Tax Deducted at Source (TDS) is a type of income tax wherein the tax is collected right from the source of income. It is an effective way to minimize tax evasion by generating the tax automatically at the time of payment.
The tax applies to salaries, commissions, financial interests, and dividends. This article explains all about TDS return, how it works, and the rates for the financial year 2022–23.
An Introduction to TDS and How it Works
The TDS applies to only specific types of payments, which puts the responsibility of obtaining the tax on the payer rather than the person who gets paid.
Any individual making a payment to another person is required to withhold tax at the source, meaning the payment should come with the deducted tax, the rates of which are outlined in the Income Tax Act, and the amount should be transferred to the Central Government’s Account.
An example of TDS: Consider that you must give the landlord INR 1,50,000 in office rent. You must deduct the applicable 10% of TDS, i.e., INR 15,000, pay the net amount of INR 1,35,000 as rent to the landlord, and pay INR 15,000 as tax to the Income Tax Department.
The landlord will include the gross rent of INR 1,50,000 in his income and can get credit for the INR 15,000 that the renter or deductee has already deducted against the total tax due.
Payment Types That Attract TDS in India
The tax rates that are deposited or deducted in a fiscal year are stated on Form 26AS by the person’s name and PAN number. The deductee is entitled to get a credit for the amount so deducted based on Form 26AS for the TDS certificate issued by the deductor.
TDS applies to only specific people and transactions. Different TDS rates have been prescribed by the Income-tax Act of 1961 for different payments and different categories of recipients. The types of payments subject to TDS are listed below:
- Salary
- Commission
- Rent
- Interest
- Professional/ Technical fees
- Payment made to contractors and subcontractors.
- Payments made to non-resident Indians or foreign entities
- Payment of Perquisites: salary bonuses, incidental income, profits, privileges and similar gains
Types of TDS Returns and Their Rates
The Income-tax Act of 1961 established varied TDS rates for certain payments and recipient groups. The Form 26AS lists the tax rates that are deposited or subtracted throughout a fiscal year by the person’s name and Permanent Account Number (PAN). Based on Form 26AS or a TDS certificate issued by the deductor, the deductee is entitled to a credit for the amount that was so withheld.
| Type of Payment | Section | Tax Rate | Threshold Limit |
| Salaried | 192 | 10% – normal slab rates | Rs 2,50,000 |
| Premature withdrawal from EPF | Section 192A | 10% – normal slab rates | Rs 50,000 |
| Interest Income obtained from Government Securities | 193 | 10% | Debentures: Rs. 5,000 Taxable Bonds 2003 – 8% Savings Taxable Bonds 2018 – 7.75% Savings |
| Dividends | 194 | 10% | Rs. 5,000 |
| Interest on deposits paid by banks, post offices or similar institutions. | 194A | 10% | General: Rs. 40,000 Senior Citizen: Rs. 50,000 |
| Lottery wins, horse racing and similar income through games | 194 B & 194 BB | 30% | Rs. 10,0000 |
| Payment to contractors and subcontractors | 194C | Individuals/HUF – 1% All others – 2% | Single transaction- Rs. 30,000 Aggregate transactions- Rs. 1,00,000 |
| Payments towards insurance policies and commissions | 194D | Individuals/HUF – 5% All other agents: 10%. | Rs. 15, 000 in an FY |
| Maturity of Life Insurance | 194DA | 5% | Rs. 1,00,000 |
| Payments to non-resident sportsmen/athletes or sports associations | 194E | 20% + Cess | Any amount |
| Payments to NSS deposits | 194EE | 10% | Rs. 2500 in an FY |
| Brokerage and commissions | 194 H | 5% | Rs 15,000 |
| Rental payments for houses, equipment, furniture, etc. | 194I | Land, Building or Furniture: 10% Plant & Machinery: 2% | Up to Rs. 2,40,000 |
| Sale or transfer of movable property, except agricultural land. | 194 IA | 1% | 50,000,000 (fifty lacs) |
| Payments for professional and technical services | 194J | Royalty towards intellectual property: 20% Technical services: 2% All other services: 10%. | Rs. 30,000 |
| Amount paid as compensation for acquiring a specific real estate | 194LA | 10% | Up to Rs. 2,50,000 |
| Interest against infrastructure or bonds paid to Non-Resident Indians (NRIs) | 194LB | 5% | Any Amount |
| Cash Withdrawals | 194N | 2% | Without ITR file: Rs. 20,00,000
|
| eCommerce Sales – products or services | 194O | 1% | Rs. 5,00,000 |
| Logistics and other payments involved with purchasing of goods | 194Q | Rs. 50,00,000 | 0.10% |
| Payments in cryptocurrency and virtual assets | 194S | 1% | Any Amount |
| TDS payments without PAN | 206AA | Any rate higher than following:
| Any Amount |
| TDS payments without ITR File | 206AB | Any rate higher than the following:
| Any Amount |
Make TDS Filing Simple with MPVD & Associates
Businesses must make regular TDS payments to the government under a number of headings, including those for salaries, vendor payments, and more. Depending on why TDS is being deducted, different forms must be used to file returns.
Depending on the reason for the TDS deduction and the period of the year, different types of forms are required for submitting TDS returns.
By arranging for your TDS returns to be filed with MPVD & Associates, you may make things a lot simpler. As a leading CA firm in Kolkata, we offer online TDS statement preparation, revision, and updating assistance to our clients. We serve clients from all around India, whether they are new taxpayers, elderly people managing rent and property transactions, or incredibly busy business owners. For every problem, we have a solution. Just give us a call!