TDS means tax deducted at source. As defined by the Income Tax Act of India; TDS is applicable to every citizen who takes home an income. The income may be in the form of a fixed salary, rent, bank interests, commissions, etc. TDS is deducted by the entity that makes the payment and with them lies the responsibility of timely paying the collected tax to the respective government agency as well as provide an acknowledgement to the receiver, in form of a TDS return, post successful filing of the tax. Failure of timely payment of taxes brings an invitation to applicable penalties to the taxpayer.
TDS is deducted by the payer as defined by the Income Tax Act as the tax slab rates applicable at the time. TDS is exempted if the total income is below the taxable limit. The taxpayer can submit investment proofs to their employer if their total income lies below the taxable limit in order to avoid having to pay TDS. In cases where the TDS has already been deducted from the income of the receiver before submitting proofs of TDS exemption, or in case where a taxpayer has overpaid the tax than what they are obligated to pay, there is a provision of filing a return and claiming a refund of the paid taxes. While this is a convenient method on avoiding to overpay tax, TDS rates shoot up high in cases where a receiver fails to furnish their bank with their PAN (permanent account number) details.
In order to ensure paying the correct amount of TDS, different forms are available to different methods of income from which the TDS is collected. Form 24 Q is required to be filled for TDS deduction of a salaried (fixed monthly income) employee; Form 26 Q is to be filled out in case of deductions made on non-salaried payments (rent, interests, commissions, lottery winnings, etc); and Form 27 Q is for TDS deduction of non-resident Indians (NRI’s). Broadly 4 types of penalties are levied on failure of the proper process of TDS deduction and filing of returns. Firstly, cases of non-deduction of TDS, if a deductor (person responsible for deduction of tax) fails to do so then the assessing officer is authorized to prohibit the taxable transaction wholly for getting taxable profits. Secondly, late deduction of TDS, in accordance with the norms TDS is to be deducted at the time of payment/credit getting due or the payment (the one that comes first). Failure of timely TDS submission of even a single day is calculated as a month for the calculation of interest levied (1%/month = 1%/day). Thirdly, late payment of TDS to the respective government agency, higher than late deduction of TDS rates are the rates of payments of TDS. Every delayed day carries an interest of 1.5% interest per month subject to the maximum amount of TDS is applicable. Lastly, late filing of TDS returns, a hefty Rs. 200/- per day is charged upon the late filing of TDS returns subject to a maximum amount of TDS until the return has been successfully filed.
To wrap up, TDS is an indirect from of tax that we as earning citizens are obligated to pay to the government to support its efficient functioning. TDS deduction, payment and filing remain the responsibility of the person that makes the payment of the income to the other. Minimizing/Eliminating having to pay TDS is applicable to those earning below defined norms. To those who are eligible of paying TDS are responsible of the timely payments to avoid late charges and further inconveniences.