When you earn certain types of income, like rent, commissions, professional fees, salary, or interest, a portion of that money is withheld upfront as income tax. This is called Tax Deducted at Source (TDS). Usually, it’s the person who receives the income who is responsible for paying income tax on it. However, the government uses TDS to ensure that tax is taken out in advance from the payments you receive.

So, let’s say you get paid a commission. Before you receive your full payment, a part of it is already taken out as TDS. You get the remaining amount after TDS is deducted. Then, when you file your taxes, you include the total amount you earned (including what was deducted as TDS). The TDS amount is then adjusted against your final tax bill. In essence, you’re getting credit for the tax that was already deducted from your income upfront.

When should TDS be deducted and by whom?

TDS, or Tax Deducted at Source, should be deducted by any person making specified payments as outlined in the Income Tax Act. However, individuals or Hindu Undivided Families (HUFs) whose books are not required to be audited are exempt from deducting TDS.

There are some exceptions to this rule. For instance, individuals and HUFs are required to deduct TDS at a rate of 5% on rent payments exceeding Rs 50,000 per month, even if they are not subject to a tax audit. Moreover, those individuals and HUFs liable to deduct TDS at 5% do not need to obtain a Tax Deduction Account Number (TAN).

Employers deduct TDS based on the applicable income tax slab rates, while banks typically deduct TDS at a rate of 10%. However, if the bank doesn’t have your PAN information, they may deduct TDS at a higher rate of 20%.

For most payments, the rates of TDS are predefined in the income tax act, and the payer deducts TDS accordingly. If you provide investment proofs to your employer and your total taxable income falls below the taxable limit, you won’t have to pay any tax, and therefore, no TDS should be deducted from your income.

Similarly, you can submit Form 15G or Form 15H to the bank if your total income is below the taxable limit, ensuring they don’t deduct TDS on your interest income. If, however, you haven’t been able to submit proofs to your employer or if TDS has already been deducted by your employer or bank, and your total income is below the taxable limit, you can file a return and claim a refund of the TDS deducted.

A comprehensive list of Specified Payments eligible for TDS deduction, along with the respective rates, is provided in the Income Tax Act.

How and when to file TDS returns?

Filing Tax Deducted at Source (TDS) returns is a requirement for anyone who has deducted TDS. These returns need to be submitted quarterly, and they require various details such as the Tax Deduction and Collection Account Number (TAN), the amount of TDS deducted, the type of payment, and the Permanent Account Number (PAN) of the deductee.

Different forms are prescribed for filing returns based on the purpose of the TDS deduction. Here are the various types of return forms and their corresponding deadlines:

• Form 26Q: Used for TDS on all payments except salaries
• Q1 (April to June): Due by July 31st
• Q2 (July to September): Due by October 31st
• Q3 (October to December): Due by January 31st
• Q4 (January to March): Due by May 31st

• Form 24Q: This form is for reporting TDS on Salary payments.

• Quarter 1 (April to June): Due by July 31st
• Quarter 2 (July to September): Due by October 31st
• Quarter 3 (October to December): Due by January 31st
• Quarter 4 (January to March): Due by May 31st

• Form 27Q: This form is for reporting TDS on all payments made to non-residents except salaries.

• Quarter 1 (April to June): Due by July 31st
• Quarter 2 (July to September): Due by October 31st
• Quarter 3 (October to December): Due by January 31st
• Quarter 4 (January to March): Due by May 31st

• Form 26QB: This form is for reporting TDS on the sale of property.

• Due within 30 days from the end of the month in which TDS is deducted.

• Form 26QC: This form is for reporting TDS on rent payments.

• Due within 30 days from the end of the month in which TDS is deducted.

It’s important to adhere to these due dates to ensure timely compliance with tax regulations. Thus, we ensure regular compliance and avoid Interests and penalties with our expert help.  Our team will keep you updated on any changes that may affect your business. you may connect us at info@taxpertconsultants.com for free consultations.