Tax Deducted at Source (TDS) DeMystified
TDS stands for tax deducted at source, it is also known as withholding taxes in many countries. As per the Income Tax Act, any company or person making a payment is required to deduct tax at source if the payment exceeds certain threshold limits. TDS has to be deducted at the rates prescribed by the tax department.
From the perspective of the person response to make any payment , the required TDS amount is to be paid to the Government and deducted from the recipient. On the other hand from the perspective of the receiver , the TDS so deducted is credited to his account denoting income tax paid in advance. The tax so deducted can be adjusted against any income tax liability when filling of the income tax return or refunded back if there is no tax liability.
The company or person that makes the payment after deducting TDS is called a deductor and the company or person receiving the payment is called the deductee. It is the deductor’s responsibility to deduct TDS before making the payment and deposit the same with the government. TDS is deducted irrespective of the mode of payment–cash, cheque or credit–and is linked to the TAN ( tax deduction account number) of the deductor and PAN of the deductee.
Some common payments on which TDS is deductible are :
- Interest payments by banks
- Commission payments
- Rent payments
- Consultation fees
- Professional fees
However, individuals are not required to deduct TDS when they make rent payments or pay fees to professionals like lawyers and doctors unless they are in business.
Some TDS like TDS on purchase of property is to be paid by all categories of tax payers.
TDS is to be deposited commonly on a monthly basis. The details of the TDS so deducted and paid to the government have to be filed in the form of a TDS return. A TDS return has to be filed quarterly. After filling of the TDS return , the deductor can issue form 16 / 16A and also the electronic ledger ( Form 26AS) of the deductee is updated.
For TDS advisory, compliance, returns, troubleshooting and related issues please feel free to get in touch to get a hassle free – no frills advisory for the first time. We provide end to end services from TDS payments to returns, issue of certificates, litigation etc.