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The responsibility of paying the income tax lies on the person receiving the income. However, TDS makes sure that the tax gets deducted from the payment itself in advance.
In this article, we will discuss what TDS is, from its definition to its types and advantages.
Tax Deducted at Source, or simply TDS, was introduced in India to improve the process of tax collection. According to this concept, a person (deductor) who owes another person (deductee) a payment of a certain kind is required to deduct tax at the source and send it to the Central Government.
Based on Form 26AS or a TDS certificate that the deductor issues, the deductee from whose income tax has been deducted at source would be entitled to get credit of the amount deducted.
TDS is based on the idea that anyone who makes a certain kind of payment to another person must deduct tax at the source at the rates prescribed in the Income Tax Act and deposit the same into the account of the government.
By looking at the Form 26AS, the deductee can see or verify the TDS from incomes paid to him. It is the responsibility of each deductor to provide a TDS certificate which attests to the amount withheld in the name of the deductee and deposited with the government.
Even while you’re making payments as an individual taxpayer, you are required to deduct TDS on certain payments made.
Here are the various types of payments which attract TDS:
To govern the various kinds of payments on which TDS is applicable, the Indian Tax system has several sections. Here is a list of the common types of payments on which the tax is to be deducted at source, along with the relevant sections (of the Income Tax Act) and applicable TDS rates.
|
Section of the Income Tax Act |
Type of Payment |
TDS Rate (in Percentage) |
|
192 |
Salary Income |
As per the slab rates |
|
192A |
Premature withdrawal of Employees Provident Fund (EPF) |
10% (30% if the PAN is not provided) |
|
193 |
Interest earned on securities |
10% |
|
194 |
Dividend |
10% |
|
194A |
Interest income earned other than that on securities |
10% |
|
194A |
Interest that is earned apart from post office/ bank securities |
10% |
|
194B |
Income earned through the winnings from card games, lotteries, and/or other games |
30% |
|
194BB |
Earnings from horse races |
30% |
|
194D |
Insurance commission payments |
Companies: 10%Individuals: 5% |
|
194DA |
Life insurance policy payments |
5% |
|
194E |
If the payment is made to sportsman who is a non-resident |
20% |
|
194EE |
In case NSS deposits are sold |
10% |
|
194F |
Payment which is made towards repurchase of units by Unit Trust of India or Mutual Funds |
20% |
|
194G |
Any commission received when lottery tickets are sold |
5% |
|
194H |
Brokerage or Commission |
5% |
|
194I |
Plant & Machinery Rent / Rent of Furniture, Building, or Land |
2% / 10% |
|
194IA |
If Immovable Property is transferred (apart from agricultural land) |
1% |
|
194IB |
Rent |
5% |
|
194IC |
In case monetary compensation is paid (under the Joint Development Agreements) |
10% |
|
194J |
Fee paid for technical/professional services |
10% or 2% |
|
194LA |
Compensation that is paid in case an immovable property is purchased |
10% |
|
194LB |
Interest which is earned from an Infrastructure Bond (for NRI) |
5% |
|
194LBB |
Investment fund which pays income to the unit holder [except for incomes that are exempt under Section 10 (23FBB) |
10% |
|
194LBC |
Income generated from investments in securitisation trust (as per Section 115TCA) |
25% |
|
194LD |
Interest in some government securities and bonds |
5% |
|
194N |
Any cash withdrawals made by an individual from a bank account which exceed the amount of Rs.1 crore during the financial year. |
2% |
|
194Q |
Goods that are purchased |
0.10% |
|
194P |
For senior citizens who are above 75 years |
As per the slab rates |
|
194S |
Virtual Digital Assets payment |
1% |
|
206AA |
In case PAN is not available |
20% of rate in force or double the rate as per the act, whichever is higher |
|
206AB |
In case ITR is not filed at higher rates |
Rate in force or double the rate Double the rate as per the act or 5%, whichever is higher |
Source: Bank Bazaar
Note: The TDS rates are subject to change. In order to stay updated with the latest TDS rates, you can visit the official website of the Income Tax Department.
The TDS deducted is defined by how much an individual earns. Whether we talk about the taxpayers or the Government of India, the Tax Deducted at Source has proved to be advantageous for both. Here are the main advantages of TDS, which highlight its importance.
One of the major concerns of the Government of India is tax evasion. To help with this problem, Tax Deducted at Source plays an essential role. TDS prevents tax evasion and keeps a check on the taxes paid by the taxpayers in India.
In addition to this, it creates transparency between the citizens who are paying the tax and the Government. Due to transparency, there is no discrepancy or evasion when it comes to the payment of tax.
TDS is one of the best and the most stable incomes for the Indian government. With this, the Government of India is able to provide the citizens with several basic necessities like water, electricity, law and order, salaries of government employees, advancement and upgradation of science and technology, and so on.
Many individuals face complications while paying taxes. However, with the help of TDS, the tax payment process becomes much easier and smoother for the taxpayers since the Tax Deducted at Source (TDS) gets automatically deducted.
Due to TDS, the burden on tax collectors is reduced since the TDS is deducted automatically. Because of this, the taxpayers are not required to keep a check on the same constantly.
Tax Deducted at Source (TDS) is an essential component of the tax system in India since it ensures efficient tax collection and compliance with the rules and regulations related to income tax. It is important for both individuals and business entities to understand TDS and its implications for maintaining financial discipline and meeting their tax obligations.
Your tax planning can be optimized by staying aware of the latest applicable rates for TDS, exemptions and deductions. This can help you minimize your overall tax burden. In order to ensure accurate compliance with the TDS regulations or TDS returns in India, you can consult with Chartered Accountants and Tax Consultants at Registrationwala.
Hey there, I'm Dushyant Sharma. With the extensive knowledge I've gained in past 8 years, I have been creating content on various subjects such as banking, insurance, telecom, and all the important registration and licensing processes for various companies. I'm here to help everyone with my expertise in these areas through my articles.
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