We all have heard about TDS and might have also seen it get deducted from our salary, but do you understand what it is and why is it deducted? Is it only deducted from our salary or do we pay TDS on something else too?
In this article, we shall help you to understand this concept in a better way.
What is TDS?
TDS stands for tax deducted at source, it was introduced by the Income Tax Department to collect tax from the very source of income instead of depending on the person earning to pay taxes.
TDS is generally lower than the actual income tax rate one pays. And it forces the recipient (of income) to declare their income as the government already has the information. Also, in case the TDS collected is more than what you owe the government, you can always claim a TDS refund.
Rates prescribed for different types of payments
There are over 20-25 sections that prescribe different types of payments on which tax is deductible at the source. You can learn more about it here.
How to claim your TDS Refund?
Where you have earned 50,000 INR in a year and only 45,000 INR is paid to you and 5000 INR is paid to GOI as TDS, then if you are eligible, you can claim a refund of the TDS amount.
File your Income Tax Return within the due date i.e. 31 July of the next financial year.
Where the tax liability for the entire year is less than the TDS deducted for you, you will get a refund. Where it is more than that - you pay the balance as taxes. To compute this, it is very important you check your income, understand in which heads of income you fall under, understand your taxes and consult a chartered accountant who would help you with it.
What are the TDS rules?
There are certain rules set out by the tax authorities regarding TDS, that if followed properly will not end up paying penalties, interest, and fees.
- Tax deduction rules: Tax is required to be deducted at the time of payment getting due or actual payment whichever is earlier. A delay in deduction of tax will attract interest @ 1% per month until the tax is deducted.
- TDS payment rules: Every person is required to pay the tax deducted to the credit of the government by the 7th day of the following month. Non-payment or late payment of TDS will attract interest @ 1.5% per month until the tax has not been deposited.
- TDS return filing rules: TDS returns are required to be filed timely on the 31st day of July, October, January, and May during a financial year. Non-filing or filing of return after the due date will attract fees under section 234E @ Rs 200/- per day until the return is filed. However, this amount shall not exceed the amount of tax.
Once you pay your TDS, you receive a TDS certificate - Form 16/16A. Read here to know more about it. This TDS certificate will help you to file your ITR and claim a refund/ know your tax liability at the end of the financial year.
Wealth Cafe Advice:
If your TDS is getting deducted, make sure you know the source of your income and why the TDS has been deducted. Once you figure these things out, it is important to understand whether you are eligible for the refund and if yes, file your return by 31 July to claim that refund. If there is a payable situation, then you must file the return, pay the taxes and be free from any surprise penalties.