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What is TDS?

What is TDS?

Tax deducted at Source (TDS)is a system introduced by Income Tax Department, where person responsible for making specified payments such as salary, commission, professional fees, interest, rent, etc. is liable to deduct a certain percentage of tax before making payment in full to the receiver of the payment. Instead of receiving tax on your income from you at a later date, the govt wants the payers to deduct tax before hand and deposit it with the govt.

As the name suggests, the concept of TDS is to deduct tax at its source. TDS is one kind of advance tax.TDS is deducted at the time of payment in cash or cheque or credit to the payees account whichever happens earlier.TDS has to be deducted at the rates prescribed by the tax department.

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 deductors responsibility to deduct TDS before making the payment and deposit the same with the government. TDS is deducted irrespective of the mode of paymentcash, cheque or creditand is linked to the PAN of the deductor and deductee.

The recipient of income or deductee receives the net amount (after deducted of tax at source). The recipient will add the gross amount to his income and the amount deducted at source is adjusted against his final tax liability. Basically take credit of the amount already deducted and paid on his behalf.

Example :- Let us take an example of TDS assuming the nature of payment is professional fees on which specified rate is 10%.

XYZ Ltd makes a payment of Rs 50,000/- towards professional fees to Mr. ABC, then XYZ Ltd shall deduct a tax of Rs 5,000/- and make a net payment of Rs 45,000/- (50,000/- deducted by Rs 5,000/-) to Mr. ABC. The amount of 5,000/- deducted by XYZ Ltd will be directly deposited by XYZ Ltd to the credit of the government.

TDS is deducted on the following types of payments:

  • Salaries
  • 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.

A deductordeducts TDS at the income tax slab rates mentioned in the income tax act whereas Banks deduct TDS @ 10%or they may deduct @ 20% if they do not have your PAN information.

If you submit 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. And therefore no TDS should be deducted on your income. Similarly you can submit Form 15G and Form 15H to the bank if your total income is below taxable limit so that they dont deduct TDS on your interest income.
In case you have not been able 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.

Advantages of TDS:-

  • As tax deduction takes place throughout the year, it ensures a continuing flow of revenue to the Government.
  • It is a measure to prevent tax evasion.
  • It helps in increasing the tax reach as it is deducted at the time of payment itself preventing the commitment of fraud.

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TDS @ 10% PROPOSED ON PREMATURED WITHDRAWALS OF EPF (EMPLOYEES PROVIDENT FUND)

As per the new up-coming provisions of Incometax , now TDS @ 10% will be deducted on the prematured withdrawals from Employees Provident Fund (EPF) from 01.05.2015. Salient features of the effective provisions will be as under :-

A. TDS From Whom

1. From employees from whom EPF is deposited / credited.

2. Employees making prematured withdrawals of EPF before 5 years of deposit.

3. If prematured payment / withdrawal is exceeding Rs. 30,000/-

 B. Rates of TDS 

1. 10% if Employee is having PAN Number.

2.  20% if Employee is  not having PAN Number.

 C.  Exemption From TDS 

1. Withdrawals on Retirement.

2. Withdrawals after 5 years of deposit.

3. Employee having non-taxable income and he furnishes Form No. 15 G to the deducter.

4. Employee being a Senior Citizen,  furnishes Form No. 15 H to the Deducter.

5. If prematured payment / withdrawal is  not exceeding Rs. 30,000/-

 Note : These provisions will take effect from 1st June, 2015.

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HIGHER TDS @ 20% WITHOUT PAN (PERMANENT ACCOUNT NUMBER)

As per various provisions of Income-tax Act, Tax is deducted on payment and/or credit of various incomes / payments and different rates ( From 1.00% to 10% generally) have been prescribed for making the deduction and deductee gets the credit of such deduction of the tax after the filing of correct TDS return by the Deductor. While prepararing and filing the TDS returns, PAN Number of each deductee is also mentioned in that TDS Return.

However, Tax is required to be deducted from deductee whether he has the PAN No. or not. Deduction of tax is made at the prescribed rate if the deductee is having PAN No. and deduction is made @ 20% if  the deductee is not having PAN No. and therefore,  there are following categories of tax deductees  :-

 

Category of Deductee

TDS Rates

TDS Credit

A. Deductee having PAN No.

 

As per prescribed Rates

Credit will be allowed

B.  Deductee not having PAN No.

 

@20%

No credit will be allowed

Some times it happens that TDS is deducted @ 20% despite the fact that deductee has the PAN No.. The reason is that deductee either has given incorrect PAN No. or the Deductor does not have the PAN No. of deductee and therefore, it is advisable to all the deductees to provide the copy of PAN CARD to the deductor. In case, PAN CARD has been lost or missing, deductee should download his PAN Data through www.verifypan.in and submit the same to the Deductor. On the same time, deductor can also verify correctness of PAN No. in case of doubt through www.verifypan.in.

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SAVE AND AVOID TDS (TAX DEDUCTED AT SOURCE) ON INTEREST

TDS is a tedious procedure and activity of income-tax Department. It is tension creator both for deductor as well as for deductee and therefore, deductee should try to save and avoid TDS at least on Interest. A deductee can save and avoid TDS by following ways of planning :-

1. Don’t make FDR more than Rs. 70,000/- with any one branch of any bank and spread over your FDRs in many branches and in the name of many family members.

2. Make maximum deposits with local co-operative banks (if reliable) as a regular member of that co-operative Bank (Co-operative society other than Multi-state Co-operative Society).

3. Submit timely Form 15G or 15H (as applicable) to bank if your expected interest is more than Rs. 10,000/- and to private parties if expected interest is more than Rs. 5,000/- in a year.

4. Get allotted PAN Number (Pan Card) and intimate the same to interest payer (Income payer) otherwise TDS will be deducted @ 20% in place of 10% and that 20% may be non-refundable.

5. Check your TDS credit in Form 26AS well in advance to verify whether deductor has filed his TDS return timely and correctly or not ?

6. In case TDS has been deducted, submit your return of income timely for claiming the TDS credit / Refund and you can also use services of <a href=”http://www.incometaxonline.co.in”>www.incometaxonline.co.in</a> .

Author : Karishma Moondra for www.incometaxonline.co.in in public interest.

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