Managed by the Central Board of Direct Taxes, TDS or Tax Deducted at Source forms a part of the income tax. Here, the person making a payment to the receiver is liable to deduct a percentage of the tax before making the full payment. The deductions can be on salary, commission, rent, incentives, professional fees or interest. Further, TDS is used by the government to make sure that the tax is collected in advance instead of paying it to the authorities later. This helps in reducing the cases of tax frauds and monetary complications due to tax.
When is TDS deducted?
All the individuals who make payments according to the Income Tax Act have to deduct TDS at the time of making a payment. But, TDS will not be deducted from a member of HUF (Hindu Undivided Family). For rent payments made by individuals and HUF where the amount exceeds Rs 50,000 per month, 5% TDS is deducted. The amount will be deducted even if the person or HUF do not have to get their income tax audited.
Further, companies deduct TDS as per the income tax rates that have been specified by the Income Tax Department. Here, the employer has to provide form 16/16A, also called TDS certificate, to the employee when deducting TDS. The form has complete details about the deducted amount.
Moreover, banks may deduct 20% TDS if PAN information is not provided. However, you can apply for relaxation from TDS. If your net taxable income is below the tax limits, you do not have to pay taxes and hence, no TDS will be deducted. You can submit form 15G to the bank so that they do not deduct TDS from the interests you receive. In case more TDS has been deducted than the specified amount, you are eligible to file a TDS return.
TDS Rate Chart for the FY 2018-19
The following chart mentions the TDS rates applicable –
|Nature of payment||TDS rate||Section|
|Payment of salary||Standard slab rate||Section 192|
|Interest obtained from securities||10%||Section 193|
|Dividend obtained apart from the dividend mentioned in Section 115-O||10%. In case the PAN card information is not provided or is invalid, 20% will be deducted||Section 194|
|Income from sources other than securities||10%||Section 194A|
|Income earned through game shows or lottery||30%||Section 194B|
|Commission paid to insurance agents||5% but 20% will be deducted in case the PAN card information is invalid||Section 194D|
|Premiums paid towards life insurance policies||1%||Section 194DA|
|Payments done while transferring any immovable property where agricultural land is excluded||1%||Section 194IA|
|Income obtained from rent||For land, building, furniture or fitting, 10% TDS will be deducted. 2% will be deducted for plant and machinery||Section 194-I|
TDS rates for salaries
Employers are eligible to deduct TDS from their employees under Section 192. The TDS amount will be deducted based on the income tax slabs and average rate of income tax. The average rate is calculated by the total liability of the tax divided by the total employee income.
The TDS rates for all individuals who get salary are as follows:
|Taxable income slab||TDS rate||Section that is applicable|
|Income up to Rs 2.5 lakh||NA||Section 192|
|Income between Rs 2.5 lakh and Rs 5 lakh||5%||Section 192|
|Income between Rs 5 lakh and Rs 10 lakh||20%||Section 192|
|Income above Rs10 lakh||30%||Section 192|
For senior citizens, the TDS rate chart is as follows:
|Taxable income slab||TDS rate|
|Income up to Rs 3 lakh||Nil|
|Income between Rs 3 lakh and Rs 5 lakh||5%|
|Income between Rs 5 lakh and Rs 10 lakh||20%|
|Income between above Rs 10 lakh||30%
TDS rates for insurance commission
As per the guidelines mentioned in June 2016, the TDS exemption limit for all insurance companies has become Rs 15,000 that was Rs 20,000 earlier.
TDS rates for income from services
Under Section 194 J, an individual can deduct TDS from payments under the following categories:
• The fee paid to a director
• The fee paid for technical services
• The fee paid for professional services
In case when the payee has a PAN card, 10% TDS will be charged. If he/she does not have a PAN card, he/she will be charged according to the following rules:
• At the rate of 20%
• According to the rate mentioned under the relevant provision in the Income Tax Act
• As per the rates mentioned in the Finance Act
TDS rates on income from interests
As per the TDS rules, the bank or the financial institution which will pay interest to a customer is liable to deduct a TDS amount. The TDS will only be deducted by the deductor or the bank when the interest amount paid in the previous year is more than Rs 10,000.
So under Section 194A of TDS Act, the deductible rate is:
• 10% if the customer has a PAN card
• 20% if the customer does not have a PAN card
In case you want to avoid TDS, you can submit forms like 15H and 15G. It is recommended that you have your PAN card handy to avoid extra charges when obtaining payments after the TDS is deducted.
TDS is an important aspect of the taxation process of India. However, it’s not applicable to all individuals and for every transaction. So, when handling TDS or when you are charged TDS, make sure you have all the relevant information. You can look for information online or seek advice from a financial advisor.