Introduction
What is TDS or Tax Deducted at Source & Why Is It Important?
TDS (Tax Deducted at Source) is tax collected at the time of payment or when the amount is credited, whichever is earlier. For example, your employer deducts tax from your salary and deposits it with the government.
It ensures steady tax collection throughout the year, reduces tax evasion, and helps individuals pay taxes in smaller parts rather than a lump sum later.
Tax Deducted at Source (TDS) collects income tax in India under the Indian Income Tax Act of 1961. TDS is managed by the Central Board for Direct Taxes (CBDT), part of the Department of Revenue and managed by the Indian Revenue Service (IRS).
TDS plays a crucial role in India’s fiscal system, aiming to collect taxes directly from the source of income.
What is TDS? Understanding the Meaning & Concept
If you’re wondering what is TDS, it’s a method of collecting income tax in advance from the source of income. This ensures transparency and better tracking of taxes paid.What is TDS in income tax? It’s the tax collected by the government directly from your income before you receive it..
TDS Meaning in India
Tax Deducted at Source (TDS) refers to the tax deducted when the money is credited to the payee’s account or at the time of payment, whichever is earlier. The purpose of TDS is to collect tax directly from the source of income.
The deductor is required to make a specified payment. The deductor must deduct tax at source and remit it to the Central Government’s account. The payment, minus the TDS, is then paid to the deductee.
The deductee whose income tax has been deducted at the source would be entitled to a credit for the amount deducted based on the Annual Information Statement (AIS) or TDS certificate issued by the deductor.
Income Sources Subject to TDS
How TDS Applies to Different Income Types
Once you understand what is TDS, the next step is to know how it applies to many types of income. Each type has its rate and rules. What is TDS in these cases? It’s the deduction you see on your salary, interest, rent, and other payments.
The next section will explain what is tds in salary.
Salary and TDS Deduction
If you earn a salary, your employer deducts TDS every month. The amount depends on your salary and the tax slab. This is what is TDS in salary.
TDS on Interest Earned from Banks and Securities
Effective from April 1, 2025, banks will deduct Tax Deducted at Source (TDS) if your interest income exceeds ₹50,000 in a financial year for non-senior citizens, and ₹1,00,000 for senior citizens.
Commission, Brokerage, and Professional Fees
TDS is deducted if you receive commission, brokerage, or professional fees above a certain limit.
Rent and Immovable Property Transactions
Effective from April 1, 2025, if your rent exceeds ₹50,000 per month, you must deduct TDS at 2%. For purchasing property valued at ₹50 lakh or more, TDS at 1% is applicable on the total sale consideration.
Winnings from Lotteries, Games, and Other Prizes
Effective from April 1, 2025, if you win money from a lottery, game show, or any similar contest, a Tax Deducted at Source (TDS) of 30% will be applied to any single winning exceeding ₹10,000. This TDS is deducted before the prize money is paid to you.
Read more about TDS on rent in India.
How is TDS Deducted? Mechanism and Calculation
Who is Responsible for Deducting TDS?
Understanding TDS Deduction Rates
What is TDS? It’s the tax withheld by the payer, not you. The TDS rate depends on the type of payment and whether your PAN is shared. What amount TDS is deducted depends on the nature of the payment and threshold limits set by the Income Tax Department. If TDS is not deducted or paid, the deductor may face interest, penalties, expense disallowance, and even imprisonment (ranging from 3 months to 7 years) with fines.
Examples of TDS Deduction
Example 1: TDS on Freelancer Payments
If a company pays a freelancer ₹50,000 for a project, TDS at 10% (i.e., ₹5,000) is deducted under Section 194J of the Income Tax Act. The freelancer receives ₹45,000. No TDS is required if the payment does not exceed ₹50,000 in a single transaction or aggregate during the financial year.
Example 2: TDS Deduction on Salary
If your monthly salary is ₹60,000 and your estimated annual income places you in the 10% tax slab, your employer may deduct TDS of approximately ₹6,000 per month under Section 192. The exact TDS amount depends on your total taxable income, applicable deductions, exemptions, and the chosen tax regime (old or new).
Example 3: TDS on Bank Fixed Deposit Interest
If you earn ₹60,000 as interest from fixed deposits in a financial year, the bank will deduct TDS at 10% (i.e., ₹6,000) under Section 194A. However, suppose your total income is below the taxable limit. In that case, you can submit Form 15G (for individuals below 60 years) or Form 15H (for senior citizens) to the bank to prevent TDS deduction.
TDS Returns and Forms
What is a TDS Return & Who Should File It?
A TDS return is a quarterly statement filed by the deductor. It shows all TDS deductions made and deposited.If you’re still asking what is TDS return is, it’s simply a record submitted to the government about the tax deducted from your payments.
Types of TDS Deductions in India
Below is a tabular list showcasing various TDS deductions in India, current TDS rates, and relevant sections from the Income Tax Act. It includes specific deductions such as tax deduction at source from salary and TDS on flat rent, highlighting the broad range of rules for TDS deduction.
| Income Type | Section | TDS Rate (%) |
| Salaries (deduction of tax at source from salary) | 192 | As per the Income Slab |
| Interest on securities | 193 | 10 |
| Dividends | 194 | 10 |
| Interest other than Interest on securities | 194A | 10 |
| Winnings from lotteries and crossword puzzles | 194B | 30 |
| Winnings from horse races | 194BB | 30 |
| Payments to contractors and subcontractors(Exempt up to ₹30,000 for individual bills or ₹1,00,000 for aggregate in a financial year.) | 194C | 1 (Individuals/HUF), 2 (Others) |
| Insurance commission | 194D | 5 |
| Payments in respect of deposits under National Savings Scheme | 194EE | 10 |
| TDS on flat rent | 194I | 10 |
| TDS on Purchase of property (where the property’s sale consideration or the stamp duty value is ₹ 50,00,000 lakhs or more). | 194IA | 1 |
This table is not exhaustive but covers some key sections and rates, demonstrating the wide application of rules for TDS deduction.
TDS Forms Required
Several forms are required for TDS compliance.
| Form ID | Description | Frequency |
| Form 24 | This form is used for the yearly submission detailing tax deducted at source from salaries as per Section 206 of the Income Tax Act, 1961. | Yearly |
| Form 26 | Used for the annual reporting of tax deducted at source for transactions other than salaries under Section 206 of the Income Tax Act, 1961. | Yearly |
| Form 27 | A quarterly report for taxes deducted at source on payments like interest, dividends, or other amounts to specified individuals. | Quarterly |
| Form 27E | It is an annual report on tax collection governed by Section 206C of the Income Tax Act 1961. | Yearly |
| Form 24Q | A quarterly report that details the tax deducted from salaries at the source. | Quarterly |
| Form 26Q | This quarterly report covers the tax deduction at source for payments other than salaries. | Quarterly |
| Form 27Q | Quarterly tax report deducted at source from payments like interest, dividends, or other sums to non-residents. | Quarterly |
| Form 27EQ | Quarterly report on the collection of tax at source. | Quarterly |
You can also make a taxation checklist to ensure all necessary forms and documents are prepared and submitted correctly.
The Annual Information Statement (AIS) and Form 26 AS
The Annual Information Statement (AIS) in India is a detailed tax document that offers a broad view of a taxpayer’s financial activities within a fiscal year, extending beyond the scope of Form 26AS.
It shows various financial transactions, including high-value transactions, property dealings, and share transactions, reported to the Income Tax Department by entities like banks and mutual funds.
It aims to simplify tax filing by compiling a taxpayer’s financial data in one place, aiding in accurate income tax return submissions, and assisting the department in pre-filling returns.
Although AIS provides a more extensive data set than Form 26AS, it hasn’t replaced it.
Form 26AS contains tax deductions, collection details, and advance and self-assessed tax payments. Both AIS and Form 26AS are crucial for taxpayers, serving complementary roles in ensuring accurate and comprehensive tax return filing. Taxpayers should review both documents to reconcile their financial and tax records thoroughly.
TDS Deduction: Deductor and Guidelines
Who is responsible for the deduction of TDS?
The deductor (employer or payer) is responsible for deducting TDS before making any payments. The deductor can be an individual, a partnership firm, a company, etc., making specified payments mentioned under the Income Tax Act.
How to deduct TDS?
The TDS rate depends on the nature of the payment, and the deductor must deduct TDS at the applicable rates. Deductors should file an e-TDS return per Section 206 of the Income Tax Act. This aligns with the guidelines set on August 26, 2003, by the CBDT for filing TDS returns electronically. TDS is deducted at a higher rate if the deductee does not have a PAN.
TDS Filing Process
Requirements for Submitting TDS Return
The person submitting the return must possess the following:
- An active TAN registered on the e-filing website
- A correctly generated FVU file using the Return Preparation Utility (RPU) from the TIN-NSDL website
- Digital Signature Certificate (DSC) registered on the e-filing portal if using DSC for upload
For those opting to upload via EVC, the main bank account details must be pre-validated.
How to Upload Statements for TDS Returns?
The deductor must prepare and upload TDS statements using Return Preparation Utility (RPU) provided by the Income Tax Department or any other third-party software.
After preparation, the statement should be validated using File Validation Utility (FVU).
How to Submit TDS Return on the e-Filing Website?
- Access the Website and Sign In: Use your TAN to sign in on the e-filing website.
- Navigate to the TDS Return Option: Select e-File > Income Tax Forms from the main menu> File Income Tax Forms.
- Locate the Relevant Form: Find the form you need to file by clicking the “File Now” button under the Tax Deducted at Source – TDS Form section.
- Begin the TDS Form Submission: Click “Let’s Get Started” to proceed.
- Fill in the Necessary Information: Provide the required details, including selecting the form, entering the financial year and quarter, choosing the upload type, and uploading the TDS zip file.
- Complete the Verification of TDS Return: To finalize the submission, use the OTP sent to your registered mobile number for verification.
A confirmation message will be displayed once the process is completed.
You can still authenticate the TDS statements using an Electronic Verification Code (EVC) if a DSC is not set up.
TDS Due Dates for Return Filing
Quarterly TDS Returns:
- 31st July for Q1 (April-June)
- 31st October for Q2 (July-September)
- 31st January for Q3 (October-December)
- 31st May for Q4 (January-March)
When Can You Claim a TDS Refund?
Scenarios Where TDS is Deducted in Excess
If your total income is below the taxable limit but TDS was deducted, you can claim a refund.
How to Claim a TDS Refund While Filing ITR?
Mention your TDS details in your income tax return (ITR). If TDS exceeds your tax payable, you will receive a refund.
Filing Form 15G or 15H to Avoid TDS Deduction
You can submit Form 15G (below 60 years) or 15H (60 and above) to the bank if your income is not taxable.
Penalty Provision
Regulation Regarding Tax Deduction
Failure to deduct TDS can lead to a penalty equal to the amount not deducted.
Regulations Regarding TDS Payment
Late payment of TDS invites interest at 1.5% per month.
Regulations Regarding TDS Return Filing
Late filing can result in a penalty of Rs. 200 per day, up to the total TDS amount.
Due Dates of Different Forms
| Form | Due Date |
| Form 24Q | 31st July, 31st Oct, 31st Jan, 31st May (for 4 quarters) |
| Form 26Q | Same as above |
| Form 27Q | Same as above |
| Form 26QB | Within 30 days from the month-end of the transaction |
| Form 26QC | Same as above |
Advantages & Disadvantages of TDS
How TDS Ensures a Smooth Tax Collection Process?
- Regular Tax Collection:
TDS ensures that taxes are collected at the source, such as salaries, rent, or fees, providing the government with a steady revenue stream throughout the year to fund services and infrastructure. - Reduces Year-End Burden:
For taxpayers, TDS breaks down tax payments across the year, making them easier to manage and reducing the risk of large dues or defaults during tax filing. - Encourages Honest Filing:
As TDS is deducted and reported by the payer, it creates a clear income trail. This transparency promotes accurate filing, and taxpayers can track deductions through Form 26AS.
Challenges Faced by Taxpayers Due to TDS Deductions
When you understand what is tds in income tax, you can understand the following challenges that taxpayers face.
1. TDS on Non-Taxable Income:
TDS is sometimes deducted even when a person’s total income is below the taxable limit, especially if Form 15G or 15H isn’t submitted. This leads to unnecessary deductions and the need to claim refunds.
2. Delay in Refunds:
Refunds for excess TDS can be delayed due to mismatches between Form 26AS and the Income Tax Return (ITR), pending verifications, or technical issues. These delays can cause financial stress for taxpayers waiting on refunds.
3. Tracking TDS Deductions:
Taxpayers must regularly review Form 26AS to track TDS deductions and verify their accuracy against Form 16/16A and personal records. This helps identify discrepancies, ensures accurate tax credit, and avoids notices from the tax department. It also helps verify on what amount is TDS deducted and if it was deducted on the correct income.
Conclusion
Understanding what is TDS helps you stay on top of your taxes. TDS affects everyone, irrespective of who you are – whether you are salaried, a freelancer, or a landlord.. Check your Form 26AS regularly and file your returns on time.
FAQ
Who is responsible for the deduction of TDS?
The deductor (employer or payer) is responsible for deducting TDS before making any payments. The deductor can be an individual, a partnership firm, a company, etc., m who is making specified payments mentioned under the Income Tax Act.
How to deduct TDS?
You can check your TDS deductions in the Annual Information Statement (AIS) or Form 26AS, which is available on the e-filing website of the Income Tax Department or through your net banking account if your PAN is linked to it.
What are the penalties for late TDS filing?
You may have to pay Rs. 200 per day, up to the amount of TDS.
Can I get a refund for the excess TDS deducted?
Yes, while filing your ITR, you can claim the excess amount.
How do I check if my employer has deposited TDS?
Check your Form 26AS on the income tax portal.
Is TDS applicable to self-employed individuals?
Yes, clients may deduct TDS on your payments.
What is the difference between TDS and advance tax?
Others deduct TDS before paying you. Advance tax is paid directly by you.
How can I apply for lower or no TDS deduction?
Submit Form 13 to the Income Tax Department for lower TDS.
Do senior citizens have to pay TDS on interest income?
Yes, but they can submit Form 15H to avoid it if their income is not taxable.
I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.
