What is TDS?

Q1 What is TDS or Tax Deducted at Source?

TDS or Tax Deducted at Source is income tax paid to the Government by the payer of the income rather than by the recipient of the income. In other words, it is the amount of tax withheld or reduced from the total money paid to the recipient of income. The amount of TDS or tax withheld is instead deposited with the Government. It is important to note that the provision of TDS applies to specified payments only.

In simple terms – If a person/company is making certain payments such as rent, commission, salary, professional fee, etc. be sure to remember that a part of this payment (say 10%) is to be paid to the Central government and only the remaining part (90%) is to be paid to the landlord, employee, service provider.  The amount paid to the government is TDS i.e. Tax Deducted at Source.

Let’s say, Simran employed Raj a website developer to create the website for her e-commerce business. Raj sent an invoice of Rs. 1,00,000 for the professional services rendered by him. In this case, Simran will deduct 10% TDS i.e. Rs. 10,000 and pay Raj Rs. 90,000 only. Simran will then deposit the amount of TDS deducted i.e. Rs. 10,000 with the Government and file her quarterly TDS return.

Q2. Who should deduct TDS ? or Who is liable to pay TDS?

The person making such specified payments is required to deduct TDS and deposit the same with the Income Tax Department. TDS is deducted irrespective of the mode of payment–cash, cheque, or credit–and is linked to the PAN of both the recipient and payer.

In the above example, Simran made a payment that comes under the list of specified payments, and therefore she is liable to pay TDS i.e. deposit the TDS with the Tax Department.

Q3. What all payments are subject to TDS for a business owner?

The specified payments subject to TDS are listed below:

• Rent
• Commission
• Professional/ Technical fees
• Salary
• Interest
• Payment to contractor / subcontractor
• Payment of Perquisite or benefit in the course of Business or Profession to a resident
• Payments made to non-resident Indians/ foreign entities

Q4. Why does the payer deduct TDS? Isn’t the income tax on the recipient’s income his/her responsibility? Or Why is Tax Deducted at Source imposed by the Government?

In the normal course, a person pays taxes on the income received after the end of the Financial Year. However, this results in a loss of revenue to the Government if the recipients do not file their income tax returns. As such, TDS is imposed by the Government to combat tax evasion by ensuring that the income tax is deducted in advance

The recipient of income receives the net amount (after reducing TDS). This TDS may be refunded if the recipient’s tax liability is less than the TDS deposited. Similarly, in case the recipient’s final tax liability is higher than the TDS deposited in which case the amount of TDS credit is adjusted against the final tax liability.

Q5. What is the due date for depositing the TDS with the government?

7th of the following month is the due date for the deposit of TDS. For example, TDS deducted in the month of May should be deposited before the 7th of June. However, TDS deducted in March has a relaxation and the due date for the deposit is 30th April.

Q6. What is the due date for depositing TDS with the government in case of purchase of property or payment of rent?

The TDS shall be deposited within 30 days from the end of the month in which TDS is deducted in case of purchase of property or payment of rent.

Q7. What is a TDS return?

Filing Tax Deducted at Source returns is mandatory for all the persons who have deducted TDS. After depositing TDS before the 7th of each month, a TDS return is to be submitted quarterly. This TDS return requires the furnishing of details such as TAN, amount of TDS deducted, type of payment, PAN of deductee, etc. Also, different forms are prescribed for filing returns depending upon the purpose of the deduction of TDS. The different types of TDS return forms are as follows: 

Q8. What is TDS credit? What is form 26AS?

26AS is a tax credit statement that shows the details of tax paid and deposited under your PAN with the Income Tax Department. Form 26AS includes the following details:

• TDS compliances.
• Tax Deducted at Source and deposited with the ITD on your behalf
• Tax Collected at Source and deposited with the ITD on your behalf
• Tax refunds
• Advance Tax paid by you
• Self-assessment tax paid by you
• Details of high-value transactions

Q9. When should TDS be deducted?

Whenever you make any of the specified payments mentioned under the Income Tax Act, you are required to deduct TDS at the time of making such specified payment.

Q10. Does a sole proprietor have to deduct TDS?

No, a sole proprietor does not need to deduct TDS if the books of accounts are not required to be audited. Once the books of accounts require a tax audit as per the Income Tax Act, 1961, a sole proprietor must ensure that all TDS provisions are complied with.

Q11. Does a Hindu Undivided Family (HUF) have to deduct TDS?

No, a Hindu Undivided Family (HUF) does not need to deduct TDS if the books of accounts are not required to be audited. Once the books of accounts require a tax audit as per the Income Tax Act, 1961, an HUF must ensure TDS Compliances.

However, in case of rent payments made by individuals or HUF exceeding Rs 50,000 per month, TDS @ 5% even should be deducted even though the individual or HUF is not liable for a tax audit. Also, such Individuals and HUF liable to deduct TDS @ 5% need not apply for TAN. 

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