Tax Deducted at Source: Comprehensive Guide on TDS

What Is TDS? - TDS Full Form and TDS Meaning

Tax Deducted at Source (TDS) mechanism in the Indian taxation system mandates that tax be withheld by the payer at the time of making certain specific payments, such as TDS on rent and TDS on salary. Taxpayers can now easily make TDS payments online through a variety of platforms whereby also checking all TDS paid online.

For making payment, a TDS challan will be generated which serves as a payment voucher. The TDS amount must then be paid electronically. The taxpayer's TDS refund status can also be checked online. The Income Tax Department offers taxpayers access to a variety of TDS-related services through TDS Traces, including filing TDS returns and viewing TDS challan status. To avoid penalties or interest charges, it is crucial to submit TDS returns by the deadlines. The use of online tools like TDS Traces login and e-payment of Tax Deducted at Source (TDS) systems by taxpayers can smoothly file their returns within the TDS return due date to avoid any interest on TDS late payment

Budget- 2023 Updates Regarding TDS

The following updates were made in the Union Budget- 2023.

1. A new Section 194BA was inserted regarding the Tax Deducted at Source on income from online gaming.
2. Section 196A - As of April 1, 2023, non-residents who receive income from mutual funds in India will be able to claim TDS at the rate specified in the tax treaty, instead of 20%. To do so, they must present a Tax Residency Certificate.
3. Section 192A - TDS rate on PF withdrawals for employees without PAN reduced from maximum marginal rate to 20%
4. In accordance with Section 193, interest on listed debentures is now not exempt from Tax Deducted at Source (TDS). Therefore, interest on such specified securities must be taxed, and TDS is required to be deducted.
5. The TDS threshold for cash withdrawals under Section 194N has been increased in the case of cooperative societies. Instead of the previous cap of Rs 1 crore, cooperative societies will begin deducting tax on cash withdrawals on April 1st, 2023, if the amount exceeds Rs 3 crore.
6. A new Section 194S was inserted under which, at the time of payment for the transfer of virtual digital assets, a person is responsible for Tax Deduction at Source (TDS) at a rate of 1%.
7. Under the newly added Section 194R, 10% TDS must be withheld from any perks or benefits given to residents in exchange for them engaging in any business or profession, regardless of whether they can be converted into cash or not.

Example of TDS- How TDS Works?

Let us take an example to understand how TDS works.

Let's say, Lotus Services Pvt Ltd is required to pay Rs. 50,000 rent per month to Mr X for its corporate office and Rs. 20,000 per month for its maintenance to Mr Y. The total amount spent in a year is Rs. 6,00,000 and Rs. 2,40,000 respectively.

In case of rent payment to Mr X., Lotus Services Pvt Ltd will be required to deduct TDS under section 194J @10% which is Rs. 5000 Per month and pay a balance of Rs. 45,000 to Mr X. In the same manner, Lotus Services Pvt Ltd will be required to deduct Tax Deducted at Source (TDS) under section 194C @1% which is Rs. 200 and pay the balance amount of Rs. 19,800 to Mr Y. Now, Lotus Services Pvt Ltd will file the TDS returns to the Income Tax Department and give credit to Mr X and Mr Y based on their pan number. After processing such a TDS return, the TDS amounts will reflect in Form 26AS of Mr X and Mr Y and they can take credit of TDS while filing their income tax return to the I.T. department.

When Should TDS Be Deducted and by Whom?

The Income Tax Act stipulates that Tax Deducted at Source must be withheld at the time of making certain payments, and this requirement applies to everyone. However, if the payer is an individual or HUF whose books are exempt from audit, no TDS will be deducted.

Although neither the individual nor the HUF is subject to a tax audit, Tax Deducted at Source (TDS) at 5% must be withheld from rent payments made by individuals and HUF that exceed Rs 50,000 per month. Furthermore, such Individuals and HUF required to deduct TDS @ 5% are exempt from applying for TAN. In the case of Salary payments, the employer deducts TDS at the average slab rates applicable to the employees.  Normally, banks deduct TDS @ 10%, however, if you do not submit your PAN details, they may deduct TDS @ 20%.

The bank will not deduct Tax Deducted at Source from your interest income if you submit Forms 15G and 15H and your total income is below the taxable limit. If your employer or bank has already deducted TDS and your total income is below the taxable limit, you may be able to file a return and request a refund of this TDS if you were unable to provide your employer with the necessary documentation.

What Is the Due Date of TDS Payment?

The due date of payment of Tax Deducted at Source (TDS) is the 7th of the subsequent month from the end of the month in which TDS was deducted. For example, if TDS is deducted on all payments made between 1st June to 30th June, then all TDS deducted amount has to be deposited with the government by 7th of July. However, TDS deducted in the month of March will be required to be deposited till 30th April.

Also, in the following payments, the deductor is required to deposit such Tax Deducted at Source within 30 days from the end of the month in which the TDS was deducted.

• Tax Deducted at Source (TDS) on payment of the purchase of immovable property under section 194IA.
• TDS deducted on rent by Individuals/ HUFs covered under section 194IB.
• TDS is deducted on various payments such as payment of a commission, brokerage, contractual or professional fees covered under section 194M by Individuals/ HUFs not liable for a tax audit.

How to Deposit TDS Online?

There are two methods of depositing Tax Deducted at Source (TDS) to the Government. First online and second offline through banks. Let us understand both methods.

• Online TDS Payment

There is a complete change in making TDS online payments nowadays.

Now the method of creating TDS challan payment has completely shifted to the Income Tax Portal. When you click on the NSDL site a pop-up will appear.
 
For making payment of Tax Deducted at Source (TDS) online, you need to go to https://www.incometax.gov.in/iec/foportal/ and select “e-Pay Tax” from the Quick links. Fill the details in the appropriate head and Proceed to pay by clicking “Continue”.

• Offline TDS Payments Through Banks

There is also a change in making payments of Tax Deducted at Source (TDS) through banks. Earlier banks were accepting offline challan generated through the NSDL portal.

Now, it has to be generated from the income tax portal. Go to “e-Pay Tax” from the Quick links. Fill the details in the appropriate head and select “Pay at Bank Counter” select Bank name and Download the Challan.

However, Tax Deducted at Source (TDS) deducted under sections 194IA, 194IB and 194M shall be deposited through a challan-cum-statement.

What Are the Different Types of TDS?

The Tax Deducted at Source (TDS) is required to be deducted at the time of crediting the account of the payee in the books or at the time of payment, whichever is earlier basis. Here are the different types of payments on which TDS is required to be deducted as per the provisions of the Income Tax Act, of 1961.

• Payment of Salary
• Payment of EPF (Withdrawal from Employee Provident Fund Account)
• Payment of Interest on Securities by companies, Government, etc.
• Payment of Interest other than Interest on Securities by banks, post offices, etc.
• Payment of Winnings from Lottery or gambling, horse races etc.
• Payment under contracts and sub-contracts carried out any works
• Payment of Insurance Commission
• Payment of Maturity of Life Insurance Policy
• Payment to Non-Resident sports persons or sports associations or Entertainer
• Payment of Commission on sale of lottery tickets
• Payment of Commission and Brokerage
• Rent Payment
• Transfer of Immovable properties
• Payment made on compensation for compulsory acquisition of immovable property
• Fees for Professional Services/ Technical Services
• Remuneration to Directors
• Royalty payments
• Payment of Non-compete fees
• Payment to Call Centers
• Cash withdrawal from banks over the specified limit
• Payment by E-commerce Operators (like Amazon, Flipkart, etc.) to E-commerce Participants
• Purchase of Goods more than Rs. 50 lacks
• Payment of Dividend by the Company

However, in the following types of payments, Tax Deducted at Source (TDS) is only deducted at the time of payments

• Payment of Salary
• Payment of EPF (Employee Provident Fund)
• Payment of Winnings from Lottery or gambling, etc.
• Payment of Maturity of Life Insurance Policy
• Payment made on compensation for compulsory acquisition of immovable property
• Cash withdrawal from banks over the specified limit
• Payment of Dividend by the Company.

How to File TDS Returns Online?

There are the latest updates in filing TDS return online from the financial year 2023-24. Now you need to file your Tax Deducted at Source (TDS) returns through Income Tax Portal Online. Let’s discuss step by step process of filing a TDS return online.

• Step – 1: First of all, download Return Preparation Utility (RPU) from the NSDL TIN site in the download section. (Note: Download the latest version available)
• Step- 2: Prepare Deductee details in the following format & file them in the utility.

Deductee Details

Challan Details

• Step- 3: Log in to Income Tax Portal with your login credentials and download the CSI file.

(Note- CSI file is the system-generated challan payment file, which needs to be entered in Return Preparation Utility)

• Step- 4: Fill out the details in Return Preparation Utility
• Step- 5: Click on the “Create File” tab and browse your file
• Step- 6: Click on the “Validate” tab
• After that, an FUV file will be generated and saved to a folder
• Step- 7: Convert the FUV file into a Zip file
• Step- 8: Log in to Income Tax Portal, go to e-File Tab and select “File Income Tax Form”
• Step- 9: Select the “Deduction of tax at source (Form TDS)”
• Step-10: Select the appropriate form, Quarter and Financial year Upload the TDS Zip file and click on the “Proceed to e-Verify” tab

How Do You e-Verify Your TDS Return?

You can verify your Tax Deducted at Source (TDS) returns by the following three methods.

1. Verify using OTP on the mobile number registered with Aadhar
2. Verify using Digital Signature Certificate (DSC)
3. Verify using Electronic Verification Code (EVC)
   • Through Bank Account
   • Through Demat Account

How to Download TDS e-Acknowledgement Copy?

To download the TDS e-Acknowledgement you need to login to Income Tax Portal, go to e-File Tab and select “View Filed Returns” and download the latest filed returns e-Acknowledgement PDF file.

How to Claim TDS Refund?

Once the TDS returns have been filed with the income tax department, it will be processed. After processing of Tax Deducted at Source (TDS) returns has been done, it will be credited into Form 26AS of individuals whose TDS was deducted. Now the person whose TDS deducted can see the TDS deducted details by downloading Form 26AS from the Income tax portal.

It should be noted that for claiming TDS Refund, the person must file their income tax return with the government. Once the ITR has been filed, it will take a little time to process and after its processing is done, the TDS refund amount will be credited to the bank account of the payee. On the Income Tax Department's official website, individuals can also check the status of their refund.

What Are the Types of TDS Certificates?

A TDS certificate is a document issued by the deductor to the deductee as proof of the TDS deduction. It contains details such as the amount of TDS deducted, the TDS rate, and other relevant information. The deductee can use this certificate to claim the Tax Deducted at Source (TDS) amount while filing their income tax return.

Interest on Late Deposit of TDS?

However, it is to be noted that the maximum interest charged will not exceed the Tax Deducted at Source (TDS) amount itself.

What Are the Different Types of Forms For Filing TDS Returns and Due Dates?

It is to be noted that in filing Form 24Q, Form 26Q and Form 27Q for the last quarter ending on 31st March, the due date will be 31st May.

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