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How TDS (Tax Deduction at Source) Deduction Plays its Role in Compliance

The payslip of every salaried individual contains a section called TDS. The TDS is referred to as Tax Deducted at Source.

In India, the policies and regulations associated with tax deduction are handled by the Central Board of Direct Taxes (CBDT).

The Income Tax Act describes TDS as the deduction of tax at the point of source of income.

The employer/deductor deducts tax on behalf of the deductee/taxpayer and passes it on to the Government. The TDS collection supports the government in maintaining a stable revenue inflow throughout the assessment year. Also, it restrains people from avoiding payment of taxes.

Here is the list of some expenses and sources of income that are considered to deduct tax at source.

  • Salary
  • Interest from bank
  • Rent payment
  • Payments on commission
  • Payments to freelancers and lawyers
  • Lottery etc

Besides this, the list of expenses and income under TDS contains several other expenses and income sources as well which you can get from the Income Tax Act, Sections 192 to 194L.  An individual who falls in the Income Tax slab remains responsible for the deduction of TDS.

How TDS (Tax Deduction At Source) Works?

The entity which is subjected to payment of TDS deducts a certain percentage of the amount from earning of the deductee. For which, the deductee receives a certificate from the deductor of the amount paid as the TDS. Also, the deductee can use this certificate at the time of assessment for the adjustment of the TDS paid amount against the tax payable. There are different types of TDS certificates available which are as follows:

  1. Form 16: This document is provided to the salaried individual and contains details such as tax computation, deduction, and payment.
  2. Form 16A: The individual which is non-salaried are provided with this Form 16A certificate for TDS deduction. It contains details of deducted tax amount and its payment to the government. This is further categorized based on different sections.

It is the responsibility of the deductor to deposit the deducted amount as TDS to the government. Once deposited the amount is automatically reflected in the Form 26AS of taxpayers available on the TRACES website linked to the income tax department’s e-filing website. 

You May Like to Read: How to File TDS Return Online

How to Avoid TDS?

However, there is a provision for non-deduction of source tax which can only be utilized when the deductee approaches the deductor for doing so and produces his advance income tax declaration using Form No. 15G/15H. Form 15G is meant for individuals while senior citizens have to furnish Form 15H. 

According to the Income Tax Act, if an individual wants to claim for non-deduction at sources, he/she has to fulfill the criteria given below.

The earning of the Individual as per sections 192A, 194 or 194EE should not exceed the maximum chargeable limit to income tax.

A resident (other than a company or a firm) who earns below the maximum chargeable amount to income tax under sections 193, 194A, 194DA, or 194-I is liable for approaching the deductor for non-deduction of tax at source.

If an Indian resident senior citizen earns following the sections 192A, 193, 194, 194A, 194EE, or 194-I or 194DA, can apply for non-deduction at the source.

As per section 203, Deductor is liable to issue a certificate to the deductee for deduction of tax. This certificate holds the complete information of all the deductions of the individual throughout the assessment year. Similarly, banks also issue a certificate while making payments for pensions, etc. The salaried employees recognized this certificate as Form No. 16 (including pension).

Like we file for Income Tax return, a refund claim of excess deductions at the source is also applicable. Tax deducted in excess is calculated by finding out the difference between the tax deducted and the actual payments made to the deductor. In such a case, the Direct Tax Acts allow tax adjustments in any tax liabilities first and then headed towards issuance of a TDS Refund.  

With TDS, both the Deductor and deductee gets benefited from several advantages which are as follows:

Benefits to TDS  Deductee:

  • TDS is collected on a monthly basis in small installments which ends up the hassle of paying a large amount for the assessment year.
  • The tax rebate for the assessment year can be calculated easily.
  • It facilitates better budget management
  • No need to stand in queues for the payment of tax as the deductor himself handles the responsibility of tax collection.

Benefits to TDS Deductor:

  • TDS maintains a steady flow of money to the government.
  • Tax payment at the right time.
  • It is easy to use and cost-effective.
  • Online filing of tax collection avails deductor with maintained accuracy.
  • In the case of TDS failure, the payee will have to release his tax liability.

To know the complete payable amount, you can go through Form 26AS available in your e-filing account. Thus, it is the best possible way of tax collection from the Government of India. Gen TDS Software from SAGInfotech is one of the best software available in the tax industry.

With this, an organization or business can easily perform the task of TDS deduction from the earnings of working employees without any hassle.

Also, the e-filing of TDS via Gen TDS Software follows a few clicks for TDS deposition to the government. So, opt for Gen TDS Software and run your business seamlessly.

You May Like to Read: Guide to Taxability of Trust in India

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