It is a mechanism under the Income Tax Act whereby tax is deducted at the source by the person making the payment (the payer) and directly remitted to the government on behalf of the recipient. This system applies to specified payments such as salary, rent, interest, and professional or technical fees. The objective of this mechanism is to ensure regular collection of tax at the time of income generation and to minimize tax evasion by spreading tax collection throughout the financial year.
Introduction to TDS
Tax Deducted at Source (TDS) is a mechanism prescribed under the Income Tax Act, 1961, whereby tax is deducted at the time of making specified payments such as salary, rent, interest, commission, or professional fees.
Deductor and Deductee
The person responsible for deducting tax is known as the Deductor, while the person receiving the payment is referred to as the Deductee.
Deposit of TDS
The tax deducted is required to be deposited with the Income Tax Department and is credited against the Permanent Account Number (PAN) of the deductee.
Impact on Income and Tax Liability
Although the deductee receives the net amount after deduction of TDS, the gross income is considered for computing the total tax liability.
Adjustment and Refund of TDS
The TDS deducted is adjusted against the final tax payable by the deductee. If the total TDS deducted exceeds the actual tax liability, the excess amount is refunded to the deductee after filing the income tax return.
When is TDS Required to be Deducted?
Any person responsible for making specified payments as prescribed under the Income Tax Act, 1961 is required to deduct Tax Deducted at Source (TDS) at the time of making such payments or credit, whichever is earlier.
Different categories of payments are governed by different TDS provisions, and a specified threshold limit is prescribed for each type of payment. If the aggregate amount of payment during a financial year does not exceed the prescribed threshold limit, no TDS is required to be deducted.
Further, where the payee furnishes a valid declaration in Form 15G or Form 15H, stating that his or her estimated total income for the financial year is below the basic exemption limit, no TDS is required to be deducted, subject to the conditions prescribed under the Act.
TDS returns
TDS returns are required to be filed on a quarterly basis, furnishing prescribed details such as the Tax Deduction and Collection Account Number (TAN) of the deductor, amount of tax deducted, nature of payment, Permanent Account Number (PAN) of the deductee, and other relevant particulars.
The Income Tax Act and Rules prescribe different types of TDS return forms depending on the nature of payment and the category of deductee, as outlined below:
| Form No | Transactions reported in the return | Due date |
| Form 26Q | TDS on all payments except salaries | Q1 – 31st July Q2 – 31st October Q3 – 31st January Q4 – 31st May |
| Form 24Q | TDS on Salary | Q1 – 31st July Q2 – 31st October Q3 – 31st January Q4 – 31st May |
| Form 27Q | TDS on all payments made to non-residents except salaries | Q1 – 31st July Q2 – 31st October Q3 – 31st January Q4 – 31st May |
| Form 26QB | TDS on sale of property | 30 days from the end of the month in which TDS is deducted |
| Form 26QC | TDS on rent | 30 days from the end of the month in which TDS is deducted |
Statutory Due Dates for TDS
Tax Deducted at Source (TDS) shall be deposited with the Government on or before the 7th day of the month immediately following the month in which the tax is deducted.
In the case of TDS on the purchase of immovable property under Section 194-IA, the tax must be deposited within 30 days from the end of the month in which the TDS is deducted.
Failure to deposit TDS within the prescribed due dates may result in interest and penalties as per the provisions of the Income Tax Act, 1961.
TDS statements are required to be filed on a quarterly basis, in accordance with the prescribed timelines, as follows:
| Quarter | Period Covered | Due Date for Filing TDS Statement |
| Q1 | April–June | 31st July |
| Q2 | July–September | 31st October |
| Q3 | October–December | 31st January |
| Q4 | January–March | 31st May |
Penalty for Late Filing of TDS Returns
Under Section 234E of the Income Tax Act, a late fee of ₹200 per day is imposed for the delayed filing of TDS/TCS returns with the Income Tax Department (ITD). The fee is levied for each day of delay until the return is submitted, subject to a maximum limit equal to the total TDS/TCS amount reported in the return. It is essential to ensure that any applicable late fee is paid at the time of filing the TDS/TCS return to avoid further non-compliance.
TDS FAQ (Tax Deducted at Source)
1. What is TDS?
Answer: TDS (Tax Deducted at Source) is a mechanism under the Income Tax Act, 1961, where tax is deducted at the time of payment of specified incomes such as salary, rent, interest, commission, or professional fees. The deducted tax is deposited with the government on behalf of the recipient.
2. Who is a Deductor and Deductee?
Answer:
- Deductor: The person responsible for deducting TDS at the time of making payment.
- Deductee: The person receiving the payment from which TDS is deducted.
3. When is TDS applicable?
Answer: TDS is applicable when a person makes specified payments as per the Income Tax Act. Different types of payments have different threshold limits, and if the payment does not exceed the limit during a financial year, TDS is not required.
Additionally, if the deductee submits a valid Form 15G or 15H declaring their income is below taxable limits, TDS need not be deducted.
4. What is the due date for depositing TDS?
Answer:
- TDS must be deposited on or before the 7th of the month following the month in which tax is deducted.
- For TDS deducted in March, the due date is 31st May.
- For TDS on the purchase of immovable property (Section 194-IA), the tax must be deposited within 30 days from the end of the month in which it is deducted.
Note: Late deposit may attract interest and penalties.
5. What are TDS returns?
Answer: TDS returns are statements filed by the deductor on a quarterly basis containing details such as:
- Tax Deduction and Collection Account Number (TAN)
- Amount of TDS deducted
- Nature of payment
- PAN of the deductee
Different return forms apply depending on the type of payment and deductee, e.g., 24Q, 26Q, 27Q, 27EQ.
6. What are the due dates for filing TDS returns?
| Quarter | Period Covered | Due Date for Filing |
|---|---|---|
| Q1 | April–June | 31st July |
| Q2 | July–September | 31st October |
| Q3 | October–December | 31st January |
| Q4 | January–March | 31st May |
7. What happens if TDS returns are filed late?
Answer:
- A late fee of ₹200 per day is levied under Section 234E for delayed filing.
- The fee is charged for each day of delay and cannot exceed the total TDS amount.
- Filing TDS returns late can also attract penalties and interest under the Income Tax Act.
8. How is TDS credited to the deductee?
Answer: The TDS deducted by the deductor is deposited with the Income Tax Department against the PAN of the deductee. It is adjusted against the deductee’s total tax liability. If TDS exceeds the actual tax liability, the excess is refunded after filing the income tax return.
9. Can TDS be avoided?
Answer: TDS cannot be avoided if applicable, except in cases where:
- The deductee’s income is below the taxable limit, and Form 15G/15H is submitted.
- Payment does not exceed the threshold limit prescribed for TDS deduction.
10. Why is TDS important?
Answer:
- Ensures regular collection of tax throughout the year.
- Reduces the burden of paying lump-sum tax at year-end.
- Helps the government prevent tax evasion.
- Credits the tax directly to the deductee’s account for future adjustment.
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