We receive income through different ways, it can be your Salary, Dividend income from mutual funds or stocks, commission, rent, interest on your Bank Fixed Deposits / Securities etc.,
The providers of these incomes (like your company / bank) can deduct a certain percentage of income as TDS (Tax Deducted at source) based on certain threshold limits.
TDS or tax deducted at source is a process of collecting Income Tax at source by the GOI (Government of India). It is a deduction of tax from the original source of income. It is essentially an indirect method of collecting tax which combines the concepts of “pay as you earn” and “collect as it is being earned.”
TDS is calculated and levied on the basis of a threshold limit, which is the maximum level of income after which TDS will be deducted from your future income/payments.
It is deducted as per the Indian Income Tax Act, 1961. TDS is controlled by the Central Board for Direct Taxes and it is a part of the Indian Revenue Service Department.
Let us understand about TDS with an example;
You book a Bank Fixed Deposit for Rs 1 cr for 1 year @ 7% pa interest rate. You will earn an interest income of Rs 7,00,000 after one year. Your Bank may deduct TDS at the rate of 10% i.e., Rs 70,000 (10% of Rs 7,00,000) and deposits this Rs 70,000 with Income Tax Department (on behalf of you). Bank issues you a TDS certificate which reflects this deduction.
Besides interest income earned on bank deposits, TDS is levied on various incomes & expenditures. Salary income, lotteries, interest income from post office, insurance commission, rent payment, early EPF withdrawals, sale of immovable property, rent payments on property etc., fall under the ambit of TDS.
TDS deductions that are given in your Form 16 / Form 16A can be cross checked using Form 26AS. The TDS amounts reflected in Form 26AS and Form 16/16A should always match.
Related Article : All you need to know about NEW FORM 26AS | Annual Information Statement
Latest TDS Rates FY 2020-21 (Assessment Year 2021-22)
Considering the pandemic and resultant lockdown affecting all sectors of the economy, the Government of India has reduced the rates of Tax Deducted at Source and Tax Collected at Source by 25 per cent on several transactions till March 2021.
Kindly note that a cut in TDS rate does not mean a reduction in your tax liability.
The government has provided relief in the TDS rates for the period 14.05.2020 to 31.03.2021. So, we have different TDS rates up to 14th May, 2020 and from 14th May, 2020 for the FY 2020-21.
TDS Rate Chart up to 14-May-2020
Below are the latest TDS rate table applicable between 1st April and 13th May 2020 of FY 2020-21.
One of the important proposals of Budget 2020 was ‘abolition of Dividend Distribution Tax’ in companies hands. As DDT will not be paid by the companies, dividend income henceforth (from April 2020) will now be taxed and paid by investor, at applicable individual tax slab rates.
So, if dividend income is in excess of Rs 5,000 then such income will be subject to TDS @ 10%.
For example : If you are in say 20% IT slab, you receive Rs 10,000 as dividend income from a mutual fund scheme with Dividend option then your Mutual Fund AMC will deduct TDS @ 10% or 7.5% on mutual fund dividend income and you need to pay the remaining tax dues when you file your Income Tax Return.
Latest TDS Rates FY 2020-21 |Revised TDS Rate Table from 14-May-2020 to 31-March-2021
Below are the revised TDS rate chart (with 25% cut) applicable between 14th May and 31st March 2020 of FY 2020-21.
| Section | For Payment of | Threshold limit | TDS Rate % |
|---|---|---|---|
| 192 | Salary Income | Income Tax Slab | Slab rates |
| 192 A | EPF – Premature withdrawal | Rs 50,000 | If no Pan, TDS @ 22.5% |
| 193 | Interest on Securites | Rs. 10,000 | 7.5% |
| 193 | Interest on Debentures | Rs 5,000 | 7.5% |
| 194 | Dividend (Dividend other than listed companies) |
Rs 5,000 | 7.5% |
| 194 A | Interest other than on securities by banks / post office | Rs. 40,000 (Rs 50,000 for Senior Citzens) |
7.5% |
| 194 A | Interest other than on securities by others | Rs. 5,000 | 7.5% |
| 194 B | Winnings from Lotteries / Puzzle / Game | Rs. 10,000 | 22.5% |
| 194 BB | Winnings from Horse Race | Rs. 10,000 | 22.5% |
| 194 D | Payment of Insurance Commission (Form 15G/H can be submitted) |
Rs. 15,000 | 3.75% |
| 194DA | Payment in respect of Life Insurance Policy | Rs 1,00,000 | 3.75% |
| 194 EE | Payment of NSS Deposits | Rs 2,500 | 7.5% |
| 194 G | Commission on Sale of Lottery tickets | Rs 15,000 | 3.75% |
| 194 H | Commission or Brokerage | Rs 15,000 | 3.75% |
| 194 I | Rent of Land, Building or Furniture | Rs. 2,40,000 | 7.5% |
| 194I | Rent of Plant & Machinery | Rs. 2,40,000 | 1.5% |
| 194 IB | Rent (Tenant has to deduct TDS) (Individuals who are not liable to Tax Audit) |
Rs 50,000 (per month) | 3.75% |
| 194 IA | Transfer of Immovable Property , other than Agricultural land | Rs. 50 lakh | 0.75% |
| 194 L B | Interest from Infrastructure Bond | NA | 3.75% |
| 194 LD | Interest on certain bonds and govt. Securities | NA | 3.75% |
Latest TDS Rate Chart for NRIs for AY 2021-22
As per the government announcement, the benefit of lower TDS (25% rate cut) and TCS rate can only be availed by resident individuals and is not available to non-resident Indian (NRI) taxpayers
- Interest earned on Non Resident Ordinary Account (NRO) is taxable. A TDS of 30% is applicable on it. But interest earned on Non Resident External (NRE) accounts and Foreign Currency Non Resident (FCNR) accounts is not taxed in India. Therefore there is no tax deducted at source.
- Under Section 195, when an NRI sells property, the buyer is liable to deduct TDS @ 20% on Long Term Capital Gains. In case the property has been sold before 2 years (reduced from the date of purchase) a TDS of 30% shall be applicable (on Short Term Capital Gains).
- The rate of TDS will be determined as per rules of Income Tax Act 1961 and DTAA with residence country of the policy holder if it has been signed. (Related Article : ‘What is Double Taxation Avoidance Agreement (DTAA)? | Is Income earned outside India Taxable?‘)
- NRI Investments in Shares / Mutual Funds – Below are the TDS rate applicable on MF redemptions by NRIs for FY 2020-21 / AY 2021-22.
Misconceptions on Tax Deducted at Source (TDS)
One of the biggest misconceptions that exist in the mind of many honest taxpayers is that since they receive their salary/ other payment after deduction of Tax at Source (TDS) and thus they are not required to file their Income Tax return (ITR), assuming that their tax liability has been discharged. Following are some of the common misconceptions on TDS;
- No TDS means no Tax liability : There is a common misconception / myth that if there is no TDS then the schemes (or) investments are tax-free.
For example – If an employee withdraws his EPF money before 5 years of service and if the withdrawal amount is less than Rs 50,000 then TDS is not applicable.
But, this does not mean that the withdrawal is Tax-free. It is just that there is no need for an employer/EPFO (Deductor) to deduct TDS on these types of withdrawals. However, the onus of paying taxes (if any) on this EPF amount lies with the employee.
So, whether it is EPF withdrawals within 5 years or National Savings Certificates (5 year tenure) or any other investments, the interest income is taxed until and unless it is specifically mentioned that the income from that scheme is tax free. For example PPF enjoys tax benefit for which its interest is non-taxable. (Related Article : ‘Tax Implications of EPF, PPF & NPS Wtihdrawals‘)
- TDS deduction removes tax liability completely
- It’s a misconception that, if the employer has deducted TDS, you need not worry about filing your income-tax return. Your employer deducts TDS on your salary income only, whereas you may have income from other sources (like interest income from Bank Deposits, rental income etc.,) and you have to include those in your Tax Returns.
- Another misconceptions is – ‘No additional Income Tax is payable, if taxes are already deducted (TDS) on income’. Actually, depending on nature of income, TDS rates vary. On salaries, employers adjust the rate such that the entire tax liability of the employee is deducted by the year-end. On fixed deposit interest, banks charge TDS at 10%. But if the deposit holder does not provide his PAN, banks deduct tax at 20 per cent.
If your income tax slab rate is different to that of the TDS rate then you may have to pay the ‘balance tax’ or in some cases you can claim ‘refund’ too. It is advisable to be aware of TDS rates on various incomes that you have.
The TDS rate can be say 10% , whereas your are in the 20% tax slab, in this case you have to pay the differential tax (this can be Advance Tax or Self-Assessment Tax). If you are not a tax assessee then you can claim the TDS amount as refund by filing your Tax Returns. If you are in 10% tax bracket and the TDS rate is also 10% then there is no need to pay any additional tax.
Most of the Senior Citizens submit Form 15H to avoid TDS. In many cases, senior citizens feel if they have done this, they are not liable to pay tax. But if you have two or three fixed deposits in separate banks and you submit a Form 15G or 15H in all the banks, you will have to pay tax if the total interest from all the fixed deposits exceeds the taxable income limit.
Like most of us, the Government doesn’t like to wait for its money. It wants us to pay tax dues or at least a portion of it as and when we get our incomes. So, make sure you meet the compliance requirements which are related to TDS. Kindly note that false declarations for TDS avoidance can result in penalties and interest charges. So, kindly avoid doing it!
Continue reading :
- Income Tax Deductions List FY 2020-21 | New Vs Old Tax Regime AY 2021-22 (A complete guide on how to SAVE TAX for AY 2021-22)
- All you need to know about New Form 26AS | Annual Information Statement
- Section 80TTB | Tax Exemption of Rs 50,000 on Interest Income to Senior Citizens
- NRI Residential Status & Taxation (new) rules FY 2020-21 | Budget 2020
(Post first published on : 20-July-2020)
