TDS or Tax Deducted at Source, is a means of direct tax collection by Indian authorities according to the Income Tax Act, 1961. TDS is managed by the Central Board of Direct taxes (CBDT), which comes under the Indian Revenue Services (IRS). TDS is collected as a means to keep a stable revenue source for the government throughout the year, while desisting people from avoiding taxes.

What is TDS?

Tax Deducted at Source or TDS is a type of tax that is deducted from an individual’s income on a periodical or occasional basis. TDS can be applicable for income that are regular as well as irregular in nature. Income Tax Act, 1961 regulates TDS in India through Central Board of Direct taxes (CBDT) under the Indian Revenue Services (IRS). TDS rule directs the payee or employer to deduct a certain amount of tax before making full payment to the receiver. TDS is applicable for salary, commission, professional fees, interest, rent, etc.

TDS Calculation

Payments such as salaries, interest payment, commission, fees to lawyers and freelancers etc. are subject to TDS. For salaries, the percentage of TDS will be based on income slabs rates. Similarly, each type of income has its own percentage of tax that is calculated . Since TDS is collected at source without the calculation of investment that is eligible for tax deductions, hence, an individual can declare and submit his investment proof in order to file a return and claim for the TDS refund.

TDS Deduction

If an individual has paid excess TDS when compared to the liable tax amount, the payee can file a claim for a refund of the excess amount. The TDS deductions are calculated based on various factors for individuals from different types of income categories.

How TDS Calculated?

Income and expenditure such as salary, lotteries, interests from banks, payment of commissions, rent payment, payments to freelancers, etc. fall under the ambit of TDS. When making payments under these segments, a percentage of the overall payment is withheld by the source that is making the payments. This source, which can be a person or an organization, is known as the Deductor. The person whose payment is getting deducted is called the Deductee. For instance, a deductor is the employer paying salary to an employee (the deductee).

TDS Return

An individual is required to file TDS return in order to receive TDS refunds and to maintain a healthy financial record. The TDS return can be carried out over the internet by visiting the Income Tax India.

The individual will need to sign onto the website by using the existing credential or by registering for the services. There are specific deadlines that an individual will require to follow to ensure the TDS returns are filed within the due time. Depending on the income category, the individual will need to fill up the necessary form and provide required documents for the refund process to begin. Once the individual has registered and submitted the return, he/she will need to validate the TDS Return File. The validation can be done by using the free software provided by the Income Tax Department. If you are wondering about the possibilities of receiving a refund for the excess TDS paid, you will need to file the claim through TDS return to receive a refund for the excess amount.

Challan for TDS

Challan ITNS 281 is the Challan form for payment of TDS (Tax Deducted at Source) and TCS (Tax Collected at Source). Challan No. 281 is applicable for Tax Deducted at Source / Tax Collected at Source (TDS/TCS) from corporates as well as non-corporates.

Challan TDS 281

The challan no. 281 is used for deposits of TDS/TCS. By using the form, you will need to mention the correct 10-digit Tax Deduction Account Number (TAN), name, and address of the deductor on each challan used for depositing tax. You can verify the TAN details from Income Tax Department website prior to depositing TDS/TCS. As a taxpayer, you will require using separate challans to deposit tax deducted under each section and indicate the correct nature of payment code in the relevant column in the challan.

eFiling for TDS Return

  • Follow the instruction below for the e-filing of TDS
  • The file should be in a clean text ASCII format with ‘txt’ as the filename extension.
  • You can also download the free software to prepare the return file using the Return Preparation Utility provided by NSDL or any other third party software.
  • Once the file is prepared, validate the file using the File Validation Utility (FVU) provided by NSDL Generated .fvu file can either be submitted at TIN-FC or uploaded at TIN website.

ePayment of TDS

The Income Tax Department provides an online option to Pay Taxes Online. The e-Payment service facilitates payment of direct taxes online. The taxpayer will require having the net-banking services from any of the authorized banks.

Penalty for Late Filing of TDS Return

If an individual fails to file the TDS Return within due time, he/she will need to pay a fine of Rs.200 per day until the return is filed. The fee is applicable for every day until the fine amount is equal to the total liable TDS amount.

If the taxpayer exceeds one-year time limit to file the TDS return or furnishes incorrect details of PAN, TDS amount, he/she will need to pay a penalty of minimum Rs.10,000 to Rs.1 lakh.