evasion as well as expands the
tax net.

It is similar to concept of Withholding Tax in USA

Nature of Payments and TDS Rates

As mentioned earlier TDS is a certain percentage deducted at the time of payments of

various kind such as salary, commission, rent, interest on dividends etc. The various
payments for which TDS is deducted, Threshold limit (above which TDS is deducted),
therate at which it is deducted for Resident Individual or Hindu Undivided Family(HUF),
Domestic Company or Firm with appropriate Income Tax Section Code and links to the
Income Tax law from VakilNo1 website are given below.

TDS Rates Chart Assessment Year 2012-13 (Financial Year 2011-12 )

Section Nature of Payment Threshold Individual Company/Firm

Code Limit or HUF
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192 Payment of salary to a Normal

resident/non-resident Income
Tax Rates
193 Interest on securities 10 10
194 Deemed dividends u/s 2(22) 10 10
(e)
194A Interest other than Interest on 5000 10 10
securities
194B Lottery or crossword puzzle 10000 30 30
or card game or other game
of any sort.
194BB Horse races 5000 30 30
194C Contracts/sub-contracts 30000 1 2
194D Insurance Commission 20000 10 10
194EE Payment in respect of 2500 20 -
deposits under NSS
194F Payment on account of 1000 20 10
repurchase of units of MF or
UTI
194G Commission on sale of lottery 1000 10 10
tickets
194H Commission or brokerage 5000 10 10
194-I Rent of Plant and Machinery 180000 2 2
Rent of Land or Building or 180000 10 10
Furniture and Fitting
194J Fees for professional or 30000 10 10
technical services
194L Payment of compensation to 100000 10 10
a resident on acquisition of
certain immovable property

VakilNo1 webpage Income Tax Act, 1961 has information on IncomeTax Law and its
various sections.

Income from Salaries: The income from salaries is required to be computed

on estimated basis at the beginning of each financial year. Income Tax payable on the
basis of such estimated salary income should be deducted at the rate applicable to the
corresponding slab of income every month in equal instalments subject to adjustments
depending upon tax saving investments made by the Deductee.

When an employee is working with more than one employer simultaneously or changes
his job from one during the financial year, the employer will deduct tax on considering the
aggregate salary from all sources and tax deducted thereon, if any. Be careful of not
evading tax while changing jobs. For details you may read Changing Jobs:Take Care Of
Bank Account,Tax Liability

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TDS Salary Rates for Assessment Year 2012-13

For tax rates over the years you can check our Income Tax rates Since Year AY 1992-
1993

TDS Calculator for Financial Year 2011-2012 or Assessment Year 2012-2013 is available
at Taxworry:TDS Calculator

When No Tax is deducted

No Tax has to be deducted for the payment made to Government, RBI, Corporation whose
income is exempt from tax or mutual fund specified under sec. 10(23D). Also in case
where deductee produces a non deduction certificate or lower deduction certificate
under section 197 of the Income Tax Act 1961. Quoting from Taxworry:All about TDS on
interest incomeNo Tax is deducted

No Tax deducted on interest income

If Tax is not deducted at Source i.e TDS has not been cut at times it does not
mean that one is not required to pay tax. For example in case of interest on
recurring deposit or saving account with banks and society, TDS is not cut but
one is required to pay interest on it.

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Self declaration in Forms 15G and 15H can be filed by the deductee if his income doesnt
exceed the amount chargeable to tax. This self declaration can be filed for dividends,
interest and mutual fund income only. In these cases no tax has to be deducted. However
the tax deductor is required to furnish copies of this self declaration to the concerned
CCIT or CIT as per the rules. Form 15G is for all taxpayers, while Form 15H is a special
form for senior citizens. In either case, it can be filed only if their income falls below the
taxable limit. Both forms incorporate a declaration that the declarant is not liable for tax.
Important points to be considered with respect to these forms.

Fresh forms are required to be filed each year. As incomes of investors may
differ from year to year, the eligibility for furnishing the forms has to be
ascertained every year.
Secondly, for optimum benefit, these forms need to be furnished at the
beginning of the fiscal such that the entire amount of interest escapes TDS. If
the form is filed during the year, the tax already deducted cannot be adjusted
against future tax deductions.

Ref:IncomeTaxGov.in:Exemptions, DNA:Who is eligible for filing forms 15G, 15H and how
to save TDS

Tax Deduction and TAN

All those persons who are required to deduct tax at source or collect tax at source on
behalf of Income Tax Department are required to obtain Tax Deduction and Collection
Account Number or TAN as per the provisions of section 203A of the Income-tax Act. It
is compulsory to quote TAN in TDS/TCS return (including any e-TDS/TCS return),
any TDS/TCS payment challan and TDS/TCS certificates. Failure to apply for TAN or
comply with any of the other provisions of the section attracts a penalty of Rs. 10,000/-.

TAN is a 10 digit alpha numeric number ex: BLRR02933A.

The first three characters are an Income Tax Region Code ex: BLR stands for
Bangalore
Fourth digit is the first character of the deductor name ex: R may be Royal
Travels.
Remaining 5 characters form a unique combination.
Last character is an alphabet

How to apply for TAN: An application for allotment of TAN is to be filed in Form 49B and
submitted at any of the Tax Information Network Facilitation Centres(TIN FC). Tax
Information Network (TIN) is an initiative by Income Tax Department of India (ITD) for the

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modernization of the current system for collection, processing, monitoring and accounting
of direct taxes using information technology. TIN is a repository of nationwide Tax related
information, and has been established by National Securities Depository Limited on
behalf of ITD. The fee for processing TAN application is Rs.50/- + service tax (as
applicable). To know more about TIN and NSDL and its services you may read
moreAbout us at tin-nsdl.com.

For more details on TAN one can read Incometaxindia.gov.in: Frequently Asked
Questions and Answers (FAQs) on TAN. One can find information about Deductor or TAN
from Incometaxindiaefiling.gov.in: Know Your TAN

How does Deductor pay TDS

Every organization responsible for deducting tax is required to file quarterly statements of
TDS for the quarters ending on 30 th June, 30 th September, 31 st December and 31 st
March in each Financial Year The provisions of quarterly statements of TDS have been
introduced in the statute vide section 200(3) w.e.f. 01/04/2005. The returns, forms and
their periodicity is given below

TDS forms and periodicity

Note:All income tax related forms are available at incometaxindia.gov.in website.

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e-TDS return is a TDS return prepared in form No.24Q, 26Q, 27EQ or 27Q in electronic
media as per prescribed data structure. As per Section 206 of Income Tax Act all
corporate and government Deductors are compulsorily required to file their TDS return on
electronic media i.e. e-TDS. However for other Deductors, filing of e-TDS return is
optional.

Flow of TDS Deduction is shown in figure below(Click on image to enlarge)

TDS Flow

Credit of TDS

Under Section 199 of Income Tax Law 1961, when tax has been deducted at source from
any payment of income receivable, credit will be given to the Deductee while calculating
the net tax payable by him and the TDS will be treated as a payment of tax on his behalf
to the Central Government by the payer or Deductor who has deducted the tax at source.
Section 199 in detail at law.incometaxindia.gov.in:Section 199, Vakilno1.com: Section
199

TDS Certificates

A tax deductor is required to issue TDS certificate to the Deductee within specified
timed under section 203 of the Income Tax Act. The Deductee should produce the details
of this certificate to adjust the amount of TDS against the Tax payable him, during the
regular assessment of income tax. Various Types of TDS certificates are as follows:

Salaries Form 16: In case of Salaries, the certificate should be issued

inFORM 16 containing the Tax computation details and the Tax deducted &
Paid details. This refers to the details submitted over Form 24Q.
Non-salaries Form 16A: In case of Non-Salaries, FORM 16A is issued
containing the Tax deducted & Paid details. Separate certificates should be
prepared for each Section(ex:194C, 194J). This refers to the details submitted
over Form 26Q and 27Q.

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Form 16 Form 16A

Click on images to see

forms(pdf format)

TDS certificate in Form 16A should be generated and downloaded from the Tax
Information Network (TIN) website for the TDS deduction made on or after 01st
April, 2011. This is mainly for Companies including banking companies and co-operative
societies engaged in banking business. For other deductors, it is optional to download
Form 16A from TIN Web site. Such downloaded TDS certificate will have a unique TDS
Certificate Number.This is to avoid the mismatch in e-TDS records and Form 16A.

Tax Credit Statement or Form 26AS

Deductee can know his TDS details through online Form 26AS. Those who wish to
view their TDS details can register their names with PAN no in Income Tax website or
view it directly if they have bank account with selected banks. This helps to eliminate the
mismatch and the above changes also help to avoid the mismatch in form 26AS and in
Form 16A.The Tax Credit Statement or Form 26AS is generated when valid PAN has
been reported in the TDS statements.

Form 26AS contains

Details of tax deducted on behalf of the taxpayer by deductors, Part A of Form

26AS
Details of tax collected on behalf of the taxpayer by collectors, Part B of Form
26AS
Advance tax/self assessment tax/regular assessment tax, etc. deposited by
the taxpayer, Part C of Form 26AS
Details of paid refund received during the financial year
Details of the High value Transactions in respect of shares, mutual fund etc.

Sample Form 26AS is given below. Click on image to enlarge

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Form 26 AS

incometaxindia.gov.in:26AS has indepth information of Form 26AS, how to view it ,List of

banks registered with NSDL for providing view Form 26AS

Reference: incometaxindia.gov.i:Tax_deducted_Source_otherthansalaries_Vol1.pdf

We tried to explain What is TDS? Why TDS?TDS Rates Chart with various sections and
Threshold limit, How TDS is deducted and how often? What is TAN? TDS Certificates
Form 16, Form 16A, Tax Credit Statement or Form 26AS. Hope it helped you. If you liked
it or found any mistake please let us know.

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Salary, tax, TDS

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