TDS stands for Tax Deducted at Source and it is deducted at a specified rate by the payor in compliance with the IT Act. As per the IT Act, TDS is collected after a certain threshold limit of earnings has been crossed. This has been introduced to deduct tax at source from where the income is generated. There are several types of income for which TDS is deducted at source such as salary, dividends, lottery income, interest income, commission or brokerage income, fees for professional services, rental income etc.
Why TDS is deducted
TDS from the salaried people constitute a significant portion of the tax collected. Deduction of tax at source minimises tax evasion and helps the salaried to give a portion of the tax in advance to the government. It also widens the revenue and ensures smooth collection for the government.
The one who deducts the TDS has to issue a TDS certificate within the prescribed time limit (as per the IT Act) to the person who receives a payment after the deduction. For salary income, the time limit to issue the TDS certificate (issued annually) is normally May 31 of the following financial year in which the tax had been deducted. For non-salary income, the TDS certificate is issued quarterly, within 15 days from requisite due date.
How to reduce the TDS liability
If the income of an individual is below the minimum limit of paying income tax, he/she is not liable for paying TDS. If the income exceeds the threshold, the TDS is deducted depending on the employer’s discretion.
To reduce the TDS liability, you must avail the benefits under the several sections of IT Act to keep yourself out of the tax bracket. One crucial gateway is Section 80 (C) of IT Act. You can invest up to Rs 1.5 Lakh to enjoy tax deduction of an equivalent amount.
You can also reduce TDS from your interest income on fixed deposit etc by submitting a self-declaration form 15G (or 15H if you are a senior citizen) to banks and financial institutions.
If the interest income from your Fixed Deposit is less than Rs. 10,000, no TDS is charged. However, you need to include such income in your income tax return and pay taxes if you fall in the taxable limit.
You can get deductions on the interest income from Savings Account up to Rs. 10,000 per year under Section 80 TTA.
Important things to keep in mind
While you try to reduce the TDS by furnishing tax management details, make sure all details are correct, as incorrect details would mean you are trying to avoid tax liability, thus attracting penalty.
At the end of the financial year, you can check all details of TDS deductions in the form 26AS, which is available on the website of the Income Tax department.
It is also important to note that even though tax is deducted at source, you still need to file your income tax Return or submit your claims as they are separate.
(The writer is CEO, BankBazaar.com)