What is TDS?
TDS is simply Tax Deducted at Source. As per the Income Tax Act – certain persons responsible for making payments are required to deduct tax at source at prescribed rates. This tax which is deducted has to be deposited by them to the government. The recipient of income receives the net amount (after deducted of tax at source). However, the recipient is liable to add the gross amount to his/her income and the amount deducted at source is adjusted against his/her final tax liability.
TDS must be deducted at the time of payment in cash or cheque or credit to the payee’s account whichever happens earlier.
TDS is deducted on salaries, interest payment by banks, winnings from lotteries, payment to contractors, payment of commission, while paying rent, payments made to consultants, payments to lawyers or freelancers. (Some of these requirements to deduct tax are not applicable to individuals – for e.g. individuals are not expected to deduct TDS while paying rent or while paying fees to doctors or lawyers). If you are a freelancer or a professional yourself – and you work for a corporate – they are required under the Act to deduct TDS from payments made to you.
TDS & PAN
TDS deductions are linked to PAN numbers for both the deductor and deductee. You may be taxed at a higher rate if you fail to furnish your PAN. 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 which 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. Therefore, it becomes important for you to mention your PAN correctly, wherever TDS may be applicable on your income.
Here’s how to view your Form 26AS https://cleartax.in/Guide/TaxCredit
What are the rates at which TDS is deducted? Can TDS be deducted at lower rate?
The rates of TDS are specified in the Income Tax Act and are based on the nature of payment. An application for lower deduction or no deduction can be made to the Assessing Officer with requisite details. The certificate the AO grants is valid only for the assessment year it has been given for or unless it is cancelled before the completion of date on the certificate. Deductee may furnish copies of such certificate to the person responsible for paying the income to make sure tax is deducted at lower rate by them or no tax is deducted, as applicable.
In our next post we will look at what happens if excess TDS has been deducted from the payment made to you.
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