- Date : 24/06/2023
- Read: 4 mins
Recent tax changes exempt individuals earning less than Rs. 7 lakhs, but upfront tax payments are still required. Understanding TDS and TCS rules and claiming refunds are essential.
- Recent tax changes exempt individuals earning less than Rs. 7 lakhs from tax payments under the new regime.
- TDS is not your ultimate tax liability; additional taxes may be payable based on applicable tax rates.
- Claim tax refunds for excess TDS or TCS deductions by filing your income tax returns accurately.
The government has implemented significant changes for the financial year 2023-24 by exempting individuals earning less than Rs. 7 lakhs from tax payments and filing returns. However, certain conditions still require upfront tax payments for those earning Rs. 2.5 lakhs or more.
Let’s learn about these TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) rules and shed light on the possibility of claiming a refund.
Understanding TDS and TCS rules
TDS refers to tax amounts deducted when certain payments, such as salary, rent, commission, interest, and dividends, are made. On the other hand, TCS refers to the tax paid on specific expenses. The government mandates these upfront tax deductions to ensure efficient tax collection and avoid last-minute hassles.
The significance of upfront tax collection can be understood by considering the collection of Rs. 60.46 crores as taxes on virtual asset transactions (cryptocurrency trades) in the previous financial year.
Additionally, from July 1, 2023, foreign tours and payments abroad will be subjected to a 20% TCS.
Dispelling myths: TDS is not your final tax liability
Many mistakenly believe TDS is the ultimate tax obligation, but it's not the case. TDS rates differ from the overall tax rates.
For instance, if your rent exceeds Rs. 50,000 and attracts a 5% TDS, you must pay an extra 20% tax if you're in the 30% tax bracket.
Claiming tax refunds
If your income is below the tax exemption limit, you can file your income tax returns (ITR) to claim a refund for TDS or TCS deductions. After filing and verifying your ITR, any excess tax deducted or collected will be credited back to your bank account.
Considering other income sources
While employers deduct taxes based on salary income and investment declarations, considering income from other sources is also necessary to determine the final tax liability. Income from other sources may include rental or interest income.
Failing to disclose additional income may result in paying higher taxes while filing your ITR.
Avoiding higher TDS or TCS deductions
If your income is below the exemption limit, you can avoid TDS or TCS deductions by using Form 15G/H. This form can be submitted to the Income Tax Department to ensure that TDS or TCS are not applied to your transactions.
TDS and TCS deductions may seem like a loss of money, but they can be adjusted or claimed back. It is essential to verify TDS/TCS details in Tax Certificates, Annual Information Summary (AIS), Tax Information Summary, or Form 26AS to ensure accuracy and avoid processing delays or penalties.
Find the latest articles on tax planning here.
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.