Tax Deduction at Source (TDS) in India - The Ultimate Guide

TDS stands for Tax Deducted at Source is tax levied on any income or profit on periodic intervals by the Indian authorities. As per provision of the Income Tax Act 1961, income tax must be deducted at origin or source before paying the accounting balance to the individual (payee).

Moreover, every organization or individual generating income is obligated to pay taxes if their profit or income amount exceeds specific thresholds.

TDS is regulated in India by the Central Board of Direct Taxes (CBDT), which is part of the Indian Revenue Services (IRS).

To learn TDS or ‘Tax Deducted at Source’ in detail, we have covered all components linked to TDS in this extensive guide. We’ll learn:

  • What is TDS?
  • Example of TDS
  • Tax Deduction at Source Types
  • What is the TDS Certificate?
  • When does TDS have to be deducted, and who is responsible for deducting it?
  • Tax Deduction at Source Rates
  • How to File TDS?
  • When and How to File TDS Returns?
  • Method to Upload TDS Statement
  • TDS Due Dates for Return Filing (FY 2021-22)
  • Late Filing TDS Return
  • Step-by-Step to Check Status of TDS Deduction
  • How Can You Avoid TDS?
  • Benefits of TDS Deduction at Source
  • Frequently Asked Questions (FAQs) on TDS

What is TDS?

Tax Deducted at Source or TDS—  incorporated by the Income Tax Department— is an income tax deducted at the source of the income.

Further, the concept of TDS was implemented to collect tax from the income source point to reduce tax evasion.

Two parties involved in the Income Tax collection. It includes:

  • Payer or Deductor
  • Payee or Deductee

Generally, the individual (deductee) receiving the payroll salary is subjected to make the income tax payment. And, the other person (deductor) shall deduct the income tax and remit the tax into the Central Government account.

Furthermore, TDS or deduction of tax at source is applicable to certain payments. It includes brokerage, salary, interest, professional fees, contract payments, royalty, and more. Also, TDS is applicable despite the payment mode such as credit, cash, or cheque.

Update on the Budget for 2021: It has been proposed to exempt senior individuals from submitting income tax returns if their only source of annual income is pension and interest income. 


In addition, Section 194P was recently included to oblige banks to withhold tax from elderly citizens (over 75) who receive a pension and interest income from the bank.

Example of TDS

Check this example on how TDS work:

Nature of Payment: Professional Fees

Specified Rate: 10%


If Mr. A (Deductor) has to make the payment of Rs. 50,000 to Mr. B (Deductee) for professional service. Then, Mr. A would apply 10% TDS on the specified salary (in this case Rs. 50,000). 


10% TDS on Rs. 50,000 = Rs. 45,000


So, the balance amount after deduction would be Rs. 45,000 and the same would be received by Mr. B.


Further, Mr. A will directly credit the TDS deducted amount (Rs. 5,000) to the Central Government. 

Tax deduction at source Types

Following is the list of types of TDS. Check out:

  • Salary
  • Commission payments
  • Amount under LIC
  • Bank Interest
  • Brokerage or Commission
  • Insurance Commission
  • Remuneration paid to the company’s director etc
  • Contractor payments
  • Deemed Dividend
  • Interest on securities
  • Interest apart from interest on securities
  • Transfer of immovable property
  • Payment of rent
  • Compensation on acquiring immovable property
  • Winning from games. It includes crossword puzzles, lottery, cards, etc.

What is the TDS Certificate?

The people in charge of deducting tax at source provide TDS certificates. Further, the certificates must be issued when it is deducted so that the payee knows how much tax has been paid.

Tax deduction at source certifications include Form 16, Form 16A, Form 16 B, and Form 16 C. Moreover, the certificates must be supplied to the assessee whose income TDS was deducted while making payment by the person deducting TDS.

Form 

Certificate

Frequency 

Due Date

Form 16

Tax deduction at source on salary payment

Yearly

31st May

Form 16 A

Tax deduction at source on non-salary payments

Quarterly

The return must be filed within 15 days of the due date.

Form 16 B

Tax deduction at source on sale of property

Every Transaction

The return must be filed within 15 days of the due date.

Form 16 C

Tax deduction at source on rent

Every Transaction 

The return must be filed within 15 days of the due date.

When does TDS have to be deducted, and who is responsible for deducting it?

Check out the following list:

  • TDS will be reduced from any income that comes under the Income Tax Act. However, if you are an individual or a Hindu Undivided Family (HUF), then no TDS will be reduced and records will not be audited.
  • Based on the applicable income tax slab rates, your employer will deduct Tax deduction at source. Further, it will be deducted at a rate of 10% by the bank with whom you have a working account. If you do not have your PAN details, then TDS at a rate of 20% will be deducted.
  • If you present your investment proofs to your employer and your total taxable income is less than the total taxable threshold.Then, you will not be obliged to pay any tax. Consequently, tax deduction at source will not be reduced in this scenario.

Note that, if your total taxable income is less than the total taxable limit, you can also submit Form 15G and Form 15H to the bank. In this instance, the bank will not collect any tax deduction at source from your interest earnings.

  • If you neglected to present your employer with the investment proof and the bank deducted the TDS. Then, you can file a return and get a refund if your total taxable income is less than the total taxable limit.

Tax Deduction at Source Rates

Following is the table on Tax deduction at source rates for salaried and non-salaried payments, which is applicable from April 1. Check out:

Payment Nature

Relevant Section 

TDS Rates (applicable from April 1)

Salaries 

Section 192

At applicable income tax, inclusive of cess.

Receiving accumulated taxable part of PF

Section 192A

10.00%

Interest received on securities

Section 193

10.00%

Dividends received from Mutual funds and on the company’s shares

Section 194 and 194K

10.00%

Interest other than Interest on Securities such as FD or Fixed deposit interest

Section 194A

10.00%

Winnings from lottery, crosswords, or any other games

Section 194B

30.00%

Winning from horse races

Section 194BB

30.00%

Payments of Contractors and sub-contractors

Section 194C

1%(Individual/HUF), 2% (others)

Insurance commission received by an Individual 

Section 194D

5.00%

Life Insurance Policies not exempt under Section 10(10D)

Section 194DA

5.00%

Payment in respect of deposits under National Saving Scheme

194EE

10.00%

Payments on account of re-purchase of Units by Mutual Funds or UTI

194F

20.00%

Commission, prize, etc; on the sale of lottery tickets

Section 194G

5.00%

Commission or brokerage received except for Insurance Commission

Section 194H

5.00%

Payment made while purchasing land or property 

Section 194IA

1.00%

Payment of rent by individual or HUF exceeding Rs. 50,000 per month

Section 194IB

5.00%

Payment made to professional or commission or brokerage of more than Rs. 50 lakh and above

194M

5.00%

Cash withdrawal exceeding Rs 20 lakh or 1 crore as the case maybe

194N

2.00%

Payment of Professional Fees etc. 

194J

2% (FTS, certain royalties, call center), 10% (others)

Rent for plant and machinery 

194-I(a)

2.00%

Rent for immovable property

194-I(b)

10.00%

TDS on e-commerce participants (w.e.f 1.10.2020)

Section 194-O

1.00%

How to File TDS?

Here is the list of things that you must consider to file Tax deduction at source online. It follows:

  • Make sure to have a valid Tax Deduction and Collection Account Number (TAN) registered for e-filing.
  • Use the Return Preparation Utility to prepare your Tax deduction at source statements. Also, it should be done before verifying them with the File Validation Utility.
  • You must have a valid Digital Signature Certificate (DSC) registered for e-Filing to upload your returns  .
  • If you want to upload your returns using Electronic Verification Code, provide the Demat account or bank account data. Also, make sure to link your PAN to Aadhaar.

When and How to File TDS Returns?

All people who have deducted TDS need to file the income tax returns. Further, TDS returns must be filed quarterly and include some crucial information. It includes the deductee's TAN, the number of TDS deducted, the type of payment, and the deductee's PAN.

Check this table referring to certain types of Tax deduction at source Return forms:

Form Number

Reported Transaction in the Return  

Due Date

Form 24Q

Tax deduction at source on Salary 

Q1-31st July 

Q2- 31st October 

Q3- 31st January

Q4- 31st May

Form 27Q

Tax deduction at source is levied on all payments made to non-residents, with the exception of salaries.

Q1-31st July 

Q2- 31st October 

Q3- 31st January

Q4- 31st May

Form 26QB

Tax deduction at source on sale of property

TDS is deducted 30 days after the end of the month.

Form 26QC

Tax deduction at source on rent

TDS is deducted 30 days after the end of the month.

Method to Upload TDS Statement

The following is list of instructions that will help you to upload your Tax deduction at source statements directly to the Income Tax Department official website:

  • Go to https://www.incometaxindiaefiling.gov.in/home. Further, you will see ‘Registered User?’ on the right side of the page, followed by the ‘Login Here' option.
  • Before clicking on ‘Login,' click on the aforementioned option and fill in your login details. Also, TAN will be your user ID.
  • After you've logged in, go to the 'TDS' drop-down menu and select 'Upload TDS.'
  • A form will display, and you must fill in the appropriate information before clicking ‘Validate.'
  • After that, you must authenticate your results using DSC or EVC.

TDS Due Dates for Return Filing (FY 2021-22)

Quarter 

Period 

Filing Last Date 

1st Quarter

1st April to 30th June

31st July 2021

2nd Quarter

1st July to 30th September

31st October 2021

3rd Quarter

1st October to 31st December

31st January 2022

4th Quarter

1st January to 31st March

31st May 2022

Late Filing TDS Return

For failure to submit or defaults in filing your Tax deduction at source return/statements, the Income Tax Department imposes the following penalties:

Failure/Defaults

Penalty Information 

Failure to file your returns

A penalty of Rs.100 will be imposed under Section 272A (2) of the Income Tax Act for each day that the returns are not filed, up to a maximum of the TDS amount.

False or incorrect information 

If the deductor submits false information regarding PAN, challan particulars, TDS amount, etc., a penalty of Rs.10,000 to Rs.1 lakh would be assessed under Section 271H of the Income Tax Act.

Failure to file your returns on time

A penalty of Rs.200 shall be imposed under Section 234E of the Income Tax Act for each day the returns are not filed, up to a maximum of the TDS amount.

For non-payment of Tax deduction at source

If TDS is not paid by the due date, interest will be charged in addition to the penalty under Section 201A of the Income Tax Act. If a portion or all of the tax is not deducted at source, interest of 1.5 percent per month will be assessed from the day the tax was deductible until the date the tax is actually deducted.

Failure in the filing of Tax deduction at source Statement

If the deductor fails to file the TDS return by the required date, a penalty of Rs.10,000 to Rs.1 lakh would be imposed under Section 271H of the Income Tax Act.

Step-by-Step to Check Status of TDS Deduction

To verify their tax deduction at source status, one must follow the steps outlined below.

  1. Visit the Income Tax Department’s official website.
  2. Fill up your information and log in to the portal.
  3. Click on ‘View Form 26AS (Tax Credit)' under the ‘My Accounts' option.
  4. To download the material, choose the year and the PDF format.
  5. Your PDF file (password-protected) will get downloaded. The password will be your PAN number plus your date of birth. For instance, if your birthday is March 5, 2000, your password will be 05032000.
  6. You can then see all of the information about the tax deduction at source.
  7. You can verify TDS deduction by linking PAN to the bank's netbanking service.

How Can You Claim TDS Refund?

Individuals can apply for a TDS refund on the Income Tax Department website. However, Income Tax Returns must be filed, including the Tax deduction at source refund.

Once the ITR is filed, the TDS refund will be credited to the bank account within 6 months, which is processed by the Income Tax Department.

In addition, Individuals can also check the status of their refund on the Tax Department’s official website.

Due Dates of Depositing TDS to Indian Government?

The 7th of next month is the deadline for TDS deposits. To put it another way, if a person deducts TDS in July, he must deposit till the 7th of August.

On the other hand, TDS deducted in March can be deposited until April 30th.

Furthermore, the due period for TDS deducted on rent and property purchases is 30 days from the end of the month in which the TDS or Tax deducted at source was deducted.

How Can You Avoid TDS?

An individual can request not to deduct the TDS by sending Form 15G/15H to the payer. Though, if the person expects his total payroll in a fiscal year to be less than the exemption level, then the request can be processed.

Moreover, to avoid tax deduction at the higher rates, the deductee must disclose his PAN details while receiving payment that is subject to TDS.

Benefits of TDS Deduction at Source

Tax deduction at source has a number of advantages, including:

  • It prevents people from avoiding paying their taxes.
  • Tax deduction at source provides the government with a consistent source of money.
  • It is considerably more convenient for the deductee as the due tax amount gets automatically deducted .
  • The load of collecting on tax collection agencies is greatly reduced.

Frequently Asked Questions (FAQs)

1. Is TDS deducted at the same rate from all types of taxable income?

No, TDS is not deducted at the same rate from all TDS-eligible earnings. Moreover, different Tax deductions at source rates apply to different forms of income.

2. What is the usage of a TDS challan?

The main purpose of a tax deduction at source challan is to deposit tax deducted at source with the government.

3. TDS payments online require TAN?

All TDS returns, including all payment challans and certificates, must include the Tax Deduction Account Number (TAN) as required by section 203A of the Income Tax Act, 1961. Further, the Internal Revenue issues the TAN. Also, you can obtain it by filing Form 49B.

4. TDS payment requires PAN?

Yes, to pay Tax deduction at source, you need PAN information.

5. What exactly is the PAN and TAN?

The letters PAN and TAN stand for Permanent Account Number and Tax Deduction Account Number, respectively.

PAN is a 10-digit identification number. It is required by the Income Tax Department for those who conduct financial transactions or pay taxes.

On the other hand, the person responsible for deducting tax, i.e. the deductor, must obtain a TAN. One must include his TAN in all TDS-related documents and correspondence with the Income-tax Department.

6. Would there be any ramifications if I used TDS for personal use instead of depositing it in the government's account?

Yes, failure to remit tax deducted by you in the government's account within the time limit will result in interest, a penalty, and up to seven years in prison.

7. Is it necessary to deduct Tax deduction at source on payments made to the government?

There is no requirement that any tax be deducted from any money payable to

  • the authorities, or
  • India's Reserve Bank (RBI), or
  • a corporation founded by or under a Central Act that is free from income tax on its earnings under any law in place at the time, or
  • a Mutual Fund as defined in section 10 clause (23D).

8. What is the best way to deposit Tax deductions at source?

By using Challan ITNS-281, you can deposit Tax Deductions at Source on the government portal.

9. What happens if the deductor fails to deposit TDS?

Employers sometimes fail to deduct Tax deduction at source from employees' pay. Further, it may result in a mismatch in the tax liability of the employees, generating uncertainty.

10. TDS amount for NRI if they own a property?

Yes, according to section 195. You can file an application with the officer in charge of non-resident taxation if you have any doubts about the TDS deducted amount.

Alternatively, if the recipient believes the TDS is excessive, he may file a non-deduction application with his Assessing Officer. ​

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Key Takeaways

Eventually, you have reached the end of this guide. Let’s cover what we have learned so far.

  • TDS stands for Tax Deducted at Source is tax levied on any income or profit on periodic intervals by the Indian authorities.
  • Two parties involved in the Income Tax collection— Payer or Deductor, Payee or Deductee.
  • TDS is applicable to certain payments—  brokerage, salary, interest, professional fees, contract payments, royalty, etc.
  • TDS certifications include Form 16, Form 16A, Form 16 B, and Form 16C.
  • Individuals can apply for a TDS refund on the Income Tax Department website.
  • Once the ITR is filed, the TDS refund will be credited to the bank account within 6 months
  • You can file an application with the officer in charge of non-resident taxation if you have any doubts about the TDS deducted amount.