1. What is Tax Deducted at Source? How to calculate TDS on salary as per Income Tax Act; all you need to know

What is Tax Deducted at Source? How to calculate TDS on salary as per Income Tax Act; all you need to know

As per the Income Tax Act, persons or entities responsible for making payments are required to deduct tax at source at prescribed rates. This system is known as 'Tax Deducted at Source' or TDS.

By: | Published: October 13, 2017 11:25 AM
TDS, tax deducted at source, Income Tax Act, Form 26AS,  Form No. 15G/15H, PAN, prescribed tax rates, payer, payee, salaried person, income,  salaries, interest, commission, rent, professional fees TDS is applicable on payment of salaries, interest, commission, rent, professional fees etc.

As per the Income Tax Act, persons or entities responsible for making payments are required to deduct tax at source at prescribed rates. This system is known as ‘Tax Deducted at Source’ or TDS. Under this system, tax is deducted by the payer while making payments and is remitted to the government on behalf of the payee. The provisions of deduction of tax at source are applicable to several payments such as salary, interest, commission, brokerage, professional fees, royalty, contract payments, etc.

Here’s all you need to know about TDS and why it is deducted:

Concept of TDS

If you are a salaried employee, then as per rules, TDS is deducted from your salary each month and once you receive your Form 16, you file your taxes basis the TDS details. This system has been introduced by the Income Tax Department (ITD) which mandates people to deduct TDS when you make some specific payments such as commission, salary, rent, professional fees, etc. The concept of TDS deduction is simple and based on a principle where the person making payment is required to deduct a certain percentage as TDS.

How is TDS deducted?

TDS is applicable on payment of salaries, interest, commission, rent, professional fees etc. In case of salaried individual, the employer deducts TDS based on income tax slab rates. In case of payments other than salary, the person making payment deducts TDS at the specified rates. For example, the rate of TDS applicable on payment made for professional services is generally 10%. The TDS so deducted is paid to the government account and this is the responsibility of the person deducting TDS. The TDS payment is to be made by the 7th of the following month. TDS returns also need to be filed on a quarterly basis at the specified date which is the last day of the month following the end of the quarter.

Can the payee request the payer not to deduct tax at source?

A payee can approach the payer for non-deduction of tax at source, but for that he has to furnish a declaration in Form No. 15G/15H, as the case may be, to the payer to the effect that the tax on his estimated total income of the previous year after including the income on which tax is to be deducted will be nil. Form No. 15G is for the individual or a person (other than company or firm) and Form No. 15H is for senior citizens.

What to do if tax is deducted but the ultimate tax liability of the payee is nil or lower than the amount of TDS?

In such a case, the payee can claim the refund of entire/excess amount of TDS (as the case may be) by filing the return of income.

If the payer does not deduct tax at source, will the payee face any adverse consequences by means of action taken by the I-T Department?

It is the duty and responsibility of the payer to deduct tax at source. If the payer fails to deduct tax at source, then the payee will not have to face any adverse consequences. However, in such a case, the payee will have to discharge his tax liability. Thus, failure of the payer to deduct tax at source will not relieve the payee from payment of tax on his income.

What are the duties of the person deducting tax at source?

Following are the basic duties of the person who is liable to deduct tax at source.

# He shall obtain Tax Deduction Account Number and quote the same in all the documents pertaining to TDS.

# He shall deduct the tax at source at the applicable rate.

# He shall pay the tax deducted by him at source to the credit of the Government (by the due date specified in this regard).

# He shall file the periodic TDS statements, i.e., TDS return (by the due date specified in this regard).

# He shall issue the TDS certificate to the payee in respect of tax deducted by him (by the due date specified in this regard*).

TDS deduction in case of absence of PAN details

In case you do not have a PAN card or the details stand out to be incorrect, the buyer is required to deduct TDS @ 20%, irrespective of the slab rate under which you fall. If the PAN details are correct, your TDS will be deducted as per the normal TDS rates.

How can I know the quantum of tax deducted from my income by the payer?

To know the quantum of the tax deducted by the payer, you can ask the payer to furnish you a TDS certificate in respect of tax deducted by him. You can also check Form 26AS from your e-filing account at http://incometaxindiaefiling.gov.in. You can also use the “View Your Tax Credit” facility available at www.incometaxindia.gov.in.

What to do if the TDS credit is not reflected in Form 26AS?

Non-reflection of TDS credit in Form 26AS can be due to several reasons like non-filing of TDS statement by the payer, or quoting incorrect PAN of the deductee in the TDS statement filed by the payer. Thus, in case of non-reflection of TDS credit in Form 26AS, the payee has to contact the payer for ascertaining the correct reasons for non-reflection of the TDS credit in Form 26AS.

Would I face any adverse consequences if instead of depositing TDS in the government’s account I use it for my personal needs?

Yes, failure to remit tax deducted by you in the government’s account within stipulated time-limit would attract interest, penalty and rigorous imprisonment of up to seven years.

(With inputs from CBDT)

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