All about Tax Deducted at Source – TDS Meaning, Filing, Return & Due Dates

Tax deducted at source or normally referred to as TDS is basically a part of income tax. It has to be deducted by a person for certain payments made by them. TDS is a means through which the government collects tax on certain incomes as and when they are earned. One of the main objectives of TDS is to help the government to keep track of incomes earned by the assessee during the year and ascertain an estimate about the total income and tax liability of the assessee. The provisions of TDS are specified under relevant sections of the Income Tax Act, 1961.

However, not all incomes are subject to TDS. The applicability of TDS differs from transaction to transaction and depends on the type of assessee. In this article, we will discuss in detail the TDS provisions under the Income Tax Act and understand its applicability.

Budget 2025 Update

The Union Budget 2025 proposed the rationalisation of Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) to ease compliance challenges for taxpayers especially for middle-income earners. The government has raised the threshold limits across various TDS sections, aiming to simplify the tax process. The proposed changes are as follows

Section	Present	Proposed
193 - Interest on securities	NIL	10,000
194A - Interest other than Interest on securities	(i) 50,000/- for senior citizen; (ii) 40,000/- in case of when payer is bank, cooperative society and post office (iii) 5,000/- in other cases	(i) 1,00,000/- for senior citizen (ii) 50,000/- in case of when payer is bank, cooperative society and post office (iii) 10,000/- in other cases
194 – Dividend, for an individual shareholder	5,000	10,000
194K - Income in respect of units of a mutual fund	5,000	10,000
194B - Winnings from lottery, crossword puzzle Etc. & 194BB - Winnings from horse race	Aggregate of amounts exceeding 10,000/- during the financial year	10,000/- in respect of a single transaction
194D - Insurance commission	15,000	20,000
194G - Income by way of commission, prize etc. on lottery tickets	15,000	20,000
194H - Commission or brokerage	15,000	20,000
194-I - Rent	2,40,000 (in a financial year)	6,00,000 (in a financial year)
194J - Fee for professional or technical services	30,000	50,000
194LA - Income by way of enhanced compensation	2,50,000	5,00,000
206C(1G) – Remittance under LRS and overseas tour program package	7,00,000	10,00,000

Note: 

• The Tax Collected at Source (TCS) will be removed on remittances made for educational purposes when these remittances are financed through loans from specified financial institutions (Section 80E).
• The Tax Collected at Source (TCS) on the purchase of goods will be removed, effective from April 1, 2025.
• The higher TDS rate will only apply in cases where taxpayers do not provide PAN. 

What is TDS? – TDS Meaning and Full Form

TDS or Tax Deducted at Source is income tax reduced from the money paid at the time of making specified payments such as rent, commission, professional fees, salary, interest etc. by the persons making such payments i.e., deductor. The amount deducted is to be deposited by the deductor with the Income Tax Authority against the PAN of the deductee. Usually, the person receiving income is liable to pay income tax. But the government with the help of Tax Deducted at Source provisions makes sure that income tax is deducted in advance from the payments being made by you. The recipient of income receives the net amount (after reducing TDS). The recipient will add the gross amount to his income and the amount of TDS is adjusted against his final tax liability. The recipient takes credit for the amount already deducted and paid on his behalf. This will help the government to collect the taxes in advance and to track the transactions in an effective manner. It reduces the chance of tax evasion by the payee. However, in case the assessee has no tax liability for the year, the TDS deducted will be refunded to the assessee when his tax return is filed.

Example of TDS

Shine Pvt Ltd makes a payment for office rent of Rs 80,000 per month to the owner of the property. TDS is required to be deducted at 10% under Section 194I of the Income Tax Act, 1961. Shine Pvt ltd must deduct TDS of Rs 8000 (i.e., Rs 80,000*10%) and pay the balance of Rs 72,000 to the owner of the property. Thus, the recipient of income i.e. the owner of the property in the above case receives the net amount of Rs 72,000 after deduction of tax at the source. He will add the gross amount i.e. Rs 80,000 to his income and can take credit of the amount already deducted i.e. Rs 8,000 by shine Pvt ltd against his final tax liability.

When Should TDS be Deducted and by Whom?

Any person making specified payments mentioned under the Income Tax Act is required to deduct TDS at the time of making such specified payment. But no TDS has to be deducted if the person making the payment is an individual or HUF whose sales from business or profession doesn’t exceed Rs.1 crore or Rs.50 lakhs, respectively.

However, in case of payments towards rent, brokerage, commission etc., made by an individuals or HUF exceeding specified limits mentioned in the Act, TDS will have to be deducted by the individual or HUF at lower rates as applicable even if the individual or HUF is not liable for a tax audit. Also, such Individuals and HUF liable to deduct need not apply for TAN. Your employer deducts TDS at the income tax slab rates applicable. Banks deduct TDS @10%. Or they may deduct @ 20% if they do not have your PAN information. It is also to be noted that, TDS will have to be deducted at a higher rate specified when the deductee does not furnish his PAN and credit against such deduction will also not be available. Hence, it is advisable to furnish PAN to the deductor.

For most payments rates of TDS are set in the income tax act and TDS is deducted by the payer basis of these specified rates. 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 from your income.

Similarly, you can submit Form 15G and Form 15H to the bank if your total income is below the taxable limit so that they don’t 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.

What is the Due Date for Depositing the TDS to the Government?

The Tax Deducted at Source must be deposited to the government by the 7th of the subsequent month.

For instance: TDS deducted in the month of June must be paid to the government by the 7th of July. However, the TDS deducted in the month of March can be deposited till 30th April. For TDS deducted on purchase of property, the TDS payment due date is 30 days from the end of the month in which TDS is deducted.

How to Deposit TDS?

Tax Deducted at Source has to be deposited via Income Tax Portal based on the TAN login. Direct tax payments facility has been migrated from OLTAS 'e-payment: Pay Taxes Online' to e-Pay Tax facility of e-Filing portal. You have to click on 'e-Pay Tax' option of Income Tax Department on https://www.incometax.gov.in/ to make direct tax payments including TDS.

How and When to file TDS returns?

Filing Tax Deducted at Source returns is mandatory for all the persons who have deducted TDS. TDS return is to be submitted quarterly and various details need to be furnished like TAN, amount of TDS deducted, type of payment, PAN of deductee, etc. Also, different forms are prescribed for filing returns depending upon the purpose of the deduction of TDS. Various types of return forms are as follows: 

What is a TDS Certificate?

Form 16, Form 16A, Form 16B and Form 16C  are all TDS certificates. TDS certificates have to be issued by a person deducting TDS to the assessee from whose income TDS was deducted while making payment. For instance, banks issue Form 16A to the depositor when TDS is deducted on interest from fixed deposits. Form 16 is issued by the employer to the employee.

TDS Credits in Form 26AS

It is important to understand how TDS is linked to your PAN. TDS deductions are linked to PAN numbers for both the deductor and deductee. If TDS has been deducted from any of your income you must go through the Tax Credit Form 26AS. This form is a consolidated tax statement that is available to all PAN holders.

Since all TDS is linked to your PAN, this form lists out the details of TDS deducted on your income by each deductor for all kinds of payments made to you – whether those are salaries or interest income – all TDS linked to your PAN is reported here. This form also has income tax directly paid by you – as advance tax or self-assessment tax (From FY 2022-23 it is made available in AIS). Therefore, it becomes important for you to mention your PAN correctly, wherever TDS may be applicable to your income. It is also necessary to note that TDS credit can only be claimed on the amounts that appear in Form 26AS. Therefore, it is advised that the assessee keep a check on his Form 26AS on a regular basis to ensure accuracy of the deductor.

An inaccurate claim of TDS credit can result in defective notice from the income tax department. Hence it is very important to reconcile the TDS credits in form 26AS with TDS receivables accounted in books, applicable mainly when TDS is made by multiple customers/vendors involved in business.

You can easily file your TDS returns through ClearTax software i.e. ClearTDS. It is an online TDS software that requires no download or desktop installation or software update. It helps you to prepare regular & correct e-TDS statements online easily with just a few clicks on your computer. It is also compatible with TDS returns of previous financial years for easy import. Also, you can generate your TDS certificates using ClearTDS.          

Follow the below guide for uploading TDS statements on the Income Tax Department website:

1. Visit Income Tax website. Login with your TAN.
2. Select e-File > Income Tax Forms > File Income Tax Forms on the dashboard
3. Select the relevant form and fill in the details
4. Validate the return using either DSC or EVC.

Penalty for Late Filing of TDS Returns

A late fee of ₹200 per day is levied under Section 234E for the delayed submission of TDS/TCS returns to the Income Tax Department (ITD). This means that the fee accumulates for each day the return is late, up to a maximum limit equal to the total TDS amount. It's important to pay this late fee before submitting the TDS/TCS return.

Types of TDS

Here are some of the income sources that qualify for TDS:

• Salary
• Payments to Contractor 
• Commission payments
• Sale of House
• Insurance Commission
• Interest on securities
• Interest other than interest on securities
• Rent Payment 
• Professional fees
• Online Gaming
• Winning from games like a lottery, betting, gambling, crossword puzzle, card, etc.
   

SMS Alerts for Higher Transparency

The income tax department has been sending SMS to taxpayers from VK-ITDEFL that mentions the amount of tax deducted at source (TDS) against the taxpayer's PAN (Permanent Account Number). The SMS alert will let you know the TDS credited to your income from salary, interest, etc., every quarter. The amount of TDS would be accumulated in your Form 26AS for the respective financial year.

This initiative was implemented by the Finance Ministry to increase transparency and reduce the cases of TDS mismatches at the time of income tax filing. Taxpayers can cross-check the information provided in the SMS with the information on the payslips to make sure that there is no mismatch. TDS mismatch could be a common reason for incorrect income tax return filing.

Tax Liability in a Case Where TDS is Already Deducted from Income

On salary, TDS is deducted based on the income tax slab applicable to you. In the case of other income types, the TDS rates are fixed and vary between 10% and 20%. The tax rates are not based on your total income. Hence, you would suffer a TDS on your receipts in certain cases. Separately, you would be required to calculate your annual income by aggregating income from all sources.

Your actual tax liability would be calculated on the total taxable income. From the taxes calculated, you can claim credit for TDS deducted on your various receipts. Reduce the tax deducted at source from your actual tax liability to know the balance to be paid to the income tax department. You may have a refund too. In both cases, you have to file an income tax return and pay the tax due or claim a refund.

Other TDS Articles:
1. What is Tax Deducted at Source
2. TDS Rate Chart 
3. How to claim TDS Refund
4. How to Make TDS Payment Online
5. TDS Interest Calculator