The full form of TDS stands for Tax Deducted at Source. Basically TDS means the payer (any company or a business firm) can deduct tax from the income of the payee (the one who is receiving the payment) and pay the balance amount to the payee.
In India, there are certain rules and obligations under the income tax act of India, 1961. According to this act, a respective amount of income tax has to be deducted at the source before the payee receives the remaining amount. This is a part of Indian revenue service and is handled by the CBDT (Central Board of Direct Taxes) which is a part of the revenue department. This procedure is very important during tax audits.
The person who is liable to pay tax to the government is known as Assessee. An assessee is supposed to file income tax returns to the CBDT quarterly. This helps to understand the TDS amount which is deducted and paid to the government in that particular quarter.
There are also some groups of individuals on whom the TDS is not applicable. In brief, we can say that there are different TDS slabs provided by the income tax act, 1961 for different categories of groups and individuals of different pay scales.
In countries like New Zealand, South Africa, etc., such individuals who have a payroll with tax are also known as PAYE i.e. Pay-As-You-Earn Tax and few other countries like the United States, pay-as-you-go term is used.
History of TDS
India’s income tax act came into existence during 1961. There are different types of TDS rates for various types of incomes and payments under different sections of the income tax act 1961. Though it is important that one must understand, there is a certain margin level upon which TDS is applicable. The TDS on certain transactions is deducted only when the amount of payment or salary is above the specified margin level. If the amount does not cross the specified level, no TDS is deducted in any form.
Benefits of TDS
This helps the salaried people to pay tax every month in easy instalments as they earn thus reducing the burden of paying a lump sum amount at the end of the year.
This income tax if collected properly throughout the year helps the government to get enough funds to run the government well.
It also helps the government receive the tax at the time of payments itself to avoid any fraud by any individual or company.
Apart from individuals or companies, the TDS is also applicable to immovable property. This comes under the section 194lA of the income tax act,1961. This states that 1% TDS is deducted on the sale of the immovable property however the rate may increase up to 20% if the person who is transferring the property does not provide a valid PAN number.
Under section 194lB of the income tax act,1961, tax is also deducted at source if the rent is exceeding 50,000 per month by an individual to a landlord.
The Standard Rate of TDS:
This varies between 10% to 30% based on the salary of the individual.
Eg: salary up to 3,00000- nil
3,00000 to 5,00000- 10%
5,00000 to 10,00000- 20%
10,00000 and above 30%
The TDS rates for a resident Indian and a non-resident Indian (NRI) will be different.
The minimum salary for the deduction of TDS under section 192 of the income tax act,1961 for a resident Indian under 60yrs of age would be 2.5 lakh per annum.
And for a resident Indian above 60 yrs would be 3 lakhs per annum.
For someone above 80yrs of age, the tax deduction would be on the amount 5 lakhs per annum.
Q1: What is TDS and how It is Calculated?
Ans: The TDS will be deducted by dividing the estimated tax liability of the employee for the financial year by the number of months of his employment under the particular employer. However, if you do not have PAN, TDS shall be deducted at the rate of 20% (excluding education cess and higher education cess).
Q2: Who is Eligible for TDS?
Ans: Any person making specified payments mentioned under the Income Tax Act are required to deduct TDS at the time of making such a specified payment. But no TDS has to deducted if the person making the payment is an individual or HUF whose books are not required to be audited.
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