What is TDS. Full guide (with FAQs).

TDS means Tax Deducted at Source. Under the Income-tax Act, 1961, a certain percentage of payment (salary, interest, rent, professional fees, property purchase, etc.) is deducted by the payer and deposited with the central government. With that, proper payments are made on time and reduce the chances of loss of revenue from tax withholdings.

How TDS Works

• The deductor deducts taxes before the payment is made out.
• The amount deducted is now deposited to the government using Challan ITNS 281.
• The deductor is also responsible for providing a certificate of TDS deduction to the recipient using Form 16 or Form 16A.
• The deductee (taxpayer) can check all TDS details with Form 26AS or AIS on incometax.gov.in.
• At the time of declaring gross annual income in ITR, TDS deducted is adjusted against the final tax liability. This difference is subject to the refund process.

Example:

• Every month, the employer deducts TDS from the salary.
• The bank also deducts TDS @10% on the interest received from fixed deposits.
• The property buyer would deduct 1% TDS on a purchase value greater than ₹50 lakh.

Common Mistakes in TDS

• One common mistake would be not checking Form 26AS/AIS for mismatch.
• Giving the wrong PAN or not furnishing the PAN --> higher TDS @20%.
• Not remembering to get the TDS statement (Form 16/16A).
• Assuming that TDS was the final cap on taxation and other additional tax liabilities were ignored.
• Not claiming that refund of excess TDS.
• Wrong section/rate of TDS.
• Property buyers tend to forget a 1% TDS deduction u/s 194-IA which they should be deducting.
• The deductors do not file the TDS return after deduction.
• Ignoring the higher TDS rates for NRI transactions.
• Delaying the TDS deposit results in interest and penalty.

Is TDS the same in every state?

Yes. TDS is governed by the I.T. Act, 1961 which is a central law.

• Uniform across all states and Union Territories.
• There are no state-specific TDS rules.
• Here, all compliance happens on the Income Tax portal or TRACES.

Filing of TDS-Online & Offline Modes

For Deductors (who deduct TDS):

Online:

• Pay using a Challan ITNS 281 through the net banking facility.
• Quarterly TDS returns are to be filed on TRACES/e-filing portals.

Offline:

• Deposit challenged at authorised banks.
• File return prepared using Return Preparation Utility (RPU) at TIN-FCs.

For Deductees (income gets deducted):

• No filing of TDS needed.
• Claim the credit/refund at the time of filing ITR.
• Most taxpayers now only file returns online.

FAQs on TDS

1. What is TDS?

TDS is tax collected at the source of income, deducted by the payer and deposited with the government.

2. Who deducts TDS?

Employers, banks, tenants (on rent above threshold), property buyers, businesses making professional payments, etc.

3. What happens if the wrong PAN is given?

TDS will be deducted at a higher rate of 20%.

4. Is TDS applicable on salary?

TDS applies to all employees, based on the estimated annual income and tax slab of the employee.

5. What is Form 16?

It is the TDS certificate issued by employers for salary payments.

6. What is Form 16A?

TDS certificate for income other than salary (e.g., interest, professional fees).

7. How to check TDS deducted?

Log in at incometax.gov.in. Then → view Forms 26AS or AIS.

8. What if more TDS is deducted?

You can claim a refund while filing ITR.

9. Is TDS applicable to property transactions?

Yes. The buyer should deduct 1% TDS u/s 194-IA if the property value > ₹50 lakh.

10. Is TDS the same in all states?

Yes. It is a central law, uniform across India.

11. Can TDS be paid offline?

Yes, through authorised bank branches using Challan 281.

12. Can TDS be filed online?

Yes, through the TRACES/e-filing portal using Challan 281.

13. What is Form 26QB?

Form used by property buyers to pay 1% TDS on property purchases.

14. Do NRIs face different TDS rates?

Yes, there are high rates (e.g., 20%+) for NRIs selling property in India.

15. What happens if the deductor does not deposit TDS?

Mismatch is likely to come in Form 26AS. The deductors shall face penalties.

16. Does TDS mean that no further tax is payable?

No. TDS is merely an advance tax. Total income will determine the final liability.

17. What is the penalty for not deducting TDS?

Interest and penalty under sections 201 and 271C of Income-tax Act.

18. When does TDS have to be deposited?

In general, deduction time shall occur before the next month 7th day. For deductions of March, 30th April is the deadline.

19. What if the TDS return is not filed?

Penalty of ₹200 per day u/s 234E until filing plus possibly a penalty u/s 271H.

20. Is there any threshold limit for TDS?

Yes. Example: Bank FD interest would not be subjected to TDS if interest is ≤ ₹40,000 (₹50,000 if for senior citizens).