Taxes are a necessary evil; after all they are your contribution but take a good chunk out of your income. With the tax filing season recently coming to an end, we’ve heard and read many people talking about how they still have to pay taxes despite TDS (Tax Deducted at Source) being deducted from their salaries or payments.
Here is a quick understanding of what TDS is and how it affects your tax planning.
What is TDS
TDS is nothing but Tax Deducted at Source. It is a way of collecting indirect tax by the government under the Income Tax Act, 1961. It means that a certain amount of tax (usually around 10-12%) is levied on certain payments, salaries, payments to freelancers and contract workers, and certain categories of vendors.
It is a way to collect revenue by the government in advance, to ensure the timely payment of taxes even if the individual does not file their taxes. TDS is applicable for various criteria including fixed deposits interest rates, salaries falling under the tax slab under the Income Tax Act, lotteries, and rent payments, payments of commissions and payments to freelancers.
When is TDS not deducted?
TDS is not deducted when you make payments to the government or Reserve Bank of India. Other areas where TDS is not collected includes payments of insurance, payments to banks, all institutes notified under No TDS, interest received from savings account and recurring deposits in co-operative societies and banks and so on. Hence, whether you are receiving a payment or making one, it is important to check whether the recipient and payer are liable for TDS in that transaction.
How to avoid TDS
If you are expecting your total income in the whole financial year to be under the exemption limit, you can ask the deductor to not apply TDS to your payments by submitting Form 15G/15H.
How does TDS affect me?
As a taxpayer, your TDS deductions through the year count towards your tax payments at the end of the financial year. For instance, if your total tax liability for the year is Rs. 50,000 and Rs.30,000 has already been deducted as TDS from your salaries and payments, you only need to pay the balance amount of Rs.20,000 while filing your taxes.
On the other hand, if an excess amount of TDS has been deducted through the year, you are eligible to get a return through a TDS certificate.
What is a TDS certificate?
Since TDS payments are an ongoing process, it can get difficult to track the total deductions. So the deductee who applies TDS on your payments will provide you with a TDS certificate as per section 203 of the Income Tax Act. You will need to provide this certificate with your tax filings in order to verify and/or collect your tax return payments.
IMPORTANT: Make sure the TDS certificate has the deductee’s details clearly mentioned on the letterhead, as the certificate won’t be valid otherwise.
Remember that you can only collect your TDS payment if an excess amount is deducted which is the difference between the actual amount that you paid and the amount of tax deducted. This amount will also be first adjusted against any tax liabilities under the Direct Tax Act. After meeting these criteria, the remaining amount can be refunded.
If you lose your original certificate of TDS payment then you can approach the payer for a duplicate certificate containing the important details.
Rules for filing TDS
TDS as an indirect tax cannot be evaded, but there are certain rules to keep in mind while filing for TDS:
1) You have to submit form 15H and 15G along with PAN if you are filing to save TDS on interest rates
2) Any individual under the age of 60 has to submit form 15H
3) You PAN/TAN card are absolutely necessary to claim the return
4) Banks deduct TDS only if interest income is more than Rs.10,000 in a year. If this is the case and your income is not taxable, then you will have to submit form 15G and 15H.
If you have a good amount of TDS savings then you can use that money to invest in various financial avenues like fixed deposits, mutual funds, chit funds or pay other taxes and debt.
Paying TDS is not only beneficial for the government, but the automatic deduction of taxes are less hassle for taxpayers as well as tax deductors. It ensures monthly and timely payment of taxes and keeps you updated on your current tax liable payments.
Enjoy TDS excempt dividends in KyePot
Chit funds returns (called ‘dividends’) are tax-free and are not subject to TDS deductions, because dividends are not classified as interest under Section 194A. Yes, you read it right. Any dividends or prize money won during a chit cycle is not subject to tax deductions. You can also offset the total gain or loss at the end of the chit group against a business profit or loss, if the chit is taken as a business investment.
But it should be clearly understood that if any of the gains from a chit group remain in your bank account and earn interest or are further invested in any other asset class, you become prone to tax deductions as per the normal taxation rules.