TDS is an abbreviation that stands for Tax Deducted at Source. TDS is a means of indirect tax collection by Indian jurisdiction according to the Income Tax Act, 1961. TDS is managed by the Central Board of Direct taxes (CBDT), which comes under the Indian Revenue Services (IRS). TDS is collected as a means to keep a secured income source for the government throughout the year, while abstaining people from avoiding taxes.

What is TDS?

Tax Deducted at Source or TDS is a type of tax that is subtracted from an individual’s income on a periodical or occasional basis. TDS can be appropriate for income that are regular as well as irregular in nature. Income Tax Act, 1961 regulates TDS in India through Central Board of Direct taxes (CBDT) under the Indian Revenue Services (IRS). TDS rule controls the payee or employer to deduct a certain amount of tax before making full payment to the receiver. TDS is relevant for salary, commission, professional fees, interest, rent, etc.

TDS Calculation

Payments such as salaries, interest payment, commission, fees to lawyers and freelancers etc. are subject to TDS. For salaries, the percentage of TDS will be based on income rates. Similarly, Distinctive types of income has its specified percentage of tax that is deliberated when the amount reaches a certain limit.

Since TDS is accumulated at source without the reckoning of investment that is entitled for tax deductions, hence, an individual can declare and submit his investment proof in order to file a return and claim for the TDS refund.

Rates for tax deduction at source 2017-18

Particulars TDS Rates (in %)
Section 192: Payment of salary According to Income Slab
Section 192A: Payment of accumulated balance of provident fund which is taxable in the hands of an employee (with effect from 01.06.2015). 10
Section 193: Interest on securities
a) any debentures or securities for money issued by or on behalf of any local authority or a corporation established by a Central, State or Provincial Act; 10
b) any debentures issued by a company where such debentures are listed on a recognized stock exchange in accordance with the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and any rules made thereunder; 10
c) any security of the Central or State Government; 10
d) interest on any other security 10
Section 194: Dividend other than the dividend as referred to in Section 115-O 10
Section 194A: Income by way of interest other than “Interest on securities” 10
Section 194B: Income by way of winnings from lotteries, crossword puzzles, card games and other games of any sort 30
Section 194BB: Income by way of winnings from horse races 30
Section 194C: Payment to contractor/sub-contractor
a) HUF/Individuals 1
b) Others 2
Section 194D: Insurance commission 5 (10% till Assessment year 2016-17)
Section 194DA: Payment in respect of life insurance policy 1 (2% till 31-5-2016)
Section 194EE: Payment in respect of deposit under National Savings scheme 10 (20% till 31-5-2016)
Section 194F: Payment on account of repurchase of unit by Mutual Fund or Unit Trust of India 20
Section 194G: Commission, etc., on sale of lottery tickets 5 (10% till 31-5-2016)
Section 194H: Commission or brokerage 5 (10% till 31-5-2016)
Section 194-I: Rent
a) Plant & Machinery 2
b) Land or building or furniture or fitting 10
Section 194-IA: Payment on transfer of certain immovable property other than agricultural land 1
Section 194J: Any sum paid by way of a) Fee for professional services, b) Fee for technical services c) Royalty, d) Remuneration/fee/commission to a director or e) For not carrying out any activity in relation to any business f) For not sharing any know-how, patent, copyright etc. 10
Section 194LA: Payment of compensation on acquisition of certain immovable property 10
Section 194LBA(1): Business trust shall deduct tax while distributing, any interest received or receivable by it from an SPV or any income received from renting or leasing or letting out any real estate asset owned directly by it, to its unitholders. 10
Section 194LBB: Investment fund paying an income to a unitholder [other than income which is exempt under Section 10(23FBB)] 10
Section 194LBC: Income in respect of investment made in a securitization trust (specified in Explanation of Section 115TCA) 25% in case of Individual or HUF 30% in case of other individual
Any Other Income 10

Advantages of TDS

TDS is based on the proposition of ‘pay as and when you earn’. TDS is a win-win tax structure for both the taxpayers and the government. Tax is subtracted when making payments through cash, credit or cheque, which is then deposited with the central agencies.

  • Responsibility sharing for deductor and tax collection agencies.
  • Prevents tax evasion.
  • Widens the tax collection base.
  • Steady source of revenue for the government.
  • Easier for a deductee as tax gets automatically collected and deposited to the credit of the central government.

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