TDS is a part of income tax in a way. It has to be taken out of some fees that a person makes. In this piece, we’ll talk in depth about the Income Tax Act’s TDS rules.

What is TDS? – TDS Meaning and Full Form

TDS stands for “Tax Deducted at Source.” This means that income tax is taken out of certain payments, like rent, commission, professional fees, wages, interest, etc., when they are made. Income tax is usually due by the person who earns money. But with the help of Tax Deducted at Source rules, the government makes sure that income tax is taken out of your funds before you get them. After TDS is taken out, the person who gets the money gets the net amount. The person who gets the money will add the gross amount to his income, and the amount of TDS will be subtracted from his total tax bill. The receiver gets credit for the amount that has already been taken out of his account and paid.

When should TDS be deducted and by whom?

The Income Tax Act says that anyone who makes certain payments must reduce TDS at the time of making such a payment. But TDS doesn’t have to be taken out if the person paying is an individual or HUF whose books don’t have to be inspected.

But if an individual or HUF pays more than Rs 50,000 in rent each month, TDS of 5% must be taken out, even if the individual or HUF is not subject to a tax check. Also, these people don’t need to apply for a TAN if they have to pay TDS at 5%. Your company takes out TDS at the rate for your income tax slab. Banks take out 10% TDS. Or, if they don’t have your PAN, they might take 20% off.

TDS rates are set by the income tax act for most payments, and TDS is taken out of most payments based on these rates. If you show your boss proof of your investments and your total taxable income is less than the taxable limit, you don’t have to pay any tax. And because of this, no TDS should be taken out of your pay.

In the same way, if your total income is below the taxed limit, you can give the bank Forms 15G and 15H so that TDS isn’t taken out of your interest income. If you can’t show proof to your workplace or if your employer or bank has already taken TDS out of your pay and your total income is less than the taxable limit, you can file a return and ask for a refund of this TDS. The full list of Specified Payments that can have TDS taken out of them, along with the TDS rate.

What is the due date for depositing the TDS to the government?

The government must get the Tax Deducted at Source by the 7th of the following month.

For instance:TDS that was taken out in June needs to be paid to the government by July 7. But the TDS that was taken out in March can be paid in until April 30th. When TDS is taken out of rent or the purchase of a home, the payment is due 30 days after the end of the month in which TDS was taken out.

How to deposit TDS?

The Challan ITNS-281 on the government platform must be used to pay in Tax Deducted at Source. Read our post for a step-by-step guide to making an online payment for TDS.

How and when to file TDS returns?

Tax Deducted at Source (TDS) forms must be filed by everyone who has taken TDS. The TDS return must be sent every three months, and it must include information like the TAN, the amount of TDS taken, the type of payment, the PAN of the deductee, etc. Also, different forms are needed to file returns based on the reason why TDS was taken out. Here are some different kinds of return forms: Form 26QTDS for all payments except salaries Q1 – July 31 Q2: October 31 Q3: January 31 Q4 – May 31

Form No	Transactions reported in the return	Due date
Form 24Q	TDS on Salary	Q1 – 31st July  Q2 – 31st October  Q3 – 31st January  Q4 – 31st May
Form 27Q	TDS on all payments made to non-residents except salaries	Q1 – 31st July  Q2 – 31st October  Q3 – 31st January  Q4 – 31st May
Form 26QB	TDS on sale of property	30 days from the end of the month in which TDS is deducted
Form 26QC	TDS on rent	30 days from the end of the month in which TDS is deducted

What is a TDS certificate?

TDS certificates include Form 16, Form 16A, Form 16B, and Form 16C. TDS certificates must be given by the person who deducts TDS to the person whose income TDS was taken out of when payment was made. For example, when TDS is taken out of the interest from a fixed account, the bank gives the depositor a Form 16A. Form 16 is given to the worker by his or her boss.

Form	Certificate of	Frequency	Due date
Form 16	TDS on salary payment	Yearly	31st May
Form 16A	TDS on non-salary payments	Quarterly	15 days from due date of filing return
Form 16B	TDS on sale of property	Every transaction	15 days from due date of filing return
Form 16C	TDS on rent	Every transaction	15 days from due date of filing return

TDS credits in Form 26AS

It is important to know how your PAN is connected to TDS. TDS deductions are linked to both the person doing the deduction and the person getting the discount. If TDS has been taken out of any of your pay, you need to fill out Form 26AS. All PAN users can get this form, which is a consolidated tax statement.

Since all TDS is linked to your PAN, this form shows the details of the TDS taken out of your income by each deductor. This includes both salaries and interest income. All TDS that is related to your PAN is shown here. This form also lists the income tax you paid directly, either as advance tax or self-assessment tax. So, it’s important to put your PAN in the right place wherever TDS might be taken out of your pay.

With the ClearTDS software from ClearTax, it’s easy to make your TDS returns. It is an online TDS program that doesn’t need to be installed on a PC or updated. It makes it easy to make regular and right e-TDS statements online with just a few mouse clicks. It’s also easy to import TDS returns from earlier financial years because it works with them. Also, you can use ClearTDS to make your TDS certificates.

How to upload TDS statements

Follow the below guide for uploading TDS statements on the Income Tax Department website:

• Visit Income Tax website. Login with your TAN.
• Select e-File > Income Tax Forms > File Income Tax Forms on the dashboard
• Select the relevant form and fill in the details
• Validate the return using either DSC or EVC.

Types of TDS

Here are some types of income that are subject to TDS:

• Salary
• Payments to Contractor
• Commission payments
• Sale of House
• Insurance Commission
• Interest on securities
• Interest other than interest on securities
• Rent Payment
• Professional fees
• Online Gaming
• Winning from games like a lottery, crossword puzzle, card, etc.

SMS Alerts for Higher Transparency

The income tax department has been sending SMS messages to taxpayers from the number VK-ITDEFL. These messages say how much tax was taken out at the source (TDS) based on the taxpayer’s PAN (Permanent Account Number). Every three months, the SMS alert will let you know how much TDS was taken out of your salary, interest, etc. The amount of TDS would be added up on your Form 26AS for the appropriate fiscal year.

The Finance Ministry started this project to make things more clear and cut down on the number of TDS mismatches when paying income taxes. Taxpayers can compare the information in the SMS with the information on their pay stubs to make sure nothing is wrong. TDS mismatch may be a regular reason why people file the wrong income tax return.

Tax liability in a case where TDS is already deducted from Income

TDS is taken out of your salary based on the income tax bracket you fall into. For other types of income, the TDS rates are set and range from 10% to 20%. The tax rates don’t depend on how much money you make. So, you might have to pay a TDS on some of the money you get. You would have to figure out your annual income by adding up all of your income from all sources.

Your real tax bill would be based on the total amount of your taxed income. From the taxes you have to pay, you can get a credit for the TDS that was taken out of your different records. Subtract the tax taken out at the source from the real tax you owe to find out how much you need to pay the income tax department. You may also get money back. In either case, you must file a tax return and either pay the tax you owe or ask for a credit.

Frequently Asked Questions

1 – What is the responsibility of the person deducting tax at source?

The following are the jobs of the person who takes out TDS:

• Get the Tax Deduction Account Number and include it on all TDS-related papers.
• TDS should be taken out at the right rate.
• Pay the TDS amount to the government by the date they tell you to.
• Send in your TDS reports by the due date.
• Send the TDS document to the payee by the date you’re supposed to.

2 – At what rate the deductor will deduct TDS if I do not furnish my Permanent Account Number to them?

As per Section 206AA of the Income Tax Act​, if you do not furnish your Permanent Account Number to the deductor, then the deductor shall deduct TDS at the higher of the rate prescribed in the relevant provisions of the Act or at 20%.

3 – What is the difference between TAN and PAN?

TAN stands for Tax Deduction Account Number and PAN stands for Permanent Account Number.

The person who needs to take TDS, called the deductor, should get a TAN. In all TDS-related papers, the deductor must include the TAN.

But there is one exception: TDS on the buying of land and building under Section 194-IA does not require the deductor to get a TAN. Instead, the deductor can use the PAN to send the TDS.​

Also, when it comes to TDS on rent under Section 194-IB and TDS on payment of certain sums by individuals or HUFs under Section 194-M, the deductor can use PAN instead of TAN to send TDS.

4 – What are Sections 206AB and 206CCA?

The Finance Bill of 2021 put in place these rules for deducting and collecting income tax at the source at these higher rates if any amount is paid or due to a certain person who did not file the IT report. Section 206AB of the IT Act is about TDS. It was added after section 206AA. It lets TDS be taken out of the account of buyers at higher rates if they don’t give their Permanent Account Number (PAN). Also, Section 206CCA of the IT Act is about TCS. It was added after Section 206CC and has the same reason as above. Read our post on “Sections 206AB and 206CCA” to learn more.

5 – How many types of TDS are there?

There are several types of TDS defined by the law. To know more, read our article with a summarised table on various TDS types “TDS Rate Chart”.

6 – What is the TDS rate on salary?

TDS must be taken out of a worker’s pay at what is called the “average rate of income tax” for the year. It is written as Average pay tax rate = Income tax liability (based on slab rates) divided by the employee’s expected pay for the assessment year.