What is Tax Deducted at Source (TDS) | Taxation for CA Intermediate PDF Download

Introduction

Tax Deducted at Source (TDS) is a mechanism established by the Indian government for tax collection at the origin of income. The payer deducts a specific percentage of tax when making payments to the recipient, remitting this amount to the government. TDS applies to various income categories like salaries, fixed deposit interest, rent, commissions, etc., playing a crucial role in curbing tax evasion and is essential knowledge for both income payers and recipients in India.

TDS rates are set by the tax department, with the party deducting TDS termed the deductor and the recipient termed the deductee. The deductor is responsible for deducting TDS before payment and submitting it to the government. TDS is deducted regardless of payment method (cash, cheque, credit) and is associated with the PAN of both the deductor and deductee.

Interim Budget 2024 updates

In the Interim Budget for FY 2024-25, the Finance Minister announced the continuation of existing tax rates for direct taxes, meaning no changes will occur in tax deducted at source (TDS) rates.

Regarding updates from the Union Budget 2023

• Leave Encashment: Non-government employees now have an increased exemption threshold for leave encashment, raised to ₹25 lakhs from ₹3 lakhs under Section 10(10AA). This means that up to ₹25 lakhs of leave encashment over a maximum period of 10 months is tax-free at retirement.
• TDS on EPF Withdrawal: The TDS rate on taxable EPF withdrawals has been reduced from 30% to 20%.
• Payment-Based Deduction: Payments to MSMEs must adhere to agreed time frames in writing, with a maximum of 45 days (or 15 days without a written agreement). Any payment beyond these limits can only be deducted as an expenditure in the year it's paid.
• No Penalty for Agricultural Credit Transactions: Transactions involving loans between primary agricultural credit societies or cooperative banks and their members are exempt from penalties under Section 269SS or 269ST.
• Capital Gains Exemption Limit: The capital gains tax exemption under Sections 54 to 54F is now limited to Rs.10 crores, whereas previously, there was no threshold.
• Taxation of Online Gaming Winnings: Net winnings from online gaming are now taxed at 30%, with TDS applicable at the same rate from 1 July 2023.
• Section 80G Donations: Donations to certain funds, including the Jawaharlal Nehru Memorial Fund, Indira Gandhi Memorial Trust, and Rajiv Gandhi Foundation, are no longer eligible for Section 80G deductions.

TDS is withheld on various payment types, including:

• Salaries
• Bank interest payments
• Commissions
• Rent
• Consultation fees
• Professional fees

However, individuals are not obligated to deduct TDS when paying rent or fees to professionals such as lawyers and doctors.
TDS functions as a form of advance tax, requiring periodic deposits with the government by the deductor, who bears responsibility for timely deposits.
Deductees can claim the TDS deducted as a tax refund when filing their Income Tax Returns (ITR).

What is a TDS return?

• The deductor is responsible for remitting the deducted TDS to the government and must report these details through a TDS return.
• TDS returns are filed on a quarterly basis, with various TDS deductions requiring specific TDS return forms.
• You can simplify the process of preparing TDS returns by using ClearTDS software. Feel free to contact us for assistance with your TDS returns.