TDS stands for ‘Tax Deducted at Source’. TDS has been introduced to collect tax from the source from where an Individual’s income is generated. It is applicable on the various incomes received such as salaries, interest received, commission received etc. Different rates of TDS have been prescribed by the Income Tax Act for different payments and different categories of recipients. For example, payment of redemption proceeds by a debt mutual fund to a resident individual is not subject to TDS but for a Non-resident Indian is subject to TDS.
An individual can view/check the TDS from incomes paid to him by viewing Form 26AS. Each deductor is also duty bound to issue a TDS certificate certifying how much amount is deducted in the deductee’s name and deposited with the government.
There are different rates for TDS described in the different sections of the Act, depending on the nature of the payments. Some of the incomes subject to TDS are as follows:
Nature of Payment
Applicable income tax rate
Taxable part of PF
Interest on Securities
Winning from lottery or any other game
Winning from horse race
Insurance Commission received
LIC Policy not exempted u/s 10(10)D
1% if it exceeds Rs.1 lakh in FY
Commission/Brokerage received other than insurance
5% if it exceeds Rs.15000 in FY
Payment for purchasing land/property
Payment of rent exceeding Rs.50,000/month
As seen above TDS on specified transactions is deducted only when the value of payment is above the specified threshold level. Different threshold levels are specified by the Income Tax department for different payments such as salaries, interest received etc. For example, there will be no TDS on the total interest received on FDs from a single bank if it is less than Rs 10,000 in a year from that bank. If a person expects that his total income in a financial year will be below the exemption limit, he can ask the payer not to deduct TDS by submitting Form 15G/15H.
While receiving payment which is subject to TDS, the deductee is required to provide his PAN details to avoid tax deduction at the higher rates.
Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 9 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata.He also manages a portfolio on the online platform Kristal. Find link to the strategy named ‘The Tortoise’