Tax Deducted at Source | UGC NET Commerce Preparation Course PDF Download

Understanding Tax Deducted at Source (TDS)

• Tax Deducted at Source Meaning: Tax Deducted at Source (TDS) is a process mandated by the Indian government to collect taxes at the source of income. It involves deducting a portion of tax by the payer at the time of making payments to the receiver. This deducted amount is then remitted to the government.
• Example of TDS Calculation: TDS calculation involves determining the applicable rate of TDS on a specific type of payment and deducting that amount from the total payment before making it to the receiver.
• How to Check Tax Deducted at Source Online: Taxpayers can check their TDS details online through the government's official portals or through authorized platforms. This helps in tracking the TDS deducted and deposited against their PAN.
• Deduction and Collection of Tax at Source: Businesses, associations, individuals, and other entities are required to deduct and collect tax at the source as per the applicable rates and rules set by the government. This tax is then deposited with the authorities as per the prescribed timelines.

What is Tax Deducted at Source?

Tax Deducted at Source (TDS) is a practice in many tax systems where tax is deducted from the income at the source of its generation. The concept is similar to withholding tax in the United States. TDS ensures that the government collects tax revenue receipts in advance and minimizes tax evasion.
TDS is a crucial mechanism for efficient tax collection. It involves the payer deducting tax at the source of income, remitting it to the tax authorities, and issuing a TDS certificate to the payee. Proper understanding and compliance with TDS regulations are essential for both payers and payees to avoid legal issues and ensure smooth financial operations.

Key Points about Tax Deducted at Source:

• Meaning of TDS: TDS stands for Tax Deducted at Source. It's a system where tax is deducted at the point of origin of income.
• Purpose of TDS: TDS ensures that the government receives tax revenue in advance and helps in curbing tax evasion.
• Mechanism of TDS: The payer deducts a certain percentage of tax from the income, transfers it to the tax authorities, and provides a TDS certificate to the payee.
• Compliance Importance: Understanding and adhering to TDS rules are crucial for both payers and payees to prevent legal complications and maintain financial efficiency.

Example of TDS Calculation

Let's consider a scenario where an individual earns a monthly salary of $10,000, and the applicable TDS (Tax Deducted at Source) rate on the salary is 10%.

• Monthly Income: $10,000
• TDS Rate: 10%
• Monthly TDS Deduction: $10,000 × 10% = $1,000

So, in this case, $1,000 would be deducted from the individual's salary every month as TDS and then remitted to the tax authorities by the employer. Consequently, the individual would receive a net salary (CTC) of $9,000 per month.

How to Check Tax Deducted at Source Online

In various countries, such as India, verifying Tax Deducted at Source (TDS) online is a relatively simple process. The steps outlined below are tailored to India, but similar procedures often apply in other regions with online tax services.
For India
Step 1: Access the Income Tax E-Filing Portal

• Visit the official Income Tax Department's e-filing website at https://www.incometaxindiaefiling.gov.in.
• Click on 'Login' and input your User ID (typically your PAN number), password, and the Captcha code.

Step 2: Registration Process (If not registered)
If you are not registered, you will need to first register yourself by clicking on 'Register', entering your details, and creating a login ID along with a password.

Navigating to the Tax Credit Statement

• Once you are logged in, head to the 'My Account' tab.
• Click on 'View Form 26AS (Tax Credit)'. This action will redirect you to the TRACES website (TDS Reconciliation Analysis and Correction Enabling System).

Viewing or Downloading Form 26AS

• On the TRACES website, carefully read the disclaimer provided.
• Click 'Proceed' after reading the disclaimer.
• Select the assessment year for which you want to view the form.
• Choose the format in which you wish to view the form (options include HTML, PDF, Excel, etc.).
• Finally, click on 'View/Download' to access your Form 26AS.

Deduction and Collection of Tax at Source

Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) are methods utilized by tax authorities to directly collect taxes from the point of income generation. Here's an overview of these concepts within the framework of Indian taxation:

Tax Deducted at Source (TDS) Overview

TDS involves the person or entity responsible for making certain payments (the deductor) deducting tax before the payment is made. This tax is then sent to the government. The recipient (the deductee) receives the payment after the TDS has been deducted.

Key Points:

• Types of Payments Covered:
  • Salaries
  • Interest payments from banks
  • Rent payments
  • Professional and technical service fees
  • Commission payments
  • Contractor payments
• TDS Rates: The rates for TDS depend on the type of income and are outlined in the Income Tax Act. These rates can range from 1% to 30%.
• Threshold Limits: Some payments have minimum thresholds below which TDS is not deducted. For example, interest income is not subject to TDS if it is below Rs. 40,000 in a financial year for non-senior citizens (for FY 2023-24).
• Filing TDS Returns: The deductor is required to file TDS returns on a quarterly basis, detailing the TDS deducted and deposited. This is done using forms such as Form 24Q (for salaries), Form 26Q (for other types of payments), and Form 27Q (for payments to non-residents).
• TDS Certificates: Deductors must provide TDS certificates to deductees, such as Form 16 (for salary payments) and Form 16A (for non-salary payments). These certificates indicate the income amount and the TDS deducted and deposited.

Overview of Tax Collected at Source (TCS)

TCS is a system where the seller (collector) gathers tax from the buyer (collectee) at the time of selling certain designated goods or services. The seller then forwards this tax to the government.

Key Points:

• Designated Goods and Transactions:
  • Sale of alcoholic beverages for human consumption
  • Sale of forest products other than timber
  • Sale of scrap materials
  • Sale of minerals such as coal, lignite, or iron ore
  • Sale of motor vehicles exceeding a specific value
• TCS Rates: The TCS rates differ based on the type of goods or services and are outlined in the Income Tax Act. For example, TCS on scrap sales is 1%, while TCS on motor vehicles valued over Rs. 10 lakh is also 1%.
• Threshold Limits: TCS applies only if the transaction amount exceeds a designated threshold for certain goods. For example, TCS on motor vehicles is applicable only if the vehicle's value surpasses Rs. 10 lakh.
• Filing TCS Returns: The seller (collector) is required to file TCS returns on a quarterly basis, detailing the transactions where TCS was collected and submitted. This is completed using Form 27EQ.
• TCS Certificates: Collectors must provide TCS certificates, such as Form 27D, to the person from whom tax was collected, specifying the amount of tax collected at source.

Conclusion

The concept of Tax Deducted at Source (TDS) encompasses all aspects of tax deductions made at the source for various types of income, including salaries, interest, rent, and dividends. Understanding these rules is crucial for taxpayers to determine their tax liabilities accurately. TDS is a system introduced by tax authorities to ensure regular tax collection and to minimize tax evasion. Under this system, the payer is required to deduct a specified percentage of tax before transferring payments to the payee.