What is Tax Deducted at Source (TDS)

TDS stands for tax deducted at source. As per the Income Tax Act, any company or person making a payment is required to deduct tax at the source if the payment exceeds certain threshold limits.

TDS has to be deducted at the rates prescribed by the tax department. The company or person that makes the payment after deducting TDS is called a deductor, and the company or person receiving the payment is called the deductee.

The deductor is responsible for deducting TDS before making the payment and depositing the same with the government. TDS is deducted irrespective of the mode of payment–cash, cheque or credit–and is linked to the PAN of the deductor and deductee. 

Union Budget 2022 updates

• New Section 194S- A person is liable for Tax Deduction at Source (TDS) at 1% at the time of payment of the transfer of virtual digital assets.
• Sale of immovable property under Section 194-IA- It is proposed to amend the amount on which TDS should be deducted. The person buying the property should deduct tax at 1% on the sum paid/credited or the stamp duty value of such property, whichever is higher.
• New Section 194R- TDS at 10% should be deducted by any person who provides perks or benefits, whether convertible into money or not, to any resident for carrying out any business or profession by such resident.

TDS is deducted on the following types of payments:

• Salaries
• Interest payments by banks
• Commission payments
• Rent payments
• Consultation fees
• Professional fees

However, individuals are not required to deduct TDS when they make rent payments or pay fees to professionals like lawyers and doctors.

TDS is one kind of advance tax. It is a tax that is to be deposited with the government periodically and the onus of doing the same on time lies with the deductor.

For the deductee, the deducted TDS can be claimed as a tax refund after they file their ITR.

Withholding tax rates 

The following table illustrates the withholding tax rates for payments to NRIs: 

Here are the withholding tax rates for any payment done by resident companies: 

Witholding tax to TDS payment due dates

The taxes witheld must be deposited with the government by seventh day of the next month in which the tax is being deducted. However, only for March, the due date for TDS payments is till 30 April.

What is a TDS return?

A deductor has to deposit the deducted TDS to the government, and the details of the same have to be filed in the form of a TDS return.

A TDS return has to be filed quarterly.

Preparing TDS returns can be done easily using the ClearTDS software. Reach out to us if you need any help with your TDS returns.

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Forms for Filing TDS Returns

Withholding tax or TDS return filing due dates

An assessee has to file a return for withholding taxes on a quarterly basis. The individual should mention each taxpayer’s name and the amount of tax deducted for that quarter. Refer to the following table to get the details of the due dates for filing withholding tax or TDS returns:

If you are the payer, you need to furnish a withholding tax certificate to the payee in each quarter in Form 16 or Form 16A.

Withholding tax for Non-Resident Indians

The withholding tax rates vary for NRIs. Additionally, the tax rates for NRIs are different if that foreign country has a DTA agreement with India. Two or more countries sign a DTAA (Double Tax Avoidance Agreement) treaty to prevent taxpayers from paying double taxes on one income.

But how do you determine the status of a Non-Resident Indian? Here are the points which are taken into consideration for determining if the individual is a Resident or Non-Resident Indian: 

• The individual has lived in India for more than 182 days in the previous financial year

Or,  

• The individual lived in India for 60 days or more in the previous financial year but 365 days or even more in 4 years preceding the previous year

Anyone who doesn’t meet the eligibility mentioned above is considered an NRI.  

NRIs are liable to taxation if their income in India falls under the following categories: 

• Revenue earned from business operations in India
• Income earned from a property in India 
• Any income earned as royalty, interest, and technical service charges paid by an Indian Resident
• Salaries paid for services in India 

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