What is TDS? How It Works? Step-by-Step Guide To File TDS Returns

You might notice that your full salary (as per your CTC) isn't credited every month, or that you receive a lower amount when selling property. This is often due to Tax Deducted at Source (TDS), a system used by the Indian government to collect tax directly at the point where income is generated. The good news is, individuals can claim credit for TDS when filing their Income Tax Return (ITR).

As the season of ITR filing has begun, let's understand what is TDS, who is eligible for it and how to file TDS claim.

What is TDS?

A portion of payment made by a person to another is deducted as TDS when the transaction is made for purposes like salaries, interest, rent, professional fees, etc. The person from whose income tax has been deducted at source can claim the amount on the basis of Form 26AS or TDS certificate issued by the deductor. TDS can be claimed while filing ITR only if the payment is larger than limits specified by the government.

TDS: In What Cases It Is Applicable?

TDS is applicable on cases like salaries ( under Section 192), interest ( under Section 194A), rent (Section 194I), professional fees (under sec 194J), commission or brokerage (Section 194H), sale/purchase of property (Section 194-IA), dividend (Sec 194) and others

Individuals can check their TDS details in the Form 26AS or AIS. TDS is generally adjusted against tax liability while filing ITR.

TDS Filing: What Are The Key Certificates Required?

Individuals can file quarterly TDS returns by using form 24Q, 26Q, etc. Meanwhile, late filing can attract penalty under Section 234E. Additionally, Form 16 is used for salary, whereas Form 16A is used for non-salary payments.

What Is Lower or NIL Deduction Certificate?

Lower or NIL Deduction Certificate for a lower TDS under section 197. The certificate is applicable when the actual tax liability is lower than TDS at applicable rate.

What Are The TDS Rates Applicable?

As per Income Tax Department, TDS rates vary by type of payment and recipient. For those without PAN document, TDS is deducted at a 20% or higher rate. Here is a list of the main types of payments and associated TDS rates.

Particulars	TDS Rate (%)
Section 192: Payment of salary	Normal Slab Rate
Section 192A: PF balance (taxable)	10
Section 193(a): Interest on securities - local authority	10
Section 193(b): Interest on securities - listed debentures	10
Section 193(c): Interest on securities - govt. bonds	10
Section 193(d): Interest on any other security	10
Section 194: Dividend	10
Section 194A: Interest (other than securities)	10
Section 194B: Lottery/Games Winnings	30
Section 194BA: Winnings from Online Games	30

How To File TDS Return?

It is important to own an active Tax Deduction and Collection Account Number (TAN).

-Prepare a TDS return data structure in the file validation utility (FVU) format.

-Upload the TDS return (in file format) on E-filing portal.

-If you get any notification of errors, rectify them and verify the file again through the FVU.

-Generate file in .fvu format and submit it at TIN-FC. The file can be uploaded at https://www.incometax.gov.in/iec/foportal/

Non-payment of interest and penalties is applicable on non/short deduction of TDS (Sec 201), not deducting/depositing TDS on time (Sec 201(1A)), not filing TDS returns (Sec 234E, 271H)