What is Tax Deducted at Source (TDS)

Updated on:  

08 min read

Read about the Union Budget 2020 highlights here.

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 deducted.

It is the deductor’s responsibility to deduct TDS before making the payment and deposit 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 deducted. 

CBDT issued a circular on 20th May extending some timelines for AY 21-22

(i) The due date to file TDS return for Q4 of the FY 2020-21 is extended from 31st May 21 to 30th June 21.

(ii) The due date to furnish the TDS Certificate to employees in Form No. 16 is extended from 15th June 21 to 15th July 21.

Union Budget 2021 Outcome:
– New sections 206AB and 206CCA have been introduced. The taxpayers who have TDS / TCS more than Rs 50,000 in the last two years but have not filed income tax returns, the rate of TDS shall be double the specified rate or 5% whichever is higher.
– New section 194Q is introduced to levy  TDS of 0.1% on a purchase transaction more than Rs. 50 lakh in a year. The responsibility of deduction shall lie only on the persons whose turnover exceeds Rs.10 crores.

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 tax that is to be deposited with the government periodically and the onus of the doing the same on time lies with the deductor.

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

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. Different types of TDS deductions have to be filed using different TDS return forms.

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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