May 21, 2013, 06.56 PM | Source: Moneycontrol.com

Tax deduction at sources and its workings

There are several details related to the entire TDS process that has to be seen carefully and hence here is a look at several terms as well as conditions related to this mode.

Arnav Pandya
Financial Advisor

The term Tax Deducted at Source (TDS) often leaves individual tax payers a bit confused about what this actually means and how it operates. There has been a wide expansion of the places where an individual will now encounter TDS. The general feeling is that since this is a mode of payment of taxes it completes the entire responsibility of the individual but this might not actually be the case. There are several details related to the entire TDS process that has to be seen carefully and hence here is a look at several terms as well as conditions related to this mode.

Nature:
TDS is a way in which tax is collected and paid to the government. There are various transactions whereby a person receives income under different heads. The provision for TDS ensures that at the time of receipt of payment the receiver gets an amount that is reduced by a certain percentage with the only the net receipt coming to them. The amount that is deducted by the person or the entity paying the amount has to be deposited with the government and this will be considered as the tax payment made by the receiver. This ensures that there is a compulsory payment of tax for a certain amount every time there is an amount received.

Rates:
One of the points that have to be understood in the TDS process is that the rates that are applicable for the TDS. The rate is nothing but the figure or percentage which has to be deducted at the time of the payment and deposited with the government. There is no single rate that is used for the purpose of TDS so this might seem confusing but it involves different rates for different uses. For example the rate for deduction on interest received on fixed deposits is 10 per cent (plus cess) while the rate for a salaried person has to be according to the slab that they fall into so this would go up as high as 30 per cent (plus cess) in a year.

Threshold:
A concept that often rises in case of a TDS transaction is that there is a certain threshold that has to be crossed when the entire system comes into play. This is nothing but a base till which the receipts do not involve any tax deduction but after this figure the TDS will come into effect. Again this figure could be different for various payments and hence the nature of the payment becomes an important factor.  In case of a salaried employee there would not be any TDS if the total income earned does not exceed the basic exemption limit. On the other hand in case there is a payment made for professional fees then this would require a TDS if the figure exceeds Rs 30,000 in a year.

Responsibilities:
The key part of the entire TDS process is the responsibility of the various parties involved. It is the responsibility of the person making the payment to look for the applicability of the TDS and then to actually deduct the amount at the time of the payment and then deposit this with the government. The responsibility of the receiver is to ensure that they consider the gross income that they have earned and then take the figure for the TDS separately in their tax workings. At the time of filing their income tax return the individual has to look at the overall picture to see that the total tax has to be paid. If there is a shortfall which can happen because the TDS rate is lower than the actual rate that has to be paid then the balance amount has to be paid. Just having a TDS does not mean that the tax payment process is over because the amount of the tax paid is also an important factor to consider.

READ MORE ON  TDS, tax payers, Tax, TDS process

ADS BY GOOGLE

Ask the Experts

Get your Personal Finance queries answered

  • Q

    Interest rates are going to go down. And all my fixed deposits will be maturing next year. I will have to renew my fixed deposits next year at lower rate of interest. What is the way out?

    A

    Interest rates keep fluctuating due to various micro- and macro- economic factors. There is never an ideal rate of interest. In a high inter...

  • Q

    If I put Rs 2 lakh in PPF, how much tax rebate I will get?

    A

    As per the existing guidelines and rules a person cannot deposit more than 1.5 lacs in one PPF account. However you can deposit money in the...

  • Q

    I want to buy online term life insuance plan. Which is the best one? Should I go for single premium or regular premium policy?

    A

    Single premium term insurance policies don?t make much sense. Why pay such a large amount at one go when you have the option of paying in sm...

  • Q

    I want to invest some money with at least ten years view. I dont want share market risk. Can I invest in NSC? Is there any other investment option?

    A

    NSC or National Savings Certificate is a safe investment scheme offered by the Central Government. It is an ideal option for investors with ...

  • Q

    Is it a good idea to invest in asset allocation funds? if yes, please suggest some good fund to invest money. I am 35 years old and can invest Rs 10000 per month.

    A

    Asset Allocation Funds are for those investors who want to take an exposure into different asset classes but do not wish to create their own...

  • Q

    My CA says that I have to pay tax on interest accrued on my FD of Rs 20 lakh. I have submitted form 15H in all banks. Is it necessary to pay tax in this case?

    A

    In case of interest on fixed deposits which is taxable under the head ?Income from other Sources? a taxpayer has two choices. Either you can...

  • Q

    Please suggest a good investment option of land in South India. I want to buy a land parcel of around 2 acres.

    A

    If you take a look at the South Indian real estate market, Bangalore has emerged as a clear winner. Due to the strong presence of IT/ITeS an...

  • Q

    I want to invest Rs 20000 per month. I have identified Reliance Small Cap Fund and DSPBR Micro cap fund for investment. I can hold to investments for two years. Is it a good idea to invest in these schemes? How much returns I will be getting?

    A

    If you are an aggressive investor, you can consider investing in either of the 2 funds.DSPBR Micro Cap My suggestion is that if you are inve...

  • Q

    I want to save my money for retirment Please suggest a good insurance policy

    A

    For retirement it is advisable to use multiple investment instruments and not just life insurance policies. If you have 15 years or so for r...

  • Q

    IS IT a Good time to invest in GOLD ?

    A

    Currently the outlook for gold is bearish/negative. However if you are planning for a long-term investment in gold it is ideal to invest the...

  • Q

    I have retired from my job in November. I have got Rs 48 lakh from my employers, by way of epf, gratuity and other benefits. Should i invest in senior citizen scheme of LIC? How about pension plans from LIC?

    A

    1. You can invest Post office Senior Citizen Scheme. 2. You also should invest lumpsome in MIP in post office and get monthly interest. 3. K...

  • Q

    I want to save Rs 1 crore for my retirement when i turn 60. Now I am 42 years old and have fixed deposits worth Rs 18 lakh.What should I do to reach Rs 1 cr mark?

    A

    start investing a minimum 5000 per month in mutual fund and increase 10% to 20% every year....

  • Q

    I want to save on my utility bills and fuel expenses.Please suggest a good credit card for me.

    A

    Yes, you will be able to save on Utility bills and fuel expenses through the cash back schemes offered by some of the credit card companies....

  • Q

    Suggest couple of equity mutual funds for me. I am keen to invest Rs 25000 per month for next couple of years. I can remain invested for at least five years?

    A

    Asset Allocation Funds are for those investors who want to take an exposure into different asset classes but do not wish to create their own...

  • Q

    I am a senior citizen.I received interest of Rs .1,70,000/- on FD.I have duly filled 15G form.I have NO other source of income.Have I to pay Income tax on this interest or can it be excempted?

    A

    Sir, please note if you are less than 80 years but more than 60 years of age, your total income upto Rs 3,00,000 is exempt from tax, you are...

  • Q

    Please suggest a good money back policy for me. I am 27 years old and want to accumulate Rs 10lakh over 10 years.

    A

    If you are a fan of traditional money back policies, go in for the LIC New Money Back Policy of 20 or 25 years. I would suggest you go in fo...

  • Q

    I want to buy a life insurance for my brother Please suggest a good policy. He is 19 years old. he should get Rs 5 lakh when he turns 25 years.

    A

    Best to go in for a ULIP in case he is looking to grow the money also. Go in for a ULIP like HDFC Click 2 Invest which is very low on charge...

  • Q

    In 2013, I bought an Endowment policy from LIC. Premium for that is around 35K per year. Now i understand, this was a big mistake and i want to go for a term insurance policy. I have already paid two premiums in 2013 and 2014 and I want to make this policy paid-up. Can i pay one more premium this year and make that endowment policy paid-up ? Or is there any better alternative ? Please suggest.

    A

    Yes, you can convert to a paid-up policy after 3 years premiums have been paid. I would recommend that you surrender the plan and take back ...

  • Q

    Is zero depreciation cover a good option under auto insurance? I have plans to buy honda city in January

    A

    Zero depreciation is a good option to along with the standard car insurance plan. By paying a slightly increased premium you can ensure that...

  • Q

    I am 20 years old,I am getting 17+ % or returns from share in my portfolio consistently for the last 6 months.should i think about a career in stockbroking?

    A

    Its nice to note that your portfolio has been gaining such high returns, however it might be too early to take a call and make stockbroking ...

Explore Moneycontrol

Copyright © e-Eighteen.com Ltd. All rights reserved. Reproduction of news articles, photos, videos or any other content in whole or in part in any form or medium without express written permission of moneycontrol.com is prohibited.