What is TDS (Tax Deducted at Source)? A Complete Guide

If you've ever received a salary, earned interest on a fixed deposit, or worked as a freelancer, you've likely had TDS deducted from your income. But what exactly is TDS, why does it exist, and how does it affect you? Here's everything you need to know.

What is TDS? Full Form & Meaning

TDS stands for Tax Deducted at Source. It is a mechanism under the Income Tax Act, 1961, where tax is collected at the point of income generation  before the money even reaches you. The person making the payment (called the deductor) is required to deduct a certain percentage of tax and deposit it directly with the Central Government on your behalf.

Think of TDS as advance income tax  the government collects it upfront to prevent tax evasion and ensure steady revenue throughout the year.

How TDS Works  A Simple Example

Suppose you earn interest of ₹60,000 on a fixed deposit in a financial year. Your bank will deduct TDS from this interest before crediting the remaining amount to you. You can later claim credit for the TDS deducted when you file your Income Tax Return (ITR).

Who Deducts TDS?

• Employers (from salary)
• Banks (from FD interest, dividend)
• Companies (from professional fees, rent, commission)
• Individuals / HUFs (in certain specified cases)

Where is TDS Applicable?

TDS applies to a wide range of payments under the Income Tax Act:

TDS Rates  As Per Income Tax Act

TDS rates are prescribed under the Income Tax Act and vary based on the type of income and applicable section. For salaried individuals, TDS is deducted based on the applicable tax slab chosen (old regime or new regime). For non-salary income like FD interest, TDS is deducted at the rate specified in the Act.

Note: Rates are updated periodically by the government. Always check the Income Tax Department website or consult a tax advisor for current rates.

TDS on Fixed Deposits  What You Should Know

Banks deduct TDS on the interest earned on Fixed Deposits if the total interest in a financial year crosses the threshold limit specified under the Income Tax Act (higher limit applies for senior citizens). AU Small Finance Bank offers attractive interest rates on FDs  and your TDS is handled seamlessly, with Form 16A issued at year end.

**Tip:** If your total income is below the taxable limit, submit Form 15G (for individuals below 60 years) or Form 15H (for senior citizens) to your bank to avoid TDS deduction.

What is Form 15G and Form 15H?

• **Form 15G**  Declaration submitted by individuals below 60 years with income below the taxable threshold, requesting no TDS deduction
• **Form 15H**  Same declaration for senior citizens (60 years and above)

Both forms need to be submitted at the start of every financial year to each bank/institution where you earn interest.

TDS Certificates  Form 16 & Form 16A

After deducting TDS, the deductor must issue a TDS certificate to the deductee:

**Form 16** (For Salary): Issued by your employer. Contains salary details, deductions (80C, HRA, etc.), and total TDS deducted.

**Form 16A** (For Non-Salary): Issued by banks, companies, etc. Contains details of the payment made and TDS deducted.

How to Check TDS Deducted  Form 26AS & AIS

**Form 26AS** is your consolidated tax statement showing all TDS deducted against your PAN in a financial year. You can view it on the Income Tax e-filing portal at incometax.gov.in.

**AIS (Annual Information Statement)** is a more comprehensive statement that includes all financial transactions linked to your PAN  salary, interest, dividends, property transactions, and more.

Steps to view Form 26AS:

1. Visit incometax.gov.in and log in with your PAN

2. Go to 'e-File' → 'Income Tax Returns' → 'View Form 26AS'

3. Select the assessment year and download

Is TDS Refundable?

Yes  if the TDS deducted is more than your actual tax liability, you can claim a refund.

How:

1. File your Income Tax Return (ITR) before the due date

2. Declare all income and claim applicable deductions

3. The excess TDS will be shown as a refund, which the Income Tax Department processes after verifying your return

Refunds are typically credited directly to your bank account within a few weeks to months of ITR processing.

TDS vs Advance Tax  What's the Difference?

Frequently Asked Questions

1: What happens if TDS is deducted but I have no tax liability?

A: You can claim a full refund by filing your ITR and showing your actual income and deductions.

2: Can I avoid TDS on FD interest?

A: If your income is below the taxable threshold, submit Form 15G or 15H to your bank at the beginning of each financial year.

3: What is TDS on salary?

A: Employers deduct TDS from salary based on your projected annual income and the tax slab applicable (old or new regime as chosen by you).

4: What is the due date for TDS deposit?

A: Deductors must deposit TDS with the government by the 7th of the following month (for payments other than March). For March, TDS must be deposited by 30th April.

5: Where can I find my TDS details?

A: Log in to the Income Tax portal (incometax.gov.in) and view Form 26AS or the Annual Information Statement (AIS).

6: My Form 26AS shows less TDS than I expected. What should I do?

A: Contact the deductor (employer or bank) to verify whether they have filed the TDS return correctly. Mismatches should be resolved before filing your ITR.

*Tax laws, rates, and thresholds are subject to change. Please consult a qualified tax advisor or visit incometax.gov.in for the latest information before making tax-related decisions. *

Disclaimer: Terms and conditions apply. Please visit the official AU Small Finance Bank website for more information.