- The conceptualization of TDS was established with an objective to collect tax from the source of income. The person who is liable to make payment to any other person shall deduct tax at source and it shall be sent into the account of the Central Government. The person from whose income tax has been deducted at source shall be entitled to get a credit of the amount deducted on the ground of Form 26AS or TDS certificate. TDS is calculated and deducted on specified payments such as rents, commission, salary, interest, and on the person making those payments.
- The income received by the recipient is after reducing TDS and for calculating the final tax liability of the person, the TDS shall be adjusted, and the gross amount shall be added to his income.
How TDS will be deducted?
- Under the Income Tax Act, 1961, the person making the specified payment is required to deduct TDS. On the other hand, TDS will not be deducted from the person who is making the payment individually or Hindu Undivided Family, whose books of account are not audited.
- TDS is deducted on payments like Salaries, commission-based, rent payments, professional fees, and paying interest by banks.
- On the payment of rent by the individuals and Hindu Undivided Family that is more than Rs 50,000 per month, the TDS at the rate of 5% shall be deducted even if they are not liable for a tax audit, and in this case, there is no need to apply for Tax Deduction and Collection Account Number (TAN).
- The TDS deducted by the employer is according to the Income Tax slab as prescribed by the Government. For example, TDS deducted by the bank at 10%, and 20% in the cases where PAN information is not provided to them. On the successful submission of investment documents to the employer and if total income is less than the taxable limit then no tax shall be payable.
- The tax deducted at the source must be deposited on the 7th day of every month. TDS shall be filed using ITNS-281 on the Government portal.
Income Tax Slab Rates for Assessment year 2021-22
- There are certain slabs as prescribed by the Income Tax department for different categories of Income that means when there is an increase in income of the taxpayer then the tax rate will also increase. This helps in maintaining the fair tax system in the country. Such income tax slabs are subject to change in every annual budget.
- In the case where the income of the individual person is up to 2.5 Lakh, there shall be no tax applicable, 5% of the TDS rate applicable on the income between 2.5 Lakh to 5 Lakh, 10% shall be applicable on the income from 5 Lakh to 7.5 Lakh, 15% shall be applicable, where the income is from 7.5 Lakh to 10 Lakh, 20% for income between 10 Lakh to 12.5 Lakh and 25% applicable on income between 12.5 Lakh to 15 Lakh.
- The linking of TDS to your PAN is a mandatory feature for TDS deduction. To find out the summary of TDS that is deducted on income, the person shall go through Form 26AS. This is a consolidated tax statement that is accessible to all PAN holders. Also, this form provides all the details on the deductions on income and payments made by the person.
- The details of the income tax paid by the person in the kind of advance tax or self-assessment tax.
- TDS is deducted on the basis of the income tax slab on the salary. The TDS rates are fixed and range from 10% to 20%. The person is required to calculate his total income by adding the income from all the sources because the tax liability shall be calculated on the total taxable income.
- The person can claim credit for TDS deducted on various filings. The person must reduce the TDS from the tax liability to know about the balance payable to the Income Tax department.
TDS applicable on Sale of Property
- Whenever the buyer purchases an immovable property whose price is more than Rs 50 Lakh, the TDS shall be deducted by the buyer while paying to the seller. The deduction shall be 1% TDS of the total amount. Under this, the Purchaser is not required to obtain a TAN number. If the property is bought by the seller, the PAN number is required otherwise; TDS shall be deducted at the rate of 20%.
- Form 16 shall be filed by the seller to sell the property and the buyer is required to file Form 26QB.
Pre-requisites for filing TDS Return
- The first step for filing is to select relevant Forms as the classification such as Form 24Q, Form 26Q, Form 27Q, etc.
- The person shall have a valid TAN and registered for electronic filing.
- The TDS statement of the person shall be composed via Return Preparation Utility and the file shall be checked using File Validation Utility as provided by the National Securities Depositories Limited (NSDL).
- Challan ITNS 281 is the form used to pay TDS or TCS and for corporate/non-corporate Challan No.281 is required for the TDS and TCS.
- The taxpayer shall provide the TAN number with the name and address on both the challan used for depositing tax.
- The Certificate issued by the deducting person or Company to the person whose tax has been deducted is called the TDS certificate. It shall include concrete information of TDS on the nature of the payment. TDS certificates shall include Form 16, Form 16A, Form 16B, and Form 16C.
- Form 16 is a certificate of TDS on salary payment that is issued yearly on 31st May.
- Form 16A is a certificate of TDS on non-salary payments and issued quarterly before 15 days from the due date of filing return.
- Form 16B is a certificate of TDS on sale of the property and issued on every transaction before 15 days from the due date of filing return.
- Form 16C is a certificate of TDS on rent which is issued on every transaction before 15 days from the due date of filing return.
Tax liability on the deduction of the TDS from the income
- TDS is always deducted as per the applicable tax slab on your salary. Whereas, on other types of income, TDS rates are generally fixed and fall between 10% and 20%. Therefore, the person is required to calculate the total annual income from all sources of income and then actual tax liability shall be calculated on the total taxable income.
- After the calculation of taxes, the person can claim credit for TDS deducted on his income and various receipts. To find out the amount to be paid to the Income Tax department, reduce the TDS from the actual tax liability to find out the balance to be paid. There might be chances of a refund too and the person to file an income tax return and pay the correct tax due.
The provisions of TDS are an integral part of compliance under the Income Tax laws in India. It acts as an income source for the Government and regulates the mechanism for incomes earned by various classes of people, therefore, simplifying the tax administration. These provisions and criteria cannot be ignored by the person or a company at any time, so TDS provisions shall be fully complied with by the business entity or individual.