What is TDS ?

TDS or Tax Deducted at source is a way or mode to collect Income tax at source i.e. tax is deducted at the original source of income itself. Tax is to be deducted by the tax deductor/payer on certain payments,if the payment exceeds a particular threshold limit and the same has to be deposited with the Government before the due dates of deposit of TDS.

Tax deductor is the one who is responsible to deduct tax at source or TDS. Tax deductee is the one on whose income, the tax is deducted at source i.e.the person from whose income the tax is actually deducted.

Let us take a simple example of a salaried employee. In this case Employer will be the Tax deductor i.e.it is the liability of the employer to deduct tax at source on the salary of his employee (if applicable). While employee is the tax deductee on whose income, the tax shall be deducted. The employee will thus get his salary net of TDS if his income exceeds basic exemption limit after adjusting tax free allowancestax saving investments etc.

Similarly,when you make a Fixed deposit with a bank , the bank will deduct tax at source on the interest income earned on your FD, if the interest income exceeds Rs.10000 during a financial year. So,here bank is authorised to deduct tax on your income.

Here,we have compiled a TDS rate chart to make you aware of the TDS rates applicable for Financial year 2016-17. Please note that certain amendments were made in TDS rates in Union Budget 2016, the new TDS rates became effective from 1.6.2016 onwards. We have clearly mentioned the effective dates for changes in the TDS limits or TDS rates in the TDS chart below.

5120304358_72af165e30

TDS Rate Chart for Financial year 2016-17

SectionFor Payment ofOn Payments exceedingTDS Rate for Individual/HUF
192SalaryIf Estimated Income of employee > Basic exemption limit As per Income tax slab rates
192 AEPF - On premature withdrwalRs.50000 w.e.f.1.6.2016
(This limit was Rs.30000 till 31.5.16)
10%
193Interest on SecuritiesRs.1000010%
194
Dividend other than the dividend as referred to in Section 115-O Rs.250010%
194 AIncome by way of interest other than 'Interest on securities' by banks Rs.1000010%
194 AInterest other than on securities by others Rs.500010%
194 BWinnings from Lotteries / Puzzle / Game Rs.1000030%
194 BBWinnings from Horse Race Rs.10000 w.e.f 1.6.2016
(This limit was Rs.5000 till 31.5.16)
30%
194 CPayment to ContractorsIf Single payment > Rs.30000 or aggregate payment during financial year exceeds Rs.1 lakh w.e.f.1.6.2016 (This was Rs.75000 till 31.5.16)1% for Individual/HUF
2% for Others
194 DPayment of Insurance Commission Rs.15000 w.e.f. 1.6.2016
(This limit was Rs.20000 till 31.5.16)
5% w.e.f.1.6.2016
(The rate was 10% earlier)
194 DAPayment for Life Insurance Policy Rs.1000001%
(The rate was 2% earlier)
194 EEPayment of NSS Deposits Rs.250010%
(This rate was 20% earlier)
194 GCommission on Sale of Lottery tickets Rs.15000 w.e.f. 1.6.2016
(The limit was Rs.1000 earlier)
5% w.e.f. 1.6.2016
(The rate was 10% earlier)
194 HCommission or Brokerage Rs.15000 w.e.f. 1.6.2016
(The limit was Rs.5000 earlier)
5% w.e.f. 1.6.2016
(The rate was 10% earlier)
194 IRent of Land, Building or Furniture Rs.18000010%
194 IRent of Plant & Machinery Rs.1800002%
194 IATransfer of an immovable property other than agricultural land Rs.50 Lakhs1%
194 JProfessional / technical services, royalty Rs.3000010%
194 LACompensation on acquisition of certain immovable property Rs.250000 w.e.f. 1.6.2016
(The limit was Rs.2 lakhs earlier)
10%

This TDS rate chart covers the major category of payments and is on “as is ” basis. The Government can make amendments in the threshhold limits as well as the TDS rates from time to time.

Important points to consider for TDS or Tax deducted at source :

  • Every deductor has to deduct TDS at the prescribed rates as applicable.
  • The deductor will issue TDS certificate also known as Form 16 (For salaried ) and Form 16 A (Non-Salary).
  • Correct Permanent Account No.(PAN) should be furnished to the deductor so that the same is recorded correctly and you get due credit of TDS.
  • The payer is authorised to deduct TDS at 20% or applicable rate whichever is higher, if the deductee does not furnish his PAN.
  • You can submit Form 15G /Form 15H if you are eligible to do so and avoid any excess TDS.

Being a Tax deductor/payer, you must make sure that you meet all the compliance requirements related to TDS on timely basis including deduction of tax at source, deposit of tax and then filing of TDS returns before due dates.

Being a Tax deductee/payee, be careful in providing all the correct details to the deductor so that the same can be rightly reflected in your Form 16/Form 16A and also due credit of TDS during the year can be seen in Form 26AS.

Note : Recently,the Government has also initiated SMS alert service for salaried individuals regarding Tax deducted (TDS) by the employer.

Also note that, even if Tax has been deducted at source on your income, this does not ensure that your tax liability has been completely discharged.

You need to add up your Total Income from various sources,claim deductions if any applicable and compute your Tax liability based on that.Then reduce the TDS amount from your Total Tax liability. The difference if any, shall result to Net tax payable or Net tax refundable.

Simply stated,

A. SALARY INCOME

B. HOUSE PROPERTY INCOME

C. INCOME FROM BUSINESS & PROFESSION

D. INCOME FROM CAPITAL GAINS

E. INCOME FROM OTHER SOURCES

GROSS TOTAL INCOME (A+B+C+D+E)  Less : DEDUCTIONS UNDER CHAPTER VI A          

You arrive at the TOTAL TAXABLE INCOME.   Now compute tax on this Total Taxable Income as per Income tax slab rates. You reach at Total Tax liability.

Total Tax Liability      

Less : Tax deducted at source (TDS)

Net Tax liability ( If this figure is positive you need to pay tax )  

But,if TDS is in excess of total tax payable,the amount is refundable to you.So,you need not worry if any excess tax has been deducted at source (TDS), you can anyways claim refund while filing your Income tax returns.

This was about TDS, now are you thinking about tax planning, go through one of our popular blog post : Tax deduction U/s 80C : Which are the 15 Eligible Investments ?

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