TDS - Tax Deducted at Source is the tax that is deducted at a particular rate by the payer in compliance with the Income Tax Act. As per the Income Tax Act, TDS is collected after a certain limit of earnings has been crossed. TDS has been introduced in order to deduct tax at source of generation of the income. There are various types of income for which TDS is deducted at source some of which are: Salary, interest income, dividends, lottery income, fees for professional services, commission or brokerage income, rental income, etc.
Why TDS is deducted
TDS is deducted from the source of income in order to minimize the evasion tax. A TDS collected from the salaried of employees constitute a major portion of income tax collected in total. TDS is therefore deducted at the source helps the tax payers to give some portion of income tax in advance than giving the entire income tax all at once at the time of filing the income tax. Deduction of tax at source also enable to government to collect taxes smoothly. It is mandatory for the one who deducts TDS to issue a TDS certificate on an annual basis within the prescribed time limit. The TDS certificate needs to be issued latest by 31st May every year for salaried individuals whereas for a non-salaried income TDS certificate is issued on a quarterly basis within 15 days from the said due date.
How to reduce the TDS liability
- If income of the individual is less than the minimum limit of paying the income tax then he is not liable to pay the TDS whereas if the income of the individual exceed the minimum limit of paying the income tax then he is liable to pay the TDS and his TDS will be deducted at the discretion of his employer.
- In order to reduce the liability of TDS you should avail benefits as given under the various sections of the Income Tax Act and keep yourself out of the tax bracket. One of the crucial gateways is the Section 80 (C) of Income Tax Act. You can easily invest up to Rs. 1,50,000/- to enjoy the tax deduction of an amount equivalent to Rs.1,50,000/-.
- You can also cut down the TDS from your interest income that you have earned on your fixed deposit etc. by simply submitting a self-declaration forms to the banks or financial institutions as mentioned below:
- Form 15G
- Form 15H for senior citizens
- If interest income from a Fixed Deposit is less than Rupees Ten thousand then no TDS is charged on it, however if your interest income from a fixed deposit is more than Rupees Ten Thousand then you are liable to pay taxes if you are falling under the taxable limit.
- You can avail deductions on the interest income earned from your Savings Account up to Rs. 10,000/- annually under the Section 80 of Income Tax Act.
Important things to keep in mind
While you are trying to reduce TDS by providing tax management details, you need to ensure that all details mentioned by you are correct, as any incorrect detail mentioned by you would mean you are trying to get away with your tax liability, and thereby enticing penalty.
At the end of financial year, you must review all details of TDS deduction in Form 26AS, that is available on Income Tax department website.
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.