TDS stands for ‘Tax Deducted at Source’. It was introduced to collect tax at the source from where an individual’s income is generated. The government uses TDS as a tool to collect tax in order to minimize tax evasion by taxing the income (partially or wholly) at the time it is generated rather than at a later date.
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.
|Section||Nature of payment||Threshold Limit||Applicable from 01/04/2020 to 13/05/2020||Applicable from 14/05/2020 to 31/03/2021|
|Resident||Non-resident *||Resident||Non-resident *|
|Rs.||TDS Rate (%)||TDS Rate (%)||TDS Rate (%)||TDS Rate (%)|
|192||Salaries||–||Normal slab rate||Normal slab rate||Normal slab rate||Normal slab rate|
|192A||Premature withdrawal from EPF||50000||10||10||10||10|
|193||Interest on securities – 8% Savings (Taxable) Bonds, 2003 or 7.75% Savings (Taxable) Bonds, 2018 during the financial year||10000||10||–||7.5||–|
|193||Interest on securities – Interest on securities for money issued by or on behalf of any local authority/statutory corporation, listed debentures of a company(other than demat form), any other interest on securities||5000||10||–||7.5||–|
|194A||Interest (Banking co., co-operative society engaged in banking, post office)||40000||10||–||7.5||–|
|194A||Interest (Any other person)||5000||10||–||7.5||–|
|194B||Winning from lotteries||10000||30||30||30||30|
|194BB||Winning from Horse race||10000||30||30||30||30|
|194C||Contractor-Single transaction-Individual/HUF -Others||30000||1 2||– –||0.75 1.5||– –|
|194C||Contractor – Consolidated Payment During the F.Y. – Individual/HUF – Others||100000||1 2||– –||0.75 1.5||– –|
|194D||Insurance commission – Other than Company – Company||15000||5 10||– –||3.75 10||– –|
|194DA||Maturity of Life insurance policy||100000||5||–||3.75||–|
|194E||Non-resident sportsmen or sports association||–||–||20||–||20|
|194F||Repurchase units by MFs||–||20||20||15||20|
|194I||Rent of – Plant/Machinery /Equipment – Land and Building/Furniture & Fixture||240000||2 10||– –||1.5 7.5||– –|
|194IA||Transfer of certain immovable property other than agriculture land||50 lakh||1||–||0.75||–|
|194IB||Rent by Individual/HUF||50000 per month||5||–||3.75||–|
|194IC||Payment under Joint Development Agreements to Individual/HUF||–||10||–||7.5||–|
|194J||Technical Fees (w.e.f. 01.04.2020)||30000||2||–||1.5||–|
|194J||Payment to call centre operator (w.e.f. 01.06.2017)||30000||2||–||1.5||–|
|194K||Payment of any income in respect of (a) units of a mutual fund as per section 10(23D); or (b) the units from the administrator; or (c) units from specified company (w.e.f. 01.04.2020)||5000||10||–||7.5||–|
|194LA||Compensation on transfer of certain immovable property other than agriculture land (TDS exempted if covered under RFCTLARR Act w.e.f. 01.04.2017)||250000||10||–||7.5||–|
|194LB||Income by way of interest from infrastructure debt fund||–||–||5||–||5|
|194LBA||Income from units of business trust – interest received or receivable from a special purpose vehicle; or – dividend referred to in sub-section (7) of section 115-O||–||10 10||5 10||7.5 7.5||5 10|
|194LBA||Distribution of rental income to unit holders – Other than Comapany – Company||–||10 10||30 40||7.5 7.5||30 40|
|194LBB||Income in respect of units of investment fund – Other than Company – Company||–||10 10||30 40||7.5 7.5||30 40|
|194LBC||Income in respect of investment in securitization fund – Individual/HUF – Company – Other Person||–||25 30 30||30 40 30||18.75 22.5 22.5||30 40 30|
|194LC||Income by way of interest by an Indian specified company to a non-resident/foreign company on foreign currency approved loan / long-term infrastructure bonds from outside India||–||–||5||–||5|
|194LC||Income by way of interest by an Indian specified company on rupee denominated bond / any long-term bonds from outside India, which is listed only on a recognized stock exchange located in any International Financial Services Centre||–||–||4||–||4|
|194LD||Interest on certain bonds from Govt. securities||–||–||5||–||5|
|194M||Certain payments by Individual/HUF||50 lakh||5||–||3.75||–|
|194N||Payment of certain amount in cash||1 Crore||2||2||2||2|
|194N||Payment of certain amount in cash (first proviso of section 194N)if- – Amount is more than Rs.20 lakh but up to Rs. 1 crore – Amount exceeds Rs. 1 crore (Applicable from 01.07.2020)||N.A. N.A.||N.A. N.A.||2 5||2 5|
|194-O||Applicable for e-commerce operator for the sale of goods or provision of services facilitated by it through its digital or electronic facility or platform (Applicable from 01.10.2020)||–||N.A||–||0.75||–|
|195||Income of Investment made by an NRI||–||–||20||–||20|
|195||Long-term capital gain – Under Section – 115E/ 112(1)(c)(iii)/112A – Any Other Gains||–||– –||10 20||– –||10 20|
|195||Short-term capital gain – 111A||–||–||15||–||15|
|195||Fees for technical services||–||–||10||–||10|
|195||Interest income payable by Govt./Indian concern (other than section 194LB or 194LC)||–||–||20||–||20|
|195||Any Other Income – Other than Company – Company||–||– –||30 40||– –||30 40|
|196A||Income in respect – – of units of a Mutual Fund specified under clause (23D) of section 10; or – from the specified company referred to in the Explanation to clause (35) of section 10||–||–||20||–||20|
|196B||Income from units to an offshore fund||–||–||10||–||10|
|196C||Income from foreign currency bonds or GDR of an Indian company||–||–||10||–||10|
|196D||Income of foreign Institutional Investors from securities (not being dividend or capital gain)||–||–||20||–||20|
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.