TDS is applicable on various incomes such as salaries, interest received, commission received, dividends etc.
TDS is not applicable to all incomes and persons for all transactions. Different TDS rates have been prescribed by the Income Tax Act for different payments and different categories of recipients. For example, payment of redemption proceeds by a debt mutual fund to a resident individual is not subject to TDS but for a Non-resident Indian is subject to TDS.
TDS works on the concept that every person making specified type of payments to any person shall deduct tax at the rates prescribed in the Income Tax Act at source and deposit the same into the government's account.
The person who is making the payment is responsible for deducting the tax and depositing the same with government. This person is known as 'deductor'. On the other hand, the person who receives the payment after the tax deduction is called 'deductee'. Form26AS is a statement which shows the amount of tax deducted and deposited in a person's name/PAN in a particular financial year.
An individual can, therefore, view/check the TDS from incomes paid to him by viewing this Form 26AS. Each deductor is also duty bound to issue a TDS certificate certifying how much amount is deducted in the deductee's name and deposited with the government.
Rates prescribed for different types of payments
There are different rates for TDS described in the different sections of the Act, depending on the nature of the payments.
The government with effect from May 14, 2020 has reduced the TDS rates by 25% on non-salaried payments such as rent, interest received from fixed deposits, dividends etc. However one must remember that no changes have been made with regards to TDS on salaries. Therefore, tax on salaries will be deducted at the tax rates applicable to your income (inclusive of cess at 4%).
Also, one must remember that the reduced TDS rate on the non-salaried payments will be applicable till March 31, 2021.
Given below are some of the TDS rates on salaried and non-salaried payments applicable from May 14, 2020 to March 31, 2021.
|Nature of Payment||Relevant Section||TDS rate from April 1 to May 13, 2020||TDS rate effective from May 14, 2020|
|Salaries||Section 192||At applicable income tax rates, inclusive of cess||At applicable income tax rates, inclusive of cess (Same as before May 14, 2020)|
|Receiving accumulated taxable part of PF||Section 192A||10.00%||10.00%(Same as before May 14, 2020)|
|Interest received on securities||Section 193||10.00%||7.50%|
|Dividend received from Mutual funds and on company's shares||Section 194 and 194K||10.00%||7.50%|
|Interest other than Interest on Securities e.g. Fixed deposit interest||Section 194A||10.00%||7.50%|
|Winnings from lottery, crosswords or any sort of game||Section 194B||30.00%||30.00%(Same as before May 14, 2020|
|Winnings from horse races||Section 194BB||30.00%||30.00%(Same as before May 14, 2020)|
|Payment of Contractors and sub-contractors||Section 194C||1% (individual/HUF), 2% (others)||0.7 5% (individual/HUF), 1.5% (others)|
|Insurance Commission received by an Individual||Section 194D||5.00%||3.75%|
|Life Insurance Policies not exempt under Section 10(10D)||Section 194DA||5.00%||3.75%|
|Payment in respect of deposits under National Savings Scheme||194EE||10.00%||7.50%|
|Payments on account of re-purchase of Units by Mutual Funds or UTI||194F||20.00%||15%|
|Commission, prize etc., on sale of lottery tickets||Section 194G||5.00%||3.75%|
|Commission or brokerage received except for Insurance Commission||Section 194H||5.00%||3.75%|
|Payment made while purchasing land or property||Section 194IA||1.00%||0.75%|
|Payment of rent by individual or HUF exceeding Rs. 50,000 per month||Section 194IB||5.00%||3.75%|
|Payment made to professional or commission or brokerage of more than Rs 50 lakh and above||194M||5.00%||3.75%|
|Cash withdrawal exceeding Rs 20 lakh or 1 crore as the case maybe||194N||2.00%||2.00%(Same as before May 14, 2020)|
|Payment of Professional Fees etc.||194J||2% (FTS, certain royalties, call centre), 10% (others)||1.5%(FTS, certain royalties, call centre) 7.5%(others)|
|Rent for plant and machinery||194- I(a)||2.00%||1.50%|
|Rent for immovable property||194-I(b)||10.00%||7.50%|
|TDS on e-commerce participants (w.e.f. 1.10.2020)||Section 194-O||1.00%||0.75%|
How TDS works
The entity making a payment (which is subject to TDS) deducts a certain percentage of the amount paid as tax and pays the balance to the recipient. The recipient also gets a certificate from the deductor stating the amount of TDS. The deductee can claim this TDS amount as tax paid by him (i.e. the deductee) for the financial year in which it is deducted.
The deductor is duty bound to deposit the TDS with the government. Once deposited this amount reflects in the Form 26AS of individual deductees on the TRACES website linked to the income tax department's e-filing website.
TDS only applicable above a threshold level
One must remember that TDS on specified transactions is deducted only when the value of payment is above the specified threshold level. No TDS will be deducted if the value does not cross the specified level.
Different threshold levels are specified by the Income Tax department for different payments such as salaries, interest received etc. For example, there will be no TDS on the total interest received on FD/FDs from a single bank if it is less than Rs 40,000 in a year from that bank. For senior citizens, TDS on interest received on FD will be applicable if it crosses Rs 50,000 in a single financial year.
How to avoid TDS
If a person expects that his total income in a financial year will be below the exemption limit, he can ask the payer not to deduct TDS by submitting Form 15G/15H.
While receiving payment which is subject to TDS, deductee is required to provide his PAN details to avoid tax deduction at the higher rates.
- What is TDS?
TDS stands for tax deducted at source. The payer of income deducts the tax from the gross payment due and pays the net amount (i.e. net of tax).
- Is TDS deducted at same rate from all types income which are subject to TDS?
No, TDS is not deducted at the same rate from all incomes which are subject to TDS. There are different TDS rates for different types of incomes.
- Who are deductor and deductee?
A deductor is the person responsible for deducting tax. The person who receives the payment after the deduction of tax is called the deductee.
- How can I check if TDS is deposited with the government?
Once the TDS is deposited with the government by the deductor, then the TDS amount deposited will be reflected in your Form 26AS. Further, the deductor is required to issue you a TDS certificate.
- What is the rate at which TDS on salaries is deducted?
According to income tax laws, TDS on salary is deducted at the income tax rates applicable to one's incomes inclusive of cess.
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8 Comments on this Story
Seema Gupta106 days ago
i have a question, is there made any impact on the deductee who receives the payment after deduction of tds because he was getting the less payment due to tds deduction and he has any liability for payment or receipt for balance amount of tds.
vasusubram576 days ago
This is a very informative article. The Banks are lagging behind a lot. They do not send Forms 16A unless requested half-a-times. They should be ordered to send by certain date; failing which they should be penalised. The Banks can also post Form 16A in Internet Banking portal of the individuals.The "TDS Return"the Banks files with TDS-CPC of IT dept is not the same as Form 16A. This would obviously lead to mismatch.
Will It dept look into this?
ap1278 days ago
All true agreed