TDS is an important part of India’s tax system. It helps the government collect tax right at the time of income generation, whether you are a salaried employee, freelancer, or business owner, understanding TDS is important to stay tax-compliant and avoid penalties. In this blog, we’ll discuss what TDS is, why it is deducted, how it works, and the difference between TDS and income tax. We’ll also discuss TDS threshold limits, who deducts it, and how and when to deposit and file TDS returns.
TDS full form is Tax Deducted at Source. It is a system introduced by the Income Tax Department where tax is collected at the source of income. This means the person making a payment (such as salary, rent, commission, or interest) deducts tax before giving it to the receiver. For example, if a company pays ₹50,000 as salary to an employee and the applicable TDS is 10%, the company will deduct ₹5,000 as TDS and pay the remaining ₹45,000 to the employee. The ₹5,000 is deposited with the government under the employee’s PAN.
TDS ensures steady revenue collection for the government throughout the year. It prevents tax evasion and facilitates transparency in financial transactions. By deducting tax at the source, the government minimises the burden of collecting tax at once during the return filing.
For example, you earn interest of ₹40,000 from a fixed deposit in a year. If the bank is required to deduct 10% TDS, it will deduct ₹4,000 and deposit it with the government. You will receive ₹36,000 in your account. Later, while filing your income tax return, you can adjust this ₹4,000 TDS against your final tax liability. This system is applicable to various types of payments, like:
TDS threshold limit means the minimum amount above which TDS will be applicable. If the payment is below this limit, no TDS is deducted. Here are a few common threshold limits:
The person or company making the payment is called the deductor. The person receiving the payment is the deductee.
| Nature of Payment | Threshold Limit | TDS Rate |
|---|---|---|
| Salary | Based on the tax slab | As per the slab |
| Bank FD Interest | ₹40,000 (₹50,000 for senior citizens) | 10% |
| Rent (Land/Building) | ₹2,40,000 per year | 10% |
| Professional Fees | ₹30,000 per year | 10% |
| Contractor Payment | ₹30,000 per contract / ₹1,00,000 per year | 1%-2% |
Always check the latest TDS rules under the Income Tax Act before making or receiving large payments.
The deductor must deposit TDS to the government within the specified time frame:
Failing to deposit TDS on time can result in interest and penalties.
TDS is deposited using Challan ITNS 281 either online through the NSDL portal or by visiting authorised banks. The deductor has to quote the TAN (Tax Deduction and Collection Account Number) while depositing TDS.
Steps to deposit TDS:
Apart from depositing TDS, the deductor should file TDS returns every quarter. This return includes details like:
TDS (Tax Deducted at Source) Return Due Dates:
| Quarter | Period Covered | Due Date |
|---|---|---|
| Q1 | April – June | 31st July |
| Q2 | July – September | 31st October |
| Q3 | October – December | 31st January |
| Q4 | January – March | 31st May |
Though both are forms of taxation, here’s how TDS differs from income tax:
TDS or Tax Deducted at Source is a simple concept with a big role in India’s tax system. It helps the government collect taxes in advance and ensures that individuals don’t skip paying their dues. Understanding how TDS is deducted, the TDS threshold limits, who is responsible for paying it, and the process for depositing and filing returns can help individuals and businesses maintain tax compliance with ease.
