Tax Deducted at Source (TDS) is a tax collection mechanism introduced by the Indian government where tax is deducted at the very source of income. It ensures that tax is collected in advance by requiring the payer to deduct a specified percentage of tax before making certain payments to the recipient. This deducted amount is then deposited with the government.
TDS applies to various types of payments, including salaries, interest on fixed deposits, rent, commission, professional fees, and more. It plays a vital role in reducing tax evasion and ensures a steady inflow of revenue to the government. Both payers and recipients of income must understand how TDS works.
The person or entity making the payment after deducting TDS is known as the deductor, while the one receiving the payment is called the deductee. It is the deductor’s responsibility to deduct TDS at the applicable rates prescribed by the Income Tax Department and deposit it with the government on time. TDS must be deducted regardless of the payment method—cash, cheque, or online transfer—and is linked to the PAN of both parties.
Common Payments Subject to TDS:
- Salaries
- Interest on deposits
- Commission payments
- Rent
- Consultation or professional fees
However, individuals are generally not required to deduct TDS when paying rent or professional fees (such as to doctors or lawyers) for personal purposes.
TDS acts as an advance tax and must be deposited periodically. The deducted amount is reflected in the Form 26AS of the deductee and can be claimed as a tax credit while filing the Income Tax Return (ITR). If excess TDS has been deducted, the taxpayer can claim a refund.
What is a TDS Return?
After deducting TDS, the deductor is required to file a TDS return to report the details of the deduction and deposit. TDS returns must be filed quarterly and in specific forms depending on the nature of the payment. Each form corresponds to different categories of TDS deductions.
Filing TDS returns is mandatory and can be done easily using tools which simplifies the process.
Frequently Asked Questions
1. Can TDS be refunded?
Yes, if excess TDS has been deducted, you can claim a refund by filing your Income Tax Return (ITR).
2. Can I avoid TDS on my salary?
TDS can be avoided in certain cases by submitting Form 15G or Form 15H.
- Form 15H is for senior citizens or pensioners whose total income is below the taxable limit.
- Form 15G is for individuals (except NRIs) with no taxable income.
These forms must be submitted to the deductor to prevent TDS deduction.
3. Is filing a TDS return mandatory?
Yes, filing a TDS return is mandatory if TDS has been deducted during a quarter. If no tax is deducted in a quarter, then filing a TDS return is not required.
4. How can I check my TDS amount?
You can check the total TDS deducted by downloading Form 26AS from the Income Tax e-filing portal. It provides a detailed record of all tax deducted and deposited against your PAN.
