Most of you who are working in an office, or for any organization remotely have come across the term TDS. In fact the longer you work, and the more you earn, the more you’ll find yourself exposed to new terms that you might not know about. We thought we’d help you make heads or tails of such terms – which is why you are reading this blog right now! 🙂

We’re going to keep this crisp and to the point – so feel free to take notes!

If you feel like you’re getting a little bored along the way – well, make it to the end anyway – it’s all stuff you need to know, promise! 😇

What is TDS?

Tax Deducted at Source or TDS is a part of the income tax that has to be deducted by the person making the payment. This payment can include salaries, rent, commissions, fees, interest, etc. The person who is receiving the income will receive only a net amount after the TDS has been deducted (10%, in most cases). 

So, for example – if you are making a monthly salary of ₹80,000, then 10% of that (₹8,000) will be deducted as TDS from your employer, and you will receive the net payment of ₹72,000. 

“The concept of TDS was introduced with an aim to collect tax from the very source of income. As per this concept, a person (deductor) who is liable to make payment of specified nature to any other person (deductee) shall deduct tax at source and remit the same into the account of the Central Government. The deductee from whose income tax has been deducted at source would be entitled to get credit of the amount so deducted on the basis of Form 26AS or TDS certificate issued by the deductor.” 

(Source: Income Tax Department of India)

(Don’t worry – it gets better!)

When is TDS deducted and by whom?

The payer is supposed to deduct TDS from the payment, at the time of paying the payee – as mandated by the Income Tax Act of India. So in the case of your salary, for instance, your employer will be deducting TDS directly at the time that the payment is remitted into your account.

What is the TDS rate for salaries?

Various income slabs warrant various TDS rates. Here are the mandated TDS rates under the new tax regime – 

What documents do I need to file TDS for a salary?

Paperwork is boring, and documents are stressful. We get it. But, believe it or not, the Indian taxation system has become quite user-friendly with the digital onset of government services. And when you find yourself in a bit of a crunch – you can always seek out professional help to understand your taxes, filings, and claims a bit better! 

Alright, back to TDS documents! 🤓

Remember, your employers are mandated by the Income Tax Act of 1961, to issue Form 16 to you, if your income exceeds ₹2.5 lakhs. Form 16 is a TDS certificate that shows the quarterly breakdown of your TDS payments. You must ask your employer for Form 16 when you are filing your Income Tax Returns (ITR) each year. 

How does a TDS refund work?

The most important thing to remember is that TDS refunds are not separate from Income Tax refunds. Ultimately, your TDS will be gauged against your total taxable income to determine whether or not you are eligible for refunds. So, naturally, a TDS refund will only arise when the taxes paid through TDS exceed the tax payable for you, in a financial year. So, TDS filing is not a separate process, rather just a part of your annual Income Tax Return (ITR) filing!

It is important to note that in case your taxable income falls under the exemption limit, you can avoid a TDS deduction from your salary altogether. You can apply for a NIL TDS certificate (Form 13) and submit that to your employer, who will then stop deducting TDS at the time of remitting your salary.

However, If the actual tax payable by you is not equal to the TDS, then you need to calculate your income, total tax payable, and of course – file your ITR to ultimately claim a TDS refund. Depending on your total tax liability, this refund might be shown as ‘+’ (you get a refund), or a ‘-’ (you owe more in taxes and need to pay).

Like we’ve said before – not knowing about TDS doesn’t mean it has to be overwhelming to learn about it. It’s all pretty straightforward. But you need to make sure you know about these things before you file your ITR, so you aren’t missing out on potential refunds! (Ka-ching! 🤑)

Rounding Up

When you become an earning member of society, ITR filing is mandatory. Knowing about various aspects of ITR, like TDS, lends accountability and accuracy to your end-of-the-year filing.

Let us know if you have any questions in the comments – we’ll be happy to explore the answers in a subsequent blog!