TDS on Different Income Sources

Tax Deducted at Source or TDS applies to income earned by individuals and other entities operating in India regardless of their residential status. The applicable TDS rate varies from 1 to 30% depending on the income source and may sometimes touch 50%. The payer applies TDS at the appropriate rate and pays the net amount. In addition, the deductor deposits the TDS to the Income Tax Authorities within the stipulated deadline. As a result, the payee gets credit for the TDS and is eligible to claim a refund while filing the relevant ITR for the financial year. 

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Scope of TDS

TDS applies to your income, investments, and even your earnings from fixed assets. Therefore, be aware of the TDS provisions before investing. The ambit of TDS is much broader than people commonly think. For example, you pay tax even on the earnings made from online poker. Usually, any entity with an income in India is liable to pay taxes beyond the threshold limits defined in the national budget. Additionally, the government ensures advance taxes from the payments in a range of situations. However, we will confine our discussion to TDS-impacting individuals.

Who Applies TDS And When?

Any payment specified under the Income Tax Act is liable for TDS application by the person making such payment. However, individuals and HUF whose books do not need audit are exceptions to the rule. On the contrary, payment amounts exceeding Rs.50000 made by individuals and HUF must apply TDS of 5%, even if not liable for audit. Moreover, employers recover TDS based on their employee’s income tax slab, while banks levy 10% TDS while paying interest on their deposits. The rate increases to 20% if the depositor fails to submit a PAN card.

TDS rates are uniform for most payments defined in the Income Tax Act. However, the employer provides a TDS waiver if the employee submits investment proof and the income falls below the taxable threshold. In addition, depositors can submit 15G or 15H to the bank seeking a TDS waiver for the interest earned during the financial year. If you pay TDS for failure to furnish investment proof to your employer or 15G or 15H to the bank, you can file the relevant ITR seeking a refund per Income Tax rules.

TDS Deposit to the Government

TDS recovery goes into the government’s coffers within a stipulated timeframe. Use a specific Challan ITNS-281 at the official portal by the 7th of the subsequent month. For example, the deposit date of June TDS is 7 July. However, March is an exception, where you can deposit the TDS until 30 April. However, the time limit is 30 days from the TDS deduction month for rental income and property purchase.

Filing of TDS Returns

Merely depositing TDS to the government is not enough. All deductors must mandatorily file TDS returns. The frequency for TDS returns is quarterly, containing specific information like TAN, TDS amount, payment type, deductee’s PAN, etc. In addition, you must adhere to the prescribed forms for filing TDS returns. So, let us take a quick look at what forms to use.

Various Forms for filing TDS
Form No Purpose Q1 Q1 Q3 Q4
26Q Payments except for salaries 31 July 31 October 31 January 31 May
24Q Salary 31 July 31 October 31 January 31 May
27Q Payments to NRI except for salaries 31 July 31 October 31 January 31 May
26QB Sale of property 30 days from the TDS month-end
26QC Rent 30 days from the TDS month-end

The following summarizes the responsibilities of the TDS deductor per the Income Tax norms.

  • Register and obtain the Tax Deduction Account Number (TAN) and mention it in all TDS-related documents

  • Ensure TDS collection at the appropriate applicable rate

  • Deposit the TDS collection to the government within the specified timeline.

  • File quarterly TDS returns within the specified due dates.

  • Issue the TDS certificate to the deductee within the specified deadline.

TDS Certificate

It is an essential document required for filing the relevant ITR within the stipulated timeframe every financial year. The statement is a comprehensive certificate describing the details of the deductor, deductee, income break up during the financial year, and TDS in the four quarters against each category of income, alongside the investments and exemptions. In addition, the certificate contains the challan numbers for the TDS filed every quarter.

The deductor’s responsibility is to issue the TDS certificate duly signed by the competent authority. Therefore, the TDS certificate acts as the template around which the ITR filing revolves. Accordingly, let us determine the different TDS certificates issued and generated from the government’s TRACES website.

Form Type Certificate For Frequency Due Date
Form 16 Salary Yearly 31 May
Form 16A Non-salary payments Quarterly 15 days from the due date for filing a return
Form 16B Property Every Transaction 15 days from the due date for filing a return
Form 16C Rent Every Transaction 15 days from the due date for filing a return

TDS Credit Certificate

Knowing your tax credits is essential for ITR filing, especially an income tax refund. Accordingly, individual tax credits are available under Form 26AS generated for each PAN card from the government’s TRACES portal.

It is a consolidated tax statement comprising all the payment receipts during the financial year and Its TDS alongside, specific to the PAN card. Additionally, its accuracy depends on the deductor using your PAN card details and filing TDS returns without any flaws. In addition, the statement also contains all the advance income taxes paid during the financial year against the income. Therefore, Form 26AS is the culmination of TDS, and you cannot claim an IT refund without its reflection in the statement.

Applicable TDS Rates

The applicable TDS rates vary according to the nature of income and the status of the PAN cardholder. So, let us check them out.

TDS Rate Chart for Chart for Resident and Non-resident Indians
Section Income Class Resident (%) NRI (%)
192 Salary Income tax slab Income tax slab
194B Card games, lotteries, etc. 30 30
194BB Winnings from horse racing 30 30
194EE NSS deposits 10 10
194F Repurchase of units by UTI and mutual funds 20 20
194G Commission/ income on lottery ticket sales 5 5
194LBB Income from investment fund 10 30
194LBC Income from securitization fund under Section 115TCA 25 30

In addition to the rates described in the above grid, residents and NRIs have a bunch of TDS provisions to contend with. So, the tables below describe specific TDS rates applicable to the individuals separately.

TDS Rates Specific to Resident Indians
Section Income Class TDS Rate (%)
193 Interest on securities 10
194 Other than specified dividends under Section 115-O 10
194A Interest earned on securities 10
194D Insurance commission 5
194DA Payment towards Life Insurance Policy 1
194H Commission on brokerage 5
194I Rent on Plant and Machinery 2
194I Rent on Furniture and Fixture 10

TDS Rates Specific to Non-resident Indians
Section Income Class TDS Rate (%)
195 Payment of other sums 30
Income from investments 20
Income from long-term capital gains (LTCG) 10 to 20
Income from short-term capital gains (STCG) 15
Income from the Indian government or an Indian company 20
Income from Royalty payable 10
Technical fees earned from the government or an Indian company 10
196C Income from units linked to offshore fund 10
196D Income received from institutional security investors 20

New TDS Provisions Union Budget 2022

The new sections inserted in the Union Budget proposals in 2022 cover perquisites and “Crypto” digital currencies for TDS application. So, let us take a quick look.

  • Section 194R: TDS applies to persons providing perks or benefits to residents in profession or business regardless of conversion into money. The applicable rate is 10%, provided the aggregate value of the benefits or perquisites does not exceed Rs.20,000.

  • Section 194S: The new provision applies TDS at 1% for payment of sums for transfer of digital assets. The TDS provision is subject to the aggregate value of transfer not exceeding Rs.10000 during the financial year.

In Conclusion

It is essential to know the provisions of TDS to plan investments and minimize your tax outgo. Moreover, it pays to invest in tax-saving vehicles like insurance policies and provident funds. In addition, submit investment proof to your employer to reduce the TDS on salary income remitted as advance tax payments. However, with proper ITR filing, you can seek refunds for any TDS recovered in excess.

FAQ's

  • Q: What is the TDS rate for bank deposits without a PAN card?

    Ans: Banks apply TDS at 20% on the interest payments to depositors who have not registered their PAN cards.
  • Q: When do you need to submit Forms 15G or 15H to banks?

    Ans: Form 15G is for depositors below 60, while 15H is for the senior citizens seeking TDS exemption. You must submit the form every year in April at the beginning of the financial year.
  • Q: When do you receive Form 16A from banks for TDS applied on interest payments?

    Ans: Banks must issue form 16 A every quarter after filing the TDS return to ensure appropriate tax credits in Form 26AS.
  • Q: Which payments do not come under the purview of the TDS application?

    Ans: TDS does not apply to payments made to the government, RBI, a corporation established under a Central Act and hence exempt from income tax and specific mutual funds under Clause 23D of Section 10.
  • Q: How much is the TDS exemption limit for senior citizens for interest-earning through bank deposits?

    Ans: Senior citizens get a flat Rs.50,000 TDS exemption for interest income from bank deposits and adjusted with taxable income when calculating income tax liability.
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