What Role Does TDS Deduction Play?

TDS – Tax Deducted At Source

Have you ever checked your payslip? You will find a section known as TDS.TDS stands for Tax Deducted at Source. CBDT (Central Board of Direct Taxes) is a body who manages the policies and regulations related to tax deduction in India. As per the Income Tax Act it is the deduction of tax at the point of source of income.

Tax is deducted and is forwarded to the Government by the Deductor on behalf of the deductee. It is collected to keep a stable revenue inflow for the government throughout the  assessment year. It is also a check to abstain people from avoiding taxes.

Following are some expenses and source of earnings falls under tax deduction at source-

  • Salary
  • Interest from bank
  • Rent payment
  • Payments on commission
  • Payments to freelancers and lawyers
  • Lottery etc

A complete list of expenses under TDS can be found from Income Tax Act, Sections 192 to 194L. It is only applicable when an individual falls in Income Tax slab. A deductee can approach the deductor for non-deduction of source tax. Form No. 15G/15H is required to furnish an advance income  tax declaration. Individuals have to fill Form 15G and senior citizens need Form 15H.

As per Income tax act, assessee should meet following criteria to claim for non –deduction at source –

  • A resident whose earning as per section  192A, 194 or 194EE  does not exceed the maximum chargeable amount to income-tax .
  • Any individual (other than a company or a firm) whose earning under section 193194A194DA or 194-I  does not exceed the maximum chargeable amount to income-tax .
  • A resident senior citizen whose earning is in accordance with section 192A193194194A194EE, or 194-I or 194DA.

Under section 203, Deductor should issue a TDS certificate to the deductee. This certificate keeps a track all the deductions of the individual for the assessment year. Banks also issues a certificate for deducting tax at the time of payment of pensions etc. For salaried employees, the certificate is released in form No.16 (includes pension).

Like tax return, you can also claim a refund of excess deductions at source. Excess payment is calculated as the difference between the tax deducted and the actual payments made by the Deductor. According to Direct Tax Acts, first adjustments are made against any tax liabilities then a TDS Refund is issued.

There are many advantages of TDS to both Deductor as well as deductee.

Benefits to Deductee:

  • Tax is collected every month in small instalments .Avoid the hassle of giving a large amount for the assessment year.
  • An employee can easily calculate his tax rebate for assessment year.
  • Better budget management.
  • No need to stand in queues as the collection is managed by Deductor.

Benefits to Deductor:

  • It is a steady flow of money to government
  • Timely payment of taxes.
  • Easy to use and cost effective
  • Accuracy is maintained as the collection is filed online.

For cases of failure of deduction at source, the payee will have to discharge his tax liability. To find the overall quantum, check Form 26AS from your e-filing account.Thus, it is a well-organised way of tax collection by the government of India. To know more details for current assessment year 2016-2017, feel free to Contact Us .