Tax Deducted at Source (TDS): Meaning, Rules, Forms & Latest Updates
Tax Deducted at Source (TDS) is a mechanism introduced by the Income Tax Act, 1961, to ensure tax is collected in advance from income earned. TDS is deducted by the payer at the time of making certain payments and is then deposited with the government on behalf of the recipient.
What is TDS?
TDS stands for Tax Deducted at Source. It is a type of advance tax collected by the government through the person (deductor) making the payment. It applies to specific incomes such as salary, interest, rent, commission, and professional fees, among others. Once deducted, the recipient (deductee) can claim this amount as a tax credit while filing their Income Tax Return (ITR).
Where is TDS Applicable?
TDS applies to various payments, including:
- Salary
- Commission and brokerage
- Rent
- Interest from banks and securities
- Professional and technical fees
- Contractor/sub-contractor payments
- Compensation on acquiring immovable property
- Life insurance maturity payouts
- Remuneration to company directors
- Winnings from lottery, crossword, game shows, etc.
- Deemed dividend
- Transfer of immovable property (excluding agricultural land)
Examples of TDS Application:
Example 1: Advance & Final Payment
Mr. Paul, a freelancer, receives an advance of ₹40,000 and a final payment of ₹20,000. TDS @10% will be:
- ₹4,000 on the advance
- ₹2,000 on the final payment
- Total TDS: ₹6,000
Example 2: Full Payment After Work
If Mr. Paul receives ₹60,000 after work completion, TDS @10% will be ₹6,000, and he’ll receive ₹54,000.
Who is Responsible for TDS Deduction?
- The payer (individual or organization) making specified payments is liable to deduct TDS.
- TDS must be deducted at the time of credit or actual payment, whichever is earlier.
- If the payee does not provide PAN, TDS is deducted at 20%, or the maximum marginal rate, whichever is applicable.
TDS Return Filing & Associated Forms:
TDS returns are quarterly statements submitted by the deductor to the Income Tax Department. These returns report the TDS deducted & deposited during the quarter.
TDS Return Forms:
TDS Certificates:
Deductors must issue TDS certificates to deductees as proof of tax deducted and deposited.
Due Dates for TDS Return Filing:
Penalties for Non-Compliance:
Late TDS Deduction:
- Interest @1% per month from the date it should have been deducted till actual deduction.
Late TDS Payment:
- Interest @1.5% per month from deduction date till payment.
Late Filing of TDS Return:
- Penalty: ₹200 per day (u/s 234E) till return is filed.
- Maximum penalty = amount of TDS deducted.
How to Check TDS Deducted Online?
You can verify TDS details via Form 26AS by following these steps:
- Visit incometax.gov.in.
- Register/Login using your PAN and password.
- Go to “View Form 26AS” under the e-Filing tab.
- It will redirect to the TRACES portal where you can download Form 26AS.
Form 26AS provides a consolidated view of:
- TDS deducted
- TCS collected
- Advance/self-assessment taxes paid
- Refunds received
TDS Refund & Claim:
If excess TDS is deducted, you can claim a refund while filing your income tax return.
Example: If TDS of ₹800 is deducted on a ₹40,000 invoice where only 1% (₹400) is required under Section 194C, the balance ₹400 can be claimed as a refund during ITR filing.
How to Avoid TDS Deduction (If Income is Below Taxable Limit)?
If your income is below the basic exemption limit, you can submit:
- Form 15G (for individuals below 60 years)
- Form 15H (for senior citizens)
- Form 13 to request lower/NIL TDS from the assessing officer
These forms must be submitted annually.
Latest TDS Updates (FY 2024–25):
- Section 194BA: TDS on online gaming income introduced.
- Section 196A: From 1st April 2023, non-residents earning from mutual funds can avail DTAA benefit with a Tax Residency Certificate, reducing TDS from 20%.
- Section 192A: TDS on PF withdrawal without PAN reduced from maximum marginal rate to 20%.
- Section 193: No TDS exemption on interest from listed debentures.
- Section 194N: TDS threshold on cash withdrawals by co-operative societies increased from ₹1 crore to ₹3 crores.
Frequently Asked Questions:
To collect tax in advance at the income source, ensuring timely revenue to the government and preventing tax evasion.
TDS applies to specified incomes like salary, interest, rent, commissions, etc.
TDS = Average Tax Rate × Estimated Income
For salaried employees, TDS is deducted based on the average rate of income tax applicable for the year.
Yes. While not mandatory, you can file a NIL return if no TDS is deducted during a quarter.
Yes. If PAN is not provided, higher TDS (20%) is deducted.
Final Thoughts:
Tax Deducted at Source (TDS) is a crucial part of India’s income tax compliance system. Whether you are a salaried employee, freelancer, business owner, or deductor, knowing the applicable TDS rules, forms, due dates, and penalties helps you stay compliant and avoid legal hassles.
Disclaimer: This blog is for educational and awareness purposes only. The views are personal and not intended as financial advice or product recommendations.
