As the deadline to file one's income tax return draws nigh, one of the most pressing questions people are grappling with is whether they need to pay taxes when they've already had tax deducted at source (TDS) from their income through the year.
Let's break this down in simple terms.
The first step in demystifying your tax situation is to grasp the fundamental principles of tax liability. It is important to understand that TDS might sound like a secret code, but it's actually a straightforward concept that plays a crucial role in the tax ecosystem. When you receive an income, a small portion is deducted at the source — hence the name.
Say you have earned an interest income of Rs 1 lakh from your bank fixed deposits (FDs). Before crediting the interest, the bank has to deduct a portion of your earnings and deposit the same with the income tax department on your behalf.
By this mechanism, a portion of your tax liability on your interest income is deposited with the government, and you get the credit for the same while filing returns at the end of the year.
View TDS in form 26AS and AIS
Various sources of income are subjected to TDS for reasons such as timely collection of revenue, keeping a check on tax evasion, and freeing the taxpayer from lump sum payments.
You can view the taxes deducted and deposited with the income tax department in two important documents: form 26AS and the annual information statement (AIS). These are your go-to resources for a consolidated view of all the taxes deducted from your salary, dividends, interest, commissions, and other earnings through the year.
Also read: Check your Form 26AS, AIS carefully for error-free income tax return filing
But the question remains: are you required to pay taxes if TDS has already been deducted from your income? Yes, if your tax liability exceeds the TDS deducted, you are required to pay the balance amount.
Whether or not you need to pay additional taxes depends on various factors such as:
- The quantum of your income / deductions, which you have not disclosed or were not able to anticipate while giving your tax declaration to your employer.
- Any windfall gains that you have received during the year, or any losses you may have incurred while dabbling in stock markets.
TDS does not aim to deduct taxes in full. However, it works as a tracker for the government, to understand the income and revenue sources of a person.
If TDS has been deducted from your income and you want to know whether you need to pay additional taxes, then you need to compute your income and determine your tax liability in accordance with income tax laws. A simple way to do this is as follows:
Collate your income sources: gather information on all income sources for the year.
Identify deductions: list deductions based on payments like life and medical insurance premiums, home loan EMIs etc.
Also read: Your one-stop guide to filing income tax returns for the financial year 2023-24
Calculate the net taxable income: subtract deductions from the total income, then apply the appropriate tax rates based on your age and chosen tax regime. Don't forget to include the surcharge and 4 percent cess.
Compare with the TDS deducted: check form 26AS and AIS for the total TDS deducted. If this amount is less than your tax liability, you'll need to pay additional taxes. If it's in excess, you will be eligible for a refund.
Further, to remove any ambiguity regarding whether you are required to file your tax returns if TDS has been deducted on your income, the answer is that regardless of TDS deductions, tax returns must always be filed. There is nothing which can ensure that the TDS deducted is equivalent to your tax liability during the year, so it is always prudent to know your liability (you may consider taking the help of a professional), instead of just assuming that your TDS will match your tax liability.
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