The TDS deduction or tax deducted at source is usually carried out at the rate of 10% on the income that is earned from recurring deposits and fixed deposits as well as the income that is earned as salary by holding a professional position.
Any bank or company that pays interest to residents or any institution that employs professional servicemen is responsible for carrying out a tax deduction at source when making payments.
It is important to note that neither HUF’s nor individuals have to engage in TDS deductions at any point of time. They will only be required to do so if they are involved in professions where the gross receipts amount to more than 2500000 INR or if they are involved in business where the annual turnover is valued above 1 crore INR.
The TDS deductions are those that usually have to be carried out within the financial year in which the interest from deposits is being paid. It has recently been informed by the government of India that TDS shall not be deducted on any interest that is paid to Micro Units Development and Re-finance Agency Limited or MUDRA.
Important Things to Know about TDS
Applies to Income Earned from Fixed Deposits
The tax deducted at source or TDS is something that almost every person is exposed to when investing in fixed deposit and recurring deposit schemes at banks and financial institutions. This is a particular form of tax deduction that is taken care of by the financial authorities from their end when they pay an interest to their customers.
Can also apply for Salaried Income
While the rate at which the banks carry out TDS is 10% employers of salaried professionals may also carry out TDS deductions as per rates of income tax slab that are applicable. In fact may deduct as much as 20% as TDS if the account holders PAN information is not available.
For the majority of the payments that are carried out, the rates of TDS happen to be those that have been determined by the Income Tax Act of 1961. TDS is always deducted by institutions or persons making payments on the basis of such specified rates.
No TDS Deductions for Persons with Income below Taxable Limit
- If investment proofs are submitted to the employer for the purpose of claiming deductions and the total taxable income of the person also happens to be below the existing tax limit then a person shall not be expected to pay any tax.
- No TDS shall be deducted at all from the person’s annual income.
- For those who have fixed deposit or recurring deposits at banks,
- Form 15H and Form 15G can be submitted to the bank authorities if their total income happens to be below the tax limit so that TDS deductions are not made from the interest that they earn from their bank deposits.
- If a person is unable to provide any proof of investment but earns a total income that is below the taxable limit then such a person can file returns and claim refund for the tax that is deducted at source.
- While the process for doing so is quite a long drawn out one, it does get completed eventually.
Easy and Simple Way of Carrying out TDS Deductions Online
The process of engaging in TDS deductions is a very easy and simple one as it can be carried out online. There are several online TDS calculators that can be used to find out the exact amount of TDS to be deducted for a certain bank holder.
The TDS calculators online are a hundred percent accurate and usually generate the correct figures of the amount that must be deducted at source. The TDS calculators that are accessible online are those that can be made use of for free even if these are used on a regular basis.
How are PAN and TDS Related?
- It is always necessary to understand the correlation between TDS and PAN as TDS deductions are always linked to the PAN numbers for persons carrying out tax deductions as well as persons from whom tax is being deducted.
- If the TDS has been deducted from a person’s income then it becomes necessary to go through Tax Credit Form 26 AS.
- Such a form comprises one consolidated tax statement that is made available to all those holding a Personal Account Number or PAN.
- As the TDS is linked with PAN, such a form will list all the details of the TDS that is deducted on the person’s income by every deductor with regard to every kind of payment that has been made to that person, irrespective of whether these are income from interest or income from salaries.
- This form also contains details of self assessment tax payments and advance tax payments and it thus becomes imperative to mention the correct PAN number wherever TDS can be made applicable on the income.
Some Excerpts from the TDS Tax Slab for Financial Year 2016 – 2017
Category being Taxed
TDS Rate with Pan
TDS Rate without Pan
Premature Withdrawal from
Employee Provident Fund
Interest on Securities
Winning from Lotteries
Winning from Horse Race
What is MUDRA?
Loans are provided at Low Rates of Interest
The MUDRA Bank or Micro Units Development and Re-finance Agency Bank, is a well known public sector bank in India. This is a bank that provides loans at very low interest rates to several micro finance institutions across the country which upon receiving such loans provide micro finance to MSME’s.
Clients are placed IN 3 Main Categories
The bank classifies its clients into three main categories namely Shishu, Kishore and Tarun. The first category is allowed to be sanctioned loans up to 50,000 INR. The second category can receive loans up to 500000 INR and the third category may receive loans up to 1000000 INR.
Loans Primarily Meant for Shop Keepers and Vendors
An additional sum of money amounting to 1 trillion INR will be provided by the government to the market. This shall be allocated as 40% to Shishu, 35% to Kishore and 25% to Tarun.
People who are eligible to borrow from the MUDRA bank are artisans, vegetable and fruit vendors, shop keepers and owners of small manufacturing units. The repayment schemes are quite flexible so as to convenience the customers as much as possible.
What are Other Ways of Avoiding TDS Deductions?
- Another way by which TDS deductions can be prevented to a considerable extent is by investing in mutual funds.
- The mutual funds are open ended equity funds that allow people to start investing with an amount as minimal as 5000 INR.
- Mutual funds are those that come with a lock in period for 3 years only and it gives investors the opportunity to earn huge amounts of money through growth in equity.
- TDS deductions come down by almost 50% for those who investment in mutual funds schemes on a regular basis.
- There are many mutual funds schemes that are worth opting for in order to be able to prevent TDS deductions, such as the Axis Long Term Equity Fund, Franklin India Tax Shield Fund, ICICI Prudential Tax Plan, Canara Robeco Equity Tax Saver Fund and the Religare Invesco Tax Plan.
- There are no maximum limits that investors need to adhere to when investing in mutual funds.
- Investors can also opt for a systematic investment plan or SIP in order to be able to pay their investments in a disciplined and organized way.
- By opting for SIP investors can pay an amount as minimal as 500 INR towards the mutual fund every week, month or in every financial quarter.
- There are online mutual funds calculators that can be used by prospective investors to see how much return they can expect by making these investments and also the amount of income tax including TDS they are going to be able to save.
- The mutual funds calculators that are available for access online and are quite easy to use and may also be used for free.
- These are known to operate on high quality software products and are seldom known to slow down or cause problems for users.
No Need to Deduct TDS for MUDRA
It has been recently notified by the Central Government that MUDRA or the Micro Units Development and Refinance Agency Limited will not be subject to TDS deduction with reference to the 3rd clause in the 3rd sub section of Article 19 A which states that TDS shall not be deducted for any financial corporation that has been established by and which happens to be under a Provincial, State or Central Act. TDS may also not be deducted from interest that is paid to the Life Insurance Corporation of India.
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