TDS is a system introduced by Income Tax Department of India, where an individual responsible for making specified payments such as salary, commission, interest, rent, etc. is liable to deduct a certain percentage as a tax.
In order to make the concept of TDS easy and understandable, here are a few answers to the common questions.
- What is TDS?
TDS is known as Tax Deducted at Source. As per the Income Tax Act, any person or company is liable to deduct tax at source if the payment exceeds the threshold limit. The amount deducted as TDS is calculated at the rates prescribed by the tax department.
- Who deducts TDS?
The individual or company who makes the payment after deducting the tax at source is known as deductor and the person who receives the payment is known as the deductee. As per the Income Tax Act, it is the deductors responsibility to deduct the TDs before making the payment to the deductee. This practice is to be followed, irrespective of how the amount is paid-cash, cheque or any form of credit- and should be linked to the PAN card of the deductor or deductee.
TDS is a form of advance tax paid to the government periodically and the responsibility of doing the same lies with the deductor. The deductee can claim the amount as a tax refund after they file the income tax return
- What are the payments covered under TDS?
TDS is deducted from the following payments:
Salaries
Interest payment by banks
Rent payments
Commission payments
Consultation/Professional Fees
Individuals making consultation/professional fees to professionals like doctors and lawyers need not pay TDS.
- Why is TDS deducted?
The TDS is used as a tool to collect tax so as to minimise the tax evasion by taxing the income at the source itself rather than a later date.
- How to avoid TDS?
If an individual expects to keep his monthly income below the exemption limit, he can ask the deductor not to deduct TDS by submitting Form 15G/15H.
- What is a TDS certificate?
TDS certificates are issued by the deductor to the deductee while making the payment. Form 16, Form 16A, Form 16B, and Form 16C are all TDS certificates. However, the forms differ as per the deductor and deductee. For instance, Form 16 is issued by the employer to the employee on his salary payment.
- How much tax should be deducted at source from salary?
An employer is liable to deduct tax on an estimated salary at a prescribed rate of 15% subject to any of the following conditions:
No tax is required to be deducted unless the estimated salary is above the exemption limit.
- Exemption from Allowances
Allowances such as LTS, HRA, traveling, conveyance as per prescribed limit must be deducted from the total salary in order to find out the taxable salary.
Deductions under section 80C, 80CCC, 80CCD, 80CCG, 80D, 80DD, 80DDB, 80E, 80EE, etc. must be considered before calculating the taxable income.
- What is TAN and how to apply for TAN?
TAN stands for Tax Deduction Account Number. The 10 digit alphanumeric is required by people who are responsible to deduct or collect the tax. Under Section 203(A) of the Income Tax Act, it is mandatory to quote the TAN number issued by the Income Tax Department on all TDS returns. In order to get a TAN number, an individual must fill Form 49B.
