You might often have heard about TDS. However, have you ever tried to know more about TDS and why it is deducted from one’s salary or remuneration and how can you claim it? If not, here’s some help:
What is TDS?
TDS means Tax Deducted at Source and this denotes the tax withheld at the time of making any kind of payment. The amount of tax withheld is a certain percentage of the total payment due as specified in the IT Act for different kinds of payments made. For example, the rate of TDS applicable on payment made for professional services is generally 10%. “Even in case of salaried people the employer generally deducts TDS while making monthly salary payments. This calculation is made by considering the yearly tax liability, which in turn is based upon the tax slabs applicable to the employee, his investments, exemptions from salary income and so on,” says Chetan Chandak, Head of Tax Research, H&R Block India.
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.
Why is TDS deducted?
Deducting tax at source is a step by the ITD in order to avoid tax evasion. It is based on the principle ‘Pay as you earn’. The payer is required to make TDS deductions, irrespective of the mode of payment, which can be cash, cheque or credit.
“There are different TDS rates that are applicable to residents and non-resident taxpayers, as well as to different domestic and international companies operating in India. Any individual responsible for making any type of payment must deduct TDS at applicable rates and deposit it with the government within the specified time. TDS rates may vary depending on the nature of the income earned and whether the person to whom payment is being made is an individual or a company,” informs Chandak.
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. “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,” observes Chandak.
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Refund of taxes
TDS is generally deducted at a high rate and hence it is generally observed that at year end when you finally calculate your tax liability, you realise that you have paid excess taxes. In case this happens, you can always claim these taxes back in the form of refund. You must, however, file your taxes in order to claim refund.
TDS deducted in case of sale of property by an NRI
If you are an NRI and you want to sell off your property, the buyer of the property will mandatorily deduct 23.63% of TDS on the sale of the price of the said property, if the capital gain is a long-term one. “If it is a short-term capital gain, the buyer will deduct 35.54% of TDS, irrespective of the slab rate of TDS for an NRI. The buyer is then required to deposit the deducted TDS with the Income Tax Department,” says Chandak.
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.