What is TDS? Applicability, Calculation, Payment & Refund Process

What is Tax Deducted at Source?

TDS is a mechanism under the Income Tax Act, 1961, where the payer (deductor) deducts tax at the time of making specific payments such as salaries, interest, rent, professional fees, commissions, etc. The deducted amount is then deposited with the Income Tax Department.

For example, if a company pays a consultant ₹50,000 and the applicable TDS rate is 10%, the company deducts ₹5,000 and pays the consultant ₹45,000. The deducted ₹5,000 is deposited with the Income Tax Department.

This process ensures timely tax collection and prevents tax evasion.

Who Needs to Deduct TDS?

TDS is deducted by:

• Employers paying salaries exceeding the taxable limit.
• Businesses and Companies making specified payments such as professional fees, rent, or contract payments.
• Banks and Financial Institutions on interest earned above a certain threshold.
• E-commerce platforms deducting TDS on seller earnings.
• Individuals paying rent above ₹50,000 per month (under Section 194IB).
• Listed Companies making dividend payments
• Racecourses deducting TDS on winnings from horse races (Section 194BB).
• Gaming platforms and lottery operators deducting TDS on winnings from games, betting, and lottery (Section 194B and 194BA).

TDS Applicability and Rates

The Income Tax Department has specified TDS rates under various sections of the Income Tax Act. Here are some key TDS rates applicable in India:

The deductor is responsible for depositing the TDS amount with the government and issuing TDS certificates (Form 16, Form 16A, etc.) to the payee.

How is TDS Calculated?

TDS calculation depends on:

• Nature of Payment – Different payments have different TDS rates.
• Threshold Limit – TDS applies only when the amount exceeds the minimum taxable limit.
• Exemptions & Deductions – Some individuals may submit Form 15G/15H to avoid TDS deduction if their total income is below the taxable limit.

Example Calculation:

If an individual earns ₹10 lakh as professional income, and the TDS rate is 10%, the TDS deducted will be:

₹10,00,000 × 10% = ₹1,00,000

Thus, the person will receive ₹9,00,000 after TDS deduction, and the deducted ₹1,00,000 is deposited with the Income Tax Department.

TDS Deduction and Payment Process

Step 1: Deduction of TDS

TDS is deducted at the time of payment or credit, whichever is earlier.

Step 2: Deposit TDS with the Government

• TDS must be deposited before the 7th of the following month using Challan ITNS 281.
• Payments can be made online through the Income Tax e-filing portal or at authorized bank branches.

Step 3: File TDS Returns

• TDS returns must be filed quarterly in Form 24Q (salaries) or Form 26Q (non-salaries).
• The deadline for filing quarterly TDS returns:
• Q1 (Apr-Jun): 31st July
• Q2 (Jul-Sep): 31st October
• Q3 (Oct-Dec): 31st January
• Q4 (Jan-Mar): 31st May

Step 4: Issuance of TDS Certificates

• Employers issue Form 16 to employees showing salary details and TDS deductions.
• Banks and institutions issue Form 16A for non-salary TDS.

How to Deposit/Pay TDS?

Once tax has been deducted at source, the deductor is responsible for depositing the TDS amount with the government within the prescribed timelines. This is typically done online through the authorised tax payment system.

In practical terms, the process usually involves:

• Calculating the correct TDS amount based on the applicable section and rate.
• Selecting the correct challan (such as the relevant TDS/TCS challan) and assessment year.
• Making the payment online using net banking or other permitted payment modes.
• Recording the challan details (BSR code, challan number, date, and amount), as these are required later while filing TDS returns.

Timely deposit matters. Delays can attract interest and penalties, even if the deduction itself was done correctly.

How and When to File TDS Returns?

TDS returns are quarterly statements filed by the deductor to report details of tax deducted and deposited during the quarter. These returns help link the deducted tax to the deductee’s PAN so the credit appears correctly in their tax records.

Broadly, the filing process includes:

• Compiling deduction details: PAN of deductees, amount paid, TDS deducted, and challan information.
• Preparing the relevant TDS return form (such as Form 24Q, 26Q, or others, depending on the nature of payment).
• Uploading the return electronically within the prescribed due date for the quarter.
• Rectifying errors, if any: If mistakes are identified later, a corrected return may need to be filed.

TDS returns are usually due after the end of each quarter, and missing these deadlines can result in late fees and follow-up notices. Accurate and timely filing ensures deductees can claim TDS credit without issues.

TDS Due Dates (Payment, Return & Certificate)

When it comes to Tax Deducted at Source (TDS), adhering to due dates is essential to avoid interest, penalties, or defaults. There are three key due dates that every taxpayer and deductor must be aware of: the payment date, the return filing date, and the TDS certificate issuance date.

TDS Payment Due Date

TDS deducted must be deposited with the government by the 7th of the following month in which the deduction was made. For example, if TDS is deducted in April, the payment to the government must be made by May 7. For the month of March, the due date is April 30. Failure to deposit on time can attract interest under Section 201(1A) of the Income Tax Act.

TDS Return Filing Due Date

TDS returns must be filed periodically for different deductors depending on the category (e.g., corporate or non-corporate). For most deductors, the returns for each quarter must be filed by the following dates:

• Quarter ending June: July 31
• Quarter ending September: October 31
• Quarter ending December: January 31
• Quarter ending March: May 31

These returns are filed in the prescribed format (typically Form 24Q, 26Q, etc.) and detail all TDS deductions, payments, and challans for the period.

TDS Certificate Issuance Due Date

After filing the TDS return, the deductor must issue the TDS certificate to the deductee. The certificate serves as proof of tax deducted and is essential for claiming credit in the deductee’s income tax return. Common certificates and their timelines include:

Form 16: For salary TDS, issued annually by May 31 after the end of the financial year.

Form 16A: For TDS on non-salary payments, generally issued quarterly after the TDS return is filed.
Timely issuance ensures deductees can accurately report and claim TDS credits in their tax filings.

Penalty for Non-Payment of TDS

Non-compliance with TDS rules results in penalties and interest:

Difference Between TDS and Income Tax

While both TDS and income tax relate to the taxation of income, they serve different purposes and operate at different stages of the tax collection process.

Tax Deducted at Source (TDS) is a collection mechanism designed to ensure tax is collected at the point of income generation. Under TDS, the payer (deductor) deducts a certain percentage of tax before making payment to the payee (deductee) on specific types of income such as salary, interest, commission, rent, or professional fees. The deducted amount is then remitted to the government on behalf of the payee. The primary objective of TDS is to reduce tax evasion by collecting tax at the source itself.

Income Tax, on the other hand, is the actual tax liability computed on the total income earned by an individual or entity during a financial year, as per the applicable tax slab rates and provisions under the Income Tax Act. Income tax reflects the net amount payable after considering exemptions, deductions (such as Section 80C, 80D), rebates, and TDS credits already deducted. Taxpayers must file their annual income tax returns reporting all sources of income, claiming applicable deductions, and adjusting TDS already paid or deducted.

In summary, TDS is a mechanism for collecting tax in advance at the time of payment, whereas income tax is the final liability calculated on total income, adjusted for appropriate deductions and credits. While TDS reduces the burden of lump-sum tax payments at year end, the ultimate income tax liability is determined through annual tax filing.

How to Check TDS Online?

You can check TDS status online through the Income Tax e-Filing portal or the TRACES website:

• Login to the Income Tax Portal – Visit www.incometax.gov.in.
• Go to "View Form 26AS" – Check TDS deducted against your PAN.
• Download Form 26AS – Verify TDS credits and claim them while filing Income Tax Returns (ITR).

What is a TDS Certificate?

A TDS certificate is an official document issued by the deductor to the deductee, confirming that tax has been deducted and deposited on their behalf. It acts as proof of TDS and is an important document when filing an income tax return.

Key points about TDS certificates:

• They are issued in prescribed formats (such as Form 16 or Form 16A), depending on the type of income.
• The certificate includes details like PAN of both parties, amount paid, TDS deducted, and challan references.
• Deductees use this information to verify TDS credit and reconcile it with their tax records.

Keeping TDS certificates safely helps avoid mismatches, delays in processing returns, and unnecessary follow-ups during tax assessment.

Claiming TDS Refund: How to Apply for your TDS Refund

If excess TDS has been deducted from your income, you can claim a TDS refund by following these steps:

1. File Your Income Tax Return (ITR)

• Log in to the Income Tax e-Filing Portal (www.incometax.gov.in).
• Choose the appropriate ITR form based on your income.
• Enter your total income, deductions, and TDS details as per Form 26AS.
• If your tax liability is lower than the TDS deducted, the system will show a refund amount.

2. Verify and Submit Your ITR

• After filing, verify your return using Aadhaar OTP, Net Banking, or Digital Signature Certificate (DSC).
• The Income Tax Department will process your return and calculate the refund.

3. Track Your Refund Status

• Visit the ITR Refund Status Portal (www.incometax.gov.in).
• Enter your PAN and Assessment Year to check the refund status.
• Refunds are processed within 30-45 days after ITR processing.

4. Receive Your Refund

• The refund amount will be credited directly to your bank account via NEFT or RTGS.
• Ensure your bank details (IFSC, account number) are correctly updated in your ITR.
• If there is a delay or issue, you can raise a complaint on the Income Tax portal or contact the Income Tax Helpline.

Conclusion

TDS is an important tax collection mechanism that ensures compliance and reduces tax evasion. Whether you are a business owner, employer, freelancer, or investor, understanding TDS rules, rates, and compliance requirements is essential to avoid penalties and streamline tax payments.

For hassle-free TDS filing and compliance, consult a tax professional or Chartered Accountant to manage your tax obligations effectively. Stay compliant, and ensure seamless financial management for your business and investments.