Tax Deducted at Source(TDS), is a system of indirect taxation introduced by Indian government. It is mechanism for collecting income tax directly at source of income generation. Under TDS, person or entity making specified payments as rent,salary, interest, commission, etc.
Deducts a certain percentage of tax before making the payment to payee and deposits it with government. Here are list of points about TDS in India:
1. Applicability: TDS applicable to various payments made by the businesses, individuals, and government entities. Common instances like salary, interest on fixed deposits, rent, professional fees, and also contract payments.
2. TDS Rates: Different type of payments have different TDS rates prescribed by government.
TDS rates can change depending on the nature of payment and the income tax laws in force.
3. TAN Number: Any person or entity responsible for deducting TDS must obtain a Tax Deduction and Collection(TAN) Account Number from the Income Tax Department. This TAN is used for TDS reporting and deposit.
4. TDS Deduction and Payment: The person or an entity responsible for making payment is required to deduct applicable TDS amount and deposit it with government within the specified due dates.
5. TDS Certificates:After deducting the TDS, deductor must issue a TDS certificate to t payee. Form 16 is the commonly used TDS certificates for the salaried employees, while Form 16A is used for the other payments.
6. TDS Return Filing: Deductors required to file TDS returns periodically, typically on quarterly basis, using Form 24Q, 26Q. Depending up on the nature of payments. These returns provide the details of TDS deducted and deposited.
7. TDS Credit: TDS amount deducted from your income is credited to (Permanent Account Number) PAN with the Income Tax Department. You can claim credit for TDS amount while filing your income tax returns.
8. TDS Thresholds:In many of the cases, TDS is not deducted if payment made falls below specified threshold. For instance there are thresholds for TDS on interest income from the banks and post offices.
9. TDS Exemptions and Deductions: Some individuals and payments are exempt from TDS deductions and certain deductions are allowed before calculating the TDS. For example, individuals can be provide Form 15G or 15H to banks to prevent TDS on the interest income if their total income is below taxable limit.
10. TDS Refunds: If TDS deducted from your income exceeds your actual tax liability, you can also claim a refund by filing an income tax return.
TDS is a mechanism to ensure the regular inflow of tax revenue to government and to prevent the tax evasion. It shifts responsibility of tax collection from recipient of income to the payer, making it as an essential component of the India’s tax collection system