Even though many of us are familiar with tax filing, the process of TDS deduction
is still confusing for many. When and where TDS is applicable, what are
the procedures to reduce it and how to claim the deducted amount at the
time of filing tax returns are few of the queries we have. So, here we
discuss TDS deductions with a focus on how and when it can be reduced to
help you in everyday life.
Understanding TDS:
The Indian tax structure is broadly a two dimensional approach towards payment of tax liabilities. In the first method- self assessment, taxes can be paid voluntarily after evaluation of income during a financial year. In the second method, Tax Deductions at Source or TDS, as the name suggests, is the spot deduction of tax from the income source itself, at the time of earning. This is to simplify the taxation procedure for the government and to ensure that the payment making and receiving individual / company is accounting the same without fail.
TDS is applicable for earnings from several financial instruments and business transactions like sale of property, interest income from banks, commissions and incentives, payment received for contracts and services, vendors, dividends and awards or prices earned as money.
There is no uniform rate for TDS deduction. Depending on the source of earnings, it can range from 1% for sale proceeds to 30%.
From Salary and Commissions
It is mandatory as per Indian Income Tax rules that companies as well as working professionals who earn above the aforementioned figure should deduct tax at source from the payments they make.
Employers normally will ask employees to fill an investment declaration form. If you have done an early homework to save your TDS deduction by investing in several tax saving instruments under Sections 80C, 80D, or planning to do within that financial year, do declare the details in the form with required proofs to save TDS. If despite all your investments, your salary is still above the exemption limit, TDS will be deducted monthly. The employer will issue a TDS certificate (also referred as Form No.16 (a)) at the end of the financial year which can be produced while filing income tax return to get the credit of the TDS (if applicable) during the personal income tax assessment.
TDS is applicable for payments including commissions, service fees, professional fees and payment via contracts. Here the TDS certificate issued will be Form 16 B which like Form 16 A, can be produced while filing income tax return to get reversed if applicable.
TDS from Property, Awards and Incentives:
TDS is applicable in case of earnings sale of property, rental / lease income, cash prizes, lottery winnings etc. The amount of deduction may vary from 1% in case of sale proceeds to nearly 30% in case of cash awards.
Individuals seeking TDS refund in the above mentioned situations can submit form 15G/H which is a self deceleration that your income is below taxable limit.
Understanding TDS:
The Indian tax structure is broadly a two dimensional approach towards payment of tax liabilities. In the first method- self assessment, taxes can be paid voluntarily after evaluation of income during a financial year. In the second method, Tax Deductions at Source or TDS, as the name suggests, is the spot deduction of tax from the income source itself, at the time of earning. This is to simplify the taxation procedure for the government and to ensure that the payment making and receiving individual / company is accounting the same without fail.
TDS is applicable for earnings from several financial instruments and business transactions like sale of property, interest income from banks, commissions and incentives, payment received for contracts and services, vendors, dividends and awards or prices earned as money.
There is no uniform rate for TDS deduction. Depending on the source of earnings, it can range from 1% for sale proceeds to 30%.
From Salary and Commissions
It is mandatory as per Indian Income Tax rules that companies as well as working professionals who earn above the aforementioned figure should deduct tax at source from the payments they make.
Employers normally will ask employees to fill an investment declaration form. If you have done an early homework to save your TDS deduction by investing in several tax saving instruments under Sections 80C, 80D, or planning to do within that financial year, do declare the details in the form with required proofs to save TDS. If despite all your investments, your salary is still above the exemption limit, TDS will be deducted monthly. The employer will issue a TDS certificate (also referred as Form No.16 (a)) at the end of the financial year which can be produced while filing income tax return to get the credit of the TDS (if applicable) during the personal income tax assessment.
TDS is applicable for payments including commissions, service fees, professional fees and payment via contracts. Here the TDS certificate issued will be Form 16 B which like Form 16 A, can be produced while filing income tax return to get reversed if applicable.
TDS from Property, Awards and Incentives:
TDS is applicable in case of earnings sale of property, rental / lease income, cash prizes, lottery winnings etc. The amount of deduction may vary from 1% in case of sale proceeds to nearly 30% in case of cash awards.
Individuals seeking TDS refund in the above mentioned situations can submit form 15G/H which is a self deceleration that your income is below taxable limit.
This is applicable only for Indian residents including senior citizens
and Hindu Undivided Families (HUF's). Form 15G can be filed by all
Indian residents whose total financial income for the designated
financial year is below the threshold limit while senior citizens need
to avail Form 15H for the same purpose. It is imperative to note that
Non resident Indians are not allowed the use of forms 15G and 15H and
need to apply separately.
In case of rental income, TDS will be deducted only if the rent you receive is not less than Rs1.8 lakh a year. In case of joint ownership of rented / leased property, where the specific share of the property is decided, the limit of Rs 1.8 lakh can be claimed separately by each owner.
Income generated through bank deposits-
TDS is deductable on interest income paid by banks and financial institutions in respect of FDs (exceeding Rs.10000 in a FY) and term deposits (exceeding Rs.5000 in a FY).
If your income is below the taxable limit, but the interest earned from your deposits is above Rs 10,000, you can request your bank not to deduct tax by submitting form 15 G and 15 H to the bank at the beginning of the financial year.
Another effective way is to opt for multiple smaller fixed deposits across various banks. Splitting the interest earned across two financial years in such a way that the overall annual interest earned from any of the FD not exceeding Rs 10,000 is another workable option.
In certain cases, dividing fixed deposits under two different heads can also be useful in avoiding. Individuals can divide deposits in their names and have some under a HUF account to avoid interest generation cross the taxable limit.
And never forget to carry your PAN card for all fixed deposits over Rs.50000, because on not receipt of PAN number banks may deduct 20% TDS which is non reversible.
Reversing TS collected
As you file your tax returns, you will know the tax bracket you are which determines the balance tax to be paid or that can be reversed. So do keep a track of the TDS that you have paid with Form 26AS or annual tax statement. All the taxes deducted on your behalf will be listed in it and it can be availed from the concerned sources along with Form 16. Otherwise missing taxes will be considered unpaid by the income tax authorities.
In case of rental income, TDS will be deducted only if the rent you receive is not less than Rs1.8 lakh a year. In case of joint ownership of rented / leased property, where the specific share of the property is decided, the limit of Rs 1.8 lakh can be claimed separately by each owner.
Income generated through bank deposits-
TDS is deductable on interest income paid by banks and financial institutions in respect of FDs (exceeding Rs.10000 in a FY) and term deposits (exceeding Rs.5000 in a FY).
If your income is below the taxable limit, but the interest earned from your deposits is above Rs 10,000, you can request your bank not to deduct tax by submitting form 15 G and 15 H to the bank at the beginning of the financial year.
Another effective way is to opt for multiple smaller fixed deposits across various banks. Splitting the interest earned across two financial years in such a way that the overall annual interest earned from any of the FD not exceeding Rs 10,000 is another workable option.
In certain cases, dividing fixed deposits under two different heads can also be useful in avoiding. Individuals can divide deposits in their names and have some under a HUF account to avoid interest generation cross the taxable limit.
And never forget to carry your PAN card for all fixed deposits over Rs.50000, because on not receipt of PAN number banks may deduct 20% TDS which is non reversible.
Reversing TS collected
As you file your tax returns, you will know the tax bracket you are which determines the balance tax to be paid or that can be reversed. So do keep a track of the TDS that you have paid with Form 26AS or annual tax statement. All the taxes deducted on your behalf will be listed in it and it can be availed from the concerned sources along with Form 16. Otherwise missing taxes will be considered unpaid by the income tax authorities.
| Source | Deduction pattern | How to reduce TDS | How to reverse TDS | Conditions (if any) |
| Salary | Monthly by employer | Submitting investment declaration with proofs | At the time of filing ITR (with proofs of investments under 80C and 80D. Form 16 A | Ensure to have a tax savings plan under 80c and 80D |
| Incentives , Commissions, Services, Contracts, Rental Income | At the time of payment | Possible only to reverse | At the time of filing ITR (with proofs of investments under 80C and 80D. Form 16B | Only if eligible under 80C and 80D clauses |
| Sale of Property | At the time of transaction | If the transaction as per papers is below 20 lakhs in panchayaths and below 50 lakhs in municipality / corporation limits | NA | As per costs shown in documents |
| Bank Deposits | During interest remittance by bank | Form 15 G / 15 H, Splitting of accounts across banks / HUFs ( if applicable), splitting of interest in two FY | Form 15 G / 15 H | Will not be reversed if a single deposit is above 50,000 and PAN no. not submitted |
Source : The Economic Times, 29 Dec, 2012
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