Tax Deducted at Source or TDS is deducted by an entity including an individual who makes certain specific payments to a tax payer. These payments constitute income of such tax payer. These payments include salary, commission, fees, interest, rent and even lottery winnings. Most common TDS is the one deducted from the salary of an employee by the employer. Another one is tax deducted on the interest paid by bank when such interest amount exceeds a certain specified limit. Employer deducts tax based on the salary income excluding any deductions on account of deduction allowed under Income tax Act, HRA, PPF, house loan etc that has been communicated to the employer by the employee. Banks only deduct a flat 10% tax irrespective of the total income of the tax payer. This means that even if the total income of an individual from all sources falls into 30% tax bracket, bank still deducts only 10% as TDS. This is why at the end of the financial year, while filing the return the tax payer needs to make payment of additional tax if there is a gap between what is deducted and what is payable after clubbing all the incomes earned during a financial year.
Cases when Refund arises on TDS
Just like the case discussed before where lesser tax is deducted and therefore the tax payer has to make the payment of shortfall, there can be situations where the TDS has been deducted in excess. In such a case the tax payer can claim refund at the end of the year while filing return. Let us look the following broad cases where excess TDS has been deducted.
Excess deduction by the Employer
There are many circumstances under which an employer might deduct excess tax. Whenever an employee needs the employer to consider certain deductions while deducting and computing tax, there has to supporting documents for such deductions. For example, if an employee wants to claim rent deduction from HRA then he or she needs to submit copies of rent receipts or rent agreement to the employer. Same is the case where an employee makes investments that qualify for deduction from total taxable income. If the supporting documents do not reach or reach late to the employer, same shall not be allowed as deduction. In such a case the employee can claim refund while filing the return.
TDS deducted by bank
As mentioned earlier, banks deduct 10% TDS if the total amount of interest earned during a financial year exceeds Rs. 10,000. Now consider a situation where a person’s total income does not exceed the maximum taxable amount including such bank interest. In this situation, the person will have to file a return to claim the tax deducted by the bank. But if an assessee is confident that he or she will not exceed the maximum non-taxable limit then it is better to submit form no. 15G or 15H to the bank. These forms are certificates by tax payer to the bank that he or she does not have taxable income and therefore bank should not deduct any amount thereon.
TDS deducted for freelance services
If you are a freelancer and render your services to different organizations then such organizations are bound to deduct tax on your professional fees if the amount exceeds a basic minimum amount. This is just like how a bank deducts TDS. In the end of the financial year if your total income does not exceed the maximum non-taxable amount, you will have to apply for refund to recover the tax deducted.
Every person who deducts TDS is required to issue a TDS certificate which contains the income paid, tax deducted, TAN and address of the deductor. This is an important document because while filing the return, tax payer needs to add these details to the Income tax return. There are two types of TDS certificates- form no. 16 for tax deducted on salary by an employer and form no. 16A for all categories other than salary. If a tax payer does not have TDS certificate in hand then he or she can refer to form no. 26AS available through Income Tax department’s website. In rare case where you neither have certificate nor does the tax reflect in 26AS, it is advisable to get in touch with the deductor and request for tax deducted at source details including certificate.
Claiming Refund on TDS
Now there is no separate way or procedure to be followed for claiming refund, all you have to do is file a return. This is an irony in case of those who do not have taxable income or are not required by law to file a Return even such people need to file return if they want a refund. Choose the Income Tax return that is applicable to you and fill in the income details and tax deducted details. The Income Tax portal will automatically compute the tax liability and refund from the details entered in the form. If the TDS hence arrived is more than 10% of the total tax payable for the year then refund would be paid with an interest of 6% per annum. Intimation would also be sent to the tax payer under section 143(1) communicating the same. The refund is credited directly into the bank account whose details are mentioned in the return filed.
This was our guide on claiming TDS refund. You can visit letzbank and file your return on Clear Tax’s innovative tax return platform. It is easy to understand and comes with complete guidance. If at all you get stuck, there is help available. So this year do not get overwhelmed during tax return season, simply visit Letzbank and make your life easier.