Tax Deducted at Source, also known as TDS, is a method of collecting taxes that has been put into effect by the government of India to collect taxes either at the time of payment or at the source of income. When a recipient receives a payment, the deductor withholds a certain amount of tax to comply with legal requirements. This amount is subsequently transferred over to the appropriate governmental authority. The TDS applies to various income types, including wages, interest on fixed deposits, rent, commissions, and many more. Both those who pay taxes and those who receive income in India need to have an in-depth knowledge of the TDS system to tackle tax evasion efficiently.

Also, TDS must be deducted at the rates the tax department has specified. The term "deductor" refers to the business or individual responsible for making the payment, while "deducted" refers to the business or individual receiving the payment.

TDS is deducted regardless of the manner of payment, which can be cash, cheque, or credit, and then it is linked to the PAN of the person who is deducting the tax.

Following the submission of their ITR, the person whose taxes are being deducted is eligible to claim a tax refund equal to the amount of taxes that were deducted.

TDS deduction

TDS will be taken out of the payment when it is due or when the payment is made, whichever comes first.

If your income is less than the basic exemption limit, you can fill out Form 15G/15H and give it to the person taking your money to prove that your income is less than the basic exemption limit.

Form 15G is for individuals, and Form 15H is for people over 65. You can also fill out Form 13 and send it to the Income Tax Department's Assessing Officer for a certificate.
But you are not eligible for TDS if your income is more than the basic exemption limit. One of the most significant differences between Form 13 and Form 15G/15H is that only people can fill out Form 15G/15H, but anyone can fill out Form 13 and send it to the Income tax officer to get permission to deduct taxes at a lower or no rate.

Where can TDS be deducted?

The following is a list of some of the types of income and expenses that are subject to tax deductions according to TDS:

Salary – Payment from the employer to the employee (section 192)

Interest on securities (section 193)

Any other Interest, like interest on bank deposits, etc., that excludes interest on securities (section 194A)

Prize money received from winning games like a crossword puzzle, card, lottery, etc. (section 194B)

Payment to contractors (section 194C)

Insurance Commission (section 194D)

LIC maturity amount (section 194DA)

Brokerage or commission (section 194H)

Payment of rent on Plant and Machinery, Land and Building, etc.(section 194I)

Payment of Professional and Technical fees (section 194J)

Online gaming (section 194BA)

Nonresidents earning income from mutual funds in India can provide a Tax Residency certificate and avail of the benefit of the TDS rate given in the treaty (section 196A)

TDS on listed debentures. (section 193)

TDS on cash withdrawal by cooperative societies. ( section 194N)

Virtual digital asset (section 194S)

Sale of immovable property (section 194-IA)

Perks or benefits to any resident for carrying out any business or profession by such resident (section 194R)

Commission payments

Rent payments

Consultation fees

Mode of TDS payment

Tax deducted at source must be deposited to the Central Government by either electronic or physical mode. E-Payment is mandatory for all corporate entities and persons except companies to whom section 44AB of the I-T Act, 1961 is applicable. Physical mode is by furnishing Challan 281 in an authorized bank branch.

Due date for TDS payment

The government must receive TDS by the 7th of the following month. It means that if the deductor took tax out of payments in November, he must pay the TDS by or before December 7. However, the TDS deducted in March must be paid by April 30.

TDS returns filing

It is required that everybody subject to tax obligations file TDS returns. The return must be given every quarter, and details such as TAN, the amount of TDS deducted, the type of payment, and the PAN of the deductee must be included, among other documents.
In addition, the I-T Act stipulates specific TDS forms to be used for submitting returns, which differ according to why tax withholding was performed.

Penalty for Late Filing of TDS Return

Here are the fines that the Income Tax Department will charge you if you don't submit your TDS return or submit it late:

Failure to submit returns: Under Section 272A (2) of the I-T Act, a penalty of Rs.100 will be charged for each day the returns are not filed, up to a limit of the TDS amount.

Failure to submit returns on time: Under Section 234E of the I-T Act, a penalty of Rs.200 will be charged for each day the returns are not filed, up to a limit of the TDS amount.

Missing TDS statements: Section 271H of the I-T Act says that a fine of Rs.10,000 to Rs.1 lakh will be charged if the deductor misses the deadline for making the TDS return.

Incorrect information: Section 271H of the I-T Act says that a punishment of Rs.10,000 to Rs.1 lakh will be charged if the deductor gives any wrong information regarding PAN, challan details, TDS amount, etc.

For non-payment of TDS: Section 201A of the I-T Act says that a penalty and interest will be charged if TDS is not paid by the due date. If some or all of the tax is deducted at the source, an interest of 1.5% per month will be added from the date the tax was supposed to be deducted until it is deducted.

TDS Certificate

It is a type of document given by the TDS deductor to the TDS deducted during the payment process. The recipient can claim the tax credit that was withheld by the deductor based on the TDS certificate. Even if the deductor does not possess the certificate, he can still claim the credit if TDS is shown on his form 26AS.

The deductor must submit a TDS certificate within the due dates by following the criteria based on the kind of payment on which the TDS is deducted.

Penalty for not issuing TDS certificate

If a TDS certificate is not issued within the allotted time, the person responsible for deducting taxes will be subject to a fine of Rs.100 per day for each certificate. Also, the total amount of the penalty cannot be more than the tax that has to be deducted for the quarter.

TDS updates according to Union Budget 2023

The TDS rate on taxable withdrawal of EPF has been decreased to 20% from the previous rate of 30%.

To qualify for the payment-based deduction, payments to MSMEs have to be made within the time range agreed upon in writing, and there is a 45-day limitation on the total payment period. The time frame is fifteen days, even without such a written agreement. Any payment made after the due date will only be eligible for deduction as an expense in the year on which it is paid.

In a case where a loan is accepted or repaid by a primary agricultural credit society or a primary cooperative agricultural and rural development bank to its members, or vice versa, the provisions of Sections 269SS or 269ST that case do not impose any penalty.
The amount of money exempted from paying tax on capital gains under Sections 54 to 54F is limited to Rs.10 crores. In the past, there was no minimum threshold.

A 30% tax will be applied to any earnings from internet gambling. At the current rate of 30%, the tax deduction will be used for such net winnings starting from July 1, 2023.
Donations made to the funds such as Jawaharlal Nehru Memorial Fund, Indira Gandhi Memorial Trust, and Rajiv Gandhi Foundation will not qualify for a deduction under section 80G.