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 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. 

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 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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