What is Tax Deducted at Source (TDS)?

What is:

TDS, or Tax Deducted at Source, is a percentage of a payment that is deducted when it is made, such as a salary, commission, rent, interest, or professional fees. The individual who makes the payment deducts tax at source, whereas the one who gets the payment/income owes tax. It reduces tax avoidance because the tax is collected when the payment is made.

When:

TDS shall be deducted from any payment made in accordance with the Income Tax Act. If you are a person or a Hindu Undivided Family (HUF), no TDS will be deducted, and your records will not be audited.

Even if your records are not subject to a tax audit, a TDS of 5% will be deducted on rent payments made by an individual or HUF member when the amount payable exceeds Rs.50,000. If you are subject to a 5% TDS deduction, you will not be needed to apply for a Tax Deduction Account Number (TAN).

If you work as a professional, your employer will deduct TDS according to the applicable tax slab rates. TDS is deducted at a rate of 10% by the bank where you have a working account. TDS of 20% will be deducted if they do not have your PAN. TDS rates are set under the Income Tax Act for the majority of payments, and the payer deducts TDS according to those rates.

If you submit your investment proofs to your employer and your total taxable income is less than the total taxable threshold, you will not be obliged to pay any tax. In this situation, no TDS will be deducted. If your total taxable income is less than the total taxable limit, you can also submit Form 15G and Form 15H to the bank. The bank will not deduct any TDS from your interest income in this scenario.

If you forgot to share your investment proof with your employer and the bank deducted TDS, you can file a return and get a refund if your total taxable income is less than the total taxable limit. 

Example of TDS:

Let’s assume that a start-up company pays Rs.90,000 as rent every month to whoever owns the property. The TDS applicable to the amount is 10%, so the company must subtract Rs.9,000 and pay Rs.81,000 to the property owner. In this case, the owner of the property will receive Rs.81,000 following TDS. The owner can add the gross amount of Rs.90,000 to his income, thereby allowing him to take credit for the Rs.9,000 that has already been deducted by the company.

Here are some of the income sources that qualify for TDS:

1. Salary

2. Amount covered by LIC

3. Bank Interest Rates

4. Commission or Brokerage

5. Payments of commissions

6. Compensation for acquiring real estate

7. Payments to contractors

8. Dividend Deemed

9. Commission on Insurance

10.Interest on things other than securities

11.Interest on securities

12. Rent payment

13. Compensation paid to a company's director, etc.

14. Immovable property transfer

15. Winning at games such as crossword puzzles, cards, and the lottery.

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