What is TDS? Important things to know about TDS

You must be familiar with TDS, but here are some interesting facts about it that will give you a better insight into TDS and its entire concept.

7 Important Things to Remember About TDS

Tax Deducted at Source (TDS) works on the concept of “pay as you earn.” It is a form of income tax imposed on certain payments such as salary, interest, commission, rent, etc. The person deducts the TDS before making the payments. Deducting tax at the source lowers tax evasion since it is deducted before the payment is made. You get a TDS certificate for the details of TDS for your various transactions.

Here is a video by Basic Gyaan explaining how TDS and TDS refunds work. 

Seven Things to Know About TDS

TDS is an extensive topic, and we can talk about it all day on various topics related to it. But instead of throwing everything at you, we have collected some facts here in our TDS guide that will interest you.

1. TDS Rate on Salary

The TDS rates applicable on salaries are the same as individual income tax slab rates. If you are not yet 60 years old and your annual income is less than Rs. 2.5 lakh, the TDS liability will be nil. Those earning between Rs. 2.5 and 5 lakh will have to pay a 5% TDS rate. 

If you earn between Rs. 5 and 7.5 lakh, your TDS rate will be 10%, and those earning between Rs. 7.5 and 10 lakh will have the tax deduction at source at the rate of 15%.

If your income falls between Rs. 10 and 12.5 lakh, there will be a 20% TDS rate applicable. For income between Rs. 12.5 and 15 lakh, TDS rate rises to 25%, and for an annual income over Rs. 15 lakh, your TDS rate becomes 30%.

Here’s a TDS chart for an easy understanding of TDS rates.

TDS CHART

The current TDS slab has become more extensive as compared to the old one. According to the previous TDS slab, If you earned upto Rs. 2,50,000, TDS rate was nil, 5% between Rs. 2,50,000 to Rs. 5,00,000, 20% between Rs. 5,00,000 to Rs. 10,00,000 and if your income was above Rs. 10,00,000 the TDS rate was 30%. 

2. TDS Threshold Limits

The threshold limit is the payment amount up to which no TDS is required according to the Income Tax Act 1961. TDS applies if the payment exceeds the set limit. For example, according to section 194J, there will be no TDS if the professional fee is under Rs. 30,000. Here, Rs. 30,000 is the threshold limit. However, TDS will be deducted if the professional fee exceeds this limit.

3.  Interest Allocation 

There is a stipulation for interest payment in the TDS challan form, but the interest paid through this challan is not adjusted with an interest liability. When you are ITR filing in relation to the challan, the interest is allocated from its amount. The Income Tax department uses this allocated interest to balance any possible interest liability. You should remember that the returns, and not challan, determine the interest payment.

4. Calculation of Interest

Interest is paid if the TDS deposit is made with delay and is calculated on each month's delay or its part. For example, let’s say the tax was debited on the due date of 27 May and was deposited on 9 June. This means the deducted TDS was used partially in May and June both. Hence, there will be two months of interest. However, if the tax was debited on 31 May, the interest would be for only one month. 

Here is a video from Perfect Tax & Accounting Solutions explaining TDS interest calculation.

5. Nature of Payment

You need to describe the nature of payment from the dropdown list while filling out the TDS challan. Each line record in the TDS slip has this section of the type of payment, and you don’t have to make a different challan for each section.  

6. Surplus TDS Deposit

Here are a few ways you can handle excess TDS deposits:

You can apply the surplus value from the old challan or TDS slip against future deductions in the same or next financial year.

You can use the portal of the TDS Reconciliation Analysis and Correction Enabling System or get in touch with the concerned person for a refund. However, this is an extremely long and tiring process.

7. Advance Tax

Those who are salaried and fall under the TDS net are exempted from paying the advance tax. However, the advance tax will be levied on non-salaried income such as interest income, capital gains, rent, etc. Also, if your tax collected at source is more than your tax payable for that year in taxes calculated, you will not be required to pay the advance tax.

Summing It Up

Tax Deduction at Source is a vast topic. Here, we have mentioned seven essential things in our TDS guide to help you understand it better. However, TDS extends way beyond just these six points, and to understand it even better, you will need the guidance of an expert.

Also Read: Best tax saving investments over the last three years

 

Tax Deducted at Source (TDS) works on the concept of “pay as you earn.” It is a form of income tax imposed on certain payments such as salary, interest, commission, rent, etc. The person deducts the TDS before making the payments. Deducting tax at the source lowers tax evasion since it is deducted before the payment is made. You get a TDS certificate for the details of TDS for your various transactions.

Here is a video by Basic Gyaan explaining how TDS and TDS refunds work. 

Seven Things to Know About TDS

TDS is an extensive topic, and we can talk about it all day on various topics related to it. But instead of throwing everything at you, we have collected some facts here in our TDS guide that will interest you.

1. TDS Rate on Salary

The TDS rates applicable on salaries are the same as individual income tax slab rates. If you are not yet 60 years old and your annual income is less than Rs. 2.5 lakh, the TDS liability will be nil. Those earning between Rs. 2.5 and 5 lakh will have to pay a 5% TDS rate. 

If you earn between Rs. 5 and 7.5 lakh, your TDS rate will be 10%, and those earning between Rs. 7.5 and 10 lakh will have the tax deduction at source at the rate of 15%.

If your income falls between Rs. 10 and 12.5 lakh, there will be a 20% TDS rate applicable. For income between Rs. 12.5 and 15 lakh, TDS rate rises to 25%, and for an annual income over Rs. 15 lakh, your TDS rate becomes 30%.

Here’s a TDS chart for an easy understanding of TDS rates.

TDS CHART

The current TDS slab has become more extensive as compared to the old one. According to the previous TDS slab, If you earned upto Rs. 2,50,000, TDS rate was nil, 5% between Rs. 2,50,000 to Rs. 5,00,000, 20% between Rs. 5,00,000 to Rs. 10,00,000 and if your income was above Rs. 10,00,000 the TDS rate was 30%. 

2. TDS Threshold Limits

The threshold limit is the payment amount up to which no TDS is required according to the Income Tax Act 1961. TDS applies if the payment exceeds the set limit. For example, according to section 194J, there will be no TDS if the professional fee is under Rs. 30,000. Here, Rs. 30,000 is the threshold limit. However, TDS will be deducted if the professional fee exceeds this limit.

3.  Interest Allocation 

There is a stipulation for interest payment in the TDS challan form, but the interest paid through this challan is not adjusted with an interest liability. When you are ITR filing in relation to the challan, the interest is allocated from its amount. The Income Tax department uses this allocated interest to balance any possible interest liability. You should remember that the returns, and not challan, determine the interest payment.

4. Calculation of Interest

Interest is paid if the TDS deposit is made with delay and is calculated on each month's delay or its part. For example, let’s say the tax was debited on the due date of 27 May and was deposited on 9 June. This means the deducted TDS was used partially in May and June both. Hence, there will be two months of interest. However, if the tax was debited on 31 May, the interest would be for only one month. 

Here is a video from Perfect Tax & Accounting Solutions explaining TDS interest calculation.

5. Nature of Payment

You need to describe the nature of payment from the dropdown list while filling out the TDS challan. Each line record in the TDS slip has this section of the type of payment, and you don’t have to make a different challan for each section.  

6. Surplus TDS Deposit

Here are a few ways you can handle excess TDS deposits:

You can apply the surplus value from the old challan or TDS slip against future deductions in the same or next financial year.

You can use the portal of the TDS Reconciliation Analysis and Correction Enabling System or get in touch with the concerned person for a refund. However, this is an extremely long and tiring process.

7. Advance Tax

Those who are salaried and fall under the TDS net are exempted from paying the advance tax. However, the advance tax will be levied on non-salaried income such as interest income, capital gains, rent, etc. Also, if your tax collected at source is more than your tax payable for that year in taxes calculated, you will not be required to pay the advance tax.

Summing It Up

Tax Deduction at Source is a vast topic. Here, we have mentioned seven essential things in our TDS guide to help you understand it better. However, TDS extends way beyond just these six points, and to understand it even better, you will need the guidance of an expert.

Also Read: Best tax saving investments over the last three years

 

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