As a salaried person, you must have often encountered the term TDS. Many people see it as the villain who reduces their take-home salary. Be as it may, TDS is an essential part of the compensation structure for salaried people. So, what is TDS? Why should you know about it? And how is TDS filed? We answer all such queries regarding TDS in this article.
The Income Tax Act of India of 1961, mandates that if someone pays you money that is considered to be a source of income, such as a salary, consulting fees, bank interest, etc., they must take a portion of the entire payment and deposit it with the Income Tax (IT) department. This Tax Deducted at Source is referred to as TDS and applies to both people and corporations. In the case of TDS on salary, it is the employer’s responsibility to deduct tax while paying the salary to the employees and deposit it with the regulatory authority.
For example, if you have opted for the old tax regime, your employer will deduct TDS based on the tax slab you fall under, which depends on your annual income. Here are the current slabs:-
* Tax rate is for individuals below the age of 60 under the old tax regime.
The rate of TDS varies depending on the nature of income and the tax slab the person falls under. For example, the rate of TDS for salaries differs from that of TDS for rent or interest on bank deposits. Similarly, the rate of TDS for resident taxpayers is different from the rate of TDS for non-resident taxpayers.
Other common sources of income (other than salary) include interest on bank deposits, rental income, professional fees, etc.
TDS provides the government the revenue to carry out its many developmental projects, benefiting the government, taxpayers, and society. Key benefits include:
TDS ensures that the government receives a regular stream of tax revenue throughout the year rather than waiting for taxpayers to file their tax returns and pay the tax due.
Since the tax is deducted at the source of the income, and the deductor is responsible for depositing it with the government, TDS reduces the scope for tax evasion.
Taxpayers do not have to worry about deducting and depositing tax on their own in the case of TDS because it is the deductor’s responsibility to do so on their behalf. This makes the compliance process of tax easier for taxpayers.
TDS on interest earned on bank deposits encourages people to save and invest their money, as they know that tax will be deducted at the source of the income.
In summary, TDS is an essential part of the Indian tax system, which ensures a steady flow of tax revenue for the government, prevents tax evasion, and encourages savings and investments. As a salaried individual or someone with other sources of income, it is essential to understand the various TDS rates and how they are calculated.
A savings account holder may be subject to TDS on the interest earned on their deposits. Consider opening a salary account with Fi, it offers benefits such as 2% cash back, 4x Fi-Coins on spends, exclusive deals, no minimum balance, a free debit card, priority customer service, and a ₹500 Amazon voucher as a joining bonus. Fi helps manage and grow your money with Connected Accounts, Analyser, Goal-based saving, SIPs, and automatic payments.
The rate of TDS depends on the nature of the income, the tax slab of the taxpayer, and the provisions of the Income Tax Act. The formula for calculating TDS is straightforward. It is the income or payment multiplied by the applicable TDS rate. For example, if your salary is ₹ 50k per month, and the applicable TDS rate is 10%, the TDS amount will be ₹5,000 (50,000 x 10%).
TDS applies to salaries paid to employees by their employers. The employer is responsible for deducting TDS from the salary paid to the employee and depositing it with the government. The rate of TDS on salaries is determined based on the income tax slab rate applicable to the employee.
TDS provides several benefits for the government, taxpayers, and society as a whole, such as ensuring a steady flow of tax revenue, preventing tax evasion, funding developmental projects, and encouraging savings and investments.
Yes, if the TDS amount deducted from you exceeds your tax liability for the year, then the excess amount can be claimed as a refund while filing your tax return. The TDS refund will be processed by the IT department after verifying your tax return, and the refund amount will be directly credited to your bank account.
