What is Tax Deducted at Source (TDS)

The Indian government imposes different types of taxes, which can be classified as direct taxes and indirect taxes. So, what is TDS? TDS full form is Tax Deducted at Source. The concept of TDS was introduced with an aim to collect tax from the very source of income. As per this concept, a person (deductor) who is liable to make payment of specified nature to any other person (deductee) shall deduct tax at source and remit the same into the account of the Central Government.

*A deductor is the person who is making the payment and is responsible for deducting tax. The person who receives the payment after the deduction of tax is called the deductee*

As TDS is deducted automatically from the source itself, it is a convenient way of paying income tax in advance.

TDS is applicable on specified transactions as specified under IT Act. Some sample income on which TDS is applicable are mentioned below-

• Salary
• Interest on bank deposits
• Brokerage or commission
• Dividend
• Payment of rent
• Professional / Technical Services
• Winning from games like a crossword puzzle, card, lottery, etc.

TDS is levied on specific transactions and when the payment value is above a specific threshold level. For instance,

1. If any, exceeds the limit of ₹ 50,000(₹1,00,000for senior citizen) then the Bank shall deduct tax at source from the interest income
2. TDS on salary income is deducted basis the tax slab rates under which an individual falls

TDS on other receipts is deducted based on the prescribed threshold limit and rate mentioned in the respective section of the Income tax Act, 1961.

TDS Certificate is a certificate issued by the deductor to the deductee specifying the amount of payment and TDS deducted from said payout. There are two types of TDS certificate, namely -

For Salaried Individual: Form 16 – It is provided by employer to his employee, it contains details of the salary income including perquisites, deductions from total income (if any), and tax computation and total TDS.

For Non-salaried individual: Form 16A – It is provided by the deductor, it contains details about tax deduction and payment made by deductor.

Form 26AS – It shows the amount of tax deducted and deposited in a person's name/PAN in a particular financial year. An individual can view/check the form on the income tax portal.

Perform the following steps to view or download the Form-26AS from e-Filing portal:

1. Logon to ‘e-Filing’ Portal https://www.incometax.gov.in/iec/foportal/
2. Go to the 'My Account' menu, click 'View Form 26AS (Tax Credit)' link.
3. Read the disclaimer, click 'Confirm' and the user will be redirected to TDS-CPC Portal.
4. In the TDS-CPC Portal, Agree the acceptance of usage. Click 'Proceed'.
5. Click ‘View Tax Credit (Form 26AS)’
6. Select the ‘Assessment Year’ and ‘View type’ (HTML, Text or PDF)
7. Click ‘View / Download’

TDS refund arises when the tax amount deducted is higher than the actual tax liability. It is calculated after consolidating income earned from various sources. At the time of filing ITR, an individual would sum up the income from various sources, find out the total tax liability, once total tax liability is identified the TDS already deducted will be reduced along with advance tax if any. The final amount, if positive will be required to be paid as self-assessment tax. In case of negative amount, the tax department will refund the excess amount post processing the return.

This blog has been prepared to provide the readers with general information and basic understanding of TDS. The Income tax definitions and rules keep on changing, so it is suggested that to avoid any doubt, the reader should cross-check all the facts and contents of the material.

Before taking any decisions, please consult your tax advisors.