TDS or Tax deducted at source

TDS is Tax Deducted at Source –  The payer has to deduct an amount of tax based on the rules prescribed by the income tax means that the tax is deducted by the person making payment. Tax is deducted based on the tax slab you belong to each year. Likewise, if you earn interest from a Fixed Deposit, the bank also deducts TDS.

To keep the revenue source stable the government collects this TDS throughout the year which helps to prevent tax evasion from fraudulent individuals. Paying a huge amount of tax annually becomes an issue for many taxpayers and hence the concept of TDS helps taxpayers “pay as you earn”.

TDS is deducted after your annual income starts crossing over a prescribed threshold limit. The IT Department has specified income tax slabs and TDS starts getting deducted as per the slabs. TDS has benefits for both the government as well as the taxpayers.Some of the advantages of TDS are:

  • It reduces the chances of Tax Evasion
  • It becomes a steady source of revenue for the government
  • Tax collection base is widened because almost every taxable entity pays TDS in one form or another
  • A convenient system as Tax get deducted automatically instead of having to make payments for filing

When can a TDS be deducted and by whom

Any person making specified payments as per the Income Tax Act are required to deduct TDS at the time of making such specified payment. But no TDS has to deducted if the person making the payment is an individual or HUF whose books are not required to be audited.

If you provide investment proofs (for claiming deductions) to your employer and your total taxable income is below the taxable limit – you do not have to pay any tax,Therefore no TDS should be deducted on your income. Likewise, you can submit to the bank if your total income is below taxable limit so that they don’t deduct TDS on your interest income.

In case if you are unable to submit proofs to your employer or if your employer or bank has already deducted TDS and your total income is below the taxable limit – you can file a return and claim a refund of this TDS.

TDS Certificate

The section 203 of the Income-tax Act, 1961 specifies the regulations for issuing/ furnishing something called a TDS certificate. This certificate has to be issued by the deductor of the tax to the deductee listing down the details of the tax deductions made in the particular payment. Banks also issue the certificate when they make deductions on the pension payments, capital gains etc.

TDS credits in Form 26AS

It is significant to understand how TDS is linked to your PAN. TDS deductions are linked to PAN numbers for both the deductor and deductee. In case TDS has been deducted from any of your income you must go through the Tax Credit Form 26AS. This form is a consolidated tax statement which is available to all PAN holders. Hence all TDS is linked to your PAN, this form lists out the details of TDS deducted on your income by each deductor for all kinds of payments made to you – whether they are from salaries or interest income – all TDS linked to your PAN is reported here. This form also has income tax directly paid by you – as advance tax or self-assessment tax. Therefore, it becomes important for you to mention your PAN correctly, wherever TDS may be applicable on your income.