Tax, GST and company law glossary
TDS (Tax Deducted at Source)
Tax that the payer deducts while making certain payments, such as salary, rent or professional fees, and deposits with the government.
In short
The deductor deposits TDS by the 7th of the next month (30 April for March) and files quarterly TDS returns. The payee claims credit for it in their own return.
What it means
TDS (Tax Deducted at Source) is tax that the person making a payment deducts at the time of paying, and deposits with the government on behalf of the person receiving it. Common examples are salary, rent, professional fees, contractor payments, commission and interest. The receiver gets credit for this tax in their own return, so TDS is an advance collection of tax, not an additional tax.
How it works
Deposit: TDS is deposited by the 7th of the next month. For March, the due date is 30 April.
Returns: the deductor files quarterly TDS returns, due 31 July, 31 October, 31 January and 31 May.
Certificates: salary TDS is reported in Form 130 (earlier Form 16), issued annually. Other TDS certificates are issued quarterly.
Common rates and limits: salary at slab rates; rent of land or building 10% where rent exceeds ₹50,000 a month; professional or technical fees 10% or 2% where payments exceed ₹50,000 a year; contractors 1% (individual or HUF) or 2% (others); bank interest 10% above ₹50,000 a year (₹1,00,000 for senior citizens).
Where the receiver has no PAN, TDS is generally deducted at 20%.
A deductor needs a TAN to deduct and deposit TDS.
Example
A Mumbai partnership firm makes these payments in May:
Office rent to an individual landlord: ₹60,000. TDS at 10% = ₹6,000; landlord receives ₹54,000.
Fees to a consultant: ₹1,00,000. TDS at 10% = ₹10,000; consultant receives ₹90,000.
Payment to a contractor firm: ₹2,00,000. TDS at 2% = ₹4,000; contractor receives ₹1,96,000.
Total TDS = ₹6,000 + ₹10,000 + ₹4,000 = ₹20,000, to be deposited by 7 June. If the firm deposits it on 20 August instead, interest at 1.5% per month for 4 months (May to August, part months counted as full) is ₹20,000 x 1.5% x 4 = ₹1,200.
Key points to remember
Interest is 1% per month if TDS is not deducted and 1.5% per month if deducted but not deposited.
A late TDS return attracts a fee of ₹200 per day, up to the amount of TDS, and a penalty is also possible.
Expenses on which TDS was not deducted or deposited can be partly disallowed in the payer’s tax computation.
Receivers should match TDS with Form 26AS / AIS before filing. Missing credits usually mean the deductor quoted a wrong PAN or did not file the return.
Rates and thresholds change often, so check them each year.
Income Tax
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