How Is Tax Deducted At Source (TDS) Applied? All You Need To Know

As the new tax regime kicks in, the salaried class will have several questions regarding taxation, including the aspect of tax deducted at source or TDS, and it could be complicated if the individual is not really into finance.  

The new tax regime is the default tax regime from FY2023-24, although the old one is also available for those preferring.

Given people’s probable ambiguity over applying TDS under the new regime, the Central Board of Direct Taxes (CBDT) has asked employers to inform their employees about their tax regime preferences and how TDS would apply.

So if you are confused about TDS, here’s what you need to know.

What Is TDS?

TDS was introduced to collect tax from the source of income to prevent tax evasion and ensure regular income for the government. For example, the person or the company, referred to as the deductor, making a payment under specific categories is liable to deduct tax at source and remit the amount to the central government’s account. The person on whose income TDS was deducted is called the ‘deductee’, and the person gets back the deducted TDS amount on tax filing.

TDS Rates & When Do You Pay?

The government has specified various income categories for TDS with different rates. These income categories include salary, fixed deposits, rent, etc.

If you are a salaried person, your employer will deduct TDS as per your income tax slab rate. But if you declare your investment proofs claiming that your income is less than the total taxable income limit, then TDS will not be deducted.

The prescribed TDS rate is 10 per cent if the interest income from bank fixed deposits, post offices, etc., is more than Rs 40,000 a year. For senior citizens, the limit is Rs 50,000. Income from securities, such as debentures and bonds beyond the threshold limit, are also subject to 10 per cent TDS.  

If your income is not in the taxable category, you may avoid TDS by submitting Form 15G and, in the case of a senior citizen, Form 15H, to the deductor. So you may submit the relevant forms to the bank or the post office where you have these deposits in April itself to avoid TDS.

Rent payment of up to Rs 50,000 per month does not need a TDS deduction, but if it exceeds that limit, it is subject to TDS at 5 per cent. There is a 10 per cent TDS on withdrawal of more than Rs 50,000 from the employees' provident fund (EPF); it is 20 per cent if the recipient does not provide PAN details.

Besides these, there are many other income categories and related TDS rates, such as brokerage or commission payment, consultation fee, professional fee, the amount from life insurance, transfer of immovable property, contractor payment, remuneration paid to directors of a company, winning from lottery, crossword puzzle, online gaming, etc.  

What If You Pay Extra TDS?

You can check the TDS amount in Form 26AS or request a TDS certificate from the deductor. If extra TDS has been applied to your income, you would be entitled to a refund based on Form 26AS or the TDS certificate issued by the deductor.