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What is Tax Deducted at Source (TDS)

Updated on :  

08 min read.

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: 

Type of Payment Withholding Tax Rate
Royalty 10% 
Technical Fees 10% 
Interest 20% 
Dividend payments by Indian Companies NIL 
Individual anonymous services 30% 
Company’s anonymous services 40% 

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

Type of Payment Payment Limit for Withholding Tax Tax Rate
Specified types of interestNIL 10% 
Commissions and
brokerage
Rs.5,00010%
Non-specified types of
interest
Rs.5,00020%
Professional or technical
services
Rs.30,00010%
Rent of building, or land
and furniture
Rs.1,80,0002%
Royalty / Fees for Technical ServicesRs.30,00010% 
Contractual payments (not for Individuals / HUF)Rs.30,000 (single payment) or Rs.75,000 (aggregate payment)2% 
Contractual payments to
Individuals / HUF
Rs.30,000 (single payment) or Rs 75,000 (aggregate payment)1%
Rent of plant, machinery,
or equipment
Rs.1,80,0002% 

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

Form
No.
Description
Form
24Q
Quarterly TDS statement for tax deducted on salary payments.
Form
27Q
Quarterly TDS statement for tax deducted while making
payment, other than salary, to non-resident (not being a
company), and foreign company
Form
26Q
Quarterly TDS statement for other cases like TDS deducted
on professional fees, interest payments, etc.

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:

Quarter TDS ReturnsDue
Date 
1st Quarter
(April – June)
Form 24Q and 26Q, Form 27Q
and 27EQ
15 July
2nd Quarter
(July – September)
Form 24Q and 26Q, Form 27Q and
27EQ
15 October
3rd Quarter
(October – December)
Form 24Q and 26Q, Form 27Q and
27EQ
15 January
4th Quarter
(January – March)
Form 24Q and 26Q, Form 27Q and
27EQ
15 May

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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