Online TDS (Tax Deducted at Source) Registration in India

Now Get TDS (Tax Deducted at Source) at Just Rs.6999* ( Inclusive All )

    One Shareholder
    Single Owner
    Less Compliance
    Separate Legal Entity
    Secures Personal Wealth
Home TDS (Tax Deducted at Source)

TDS (Tax Deducted at Source)

TDS (Tax Deducted at Source) was introduced by the Income Tax Department of India with an aim to collect tax from the various sources of Income. As per the concept of TDS, the person who is deductor making payment for specified nature to another person who is deductee shall deduct tax at source only and deposited that tax amount to Central Government. TDS is not a Tax, it is a way of collect tax.

The main objective of TDS is to deduct tax at source before disbursement of payment to the person as an income. Also, TDS is to recover Tax and liability from every tax payer to avoid Tax Evasion. So, the Central Government puts this responsibility to the person or entity who is liable to make payment to another party against specified nature of service or work done. Also, TDS is applicable to various incomes like salary, interest received, commission received, rent amount received, dividends etc. All payments have different TDS rates.

How TDS works:

Let us take an example of TDS deduction at source assuming the nature of payment is Professional fees. TDS rate for Professional Fees is 10%.

ABC Pvt. Ltd. Is liable to pay Rs. 60000/- as a professional fees to Mr. X. So, ABC Pvt. Ltd. will deduct Rs. 6000/- (10% of Rs. 60000/-) and deposit to Central Government as TDS and remaining net amount of Rs. 54000/- will pay to Mr. X.

The diagram shows that when ABC Pvt. Ltd. is liable to pay professional fees to Mr. X with TDS deduction and that TDS amount paid to the central government and remaining amount paid to Mr. X.

Now, M/s ABC Pvt. Ltd. will file an online statement to Traces portal regarding to payment details of Mr. X. The details are the amount paid to Mr. X, TDS details, PAN number of Mr. X and TAN number of M/s ABC Pvt. Ltd. has to mention. This statement is called as TDS return which has to file quarterly by any deductor or payer i.e. M/s ABC Pvt. Ltd. TDS returns are mandatory for deductor. Government enforced this rule to the payer to avoid tax evasion.

After the return filed by the deductor, all details are getting updated in Form 16, Form 16A and Form 26 AS. When Mr. X received income with deduction then he asked ABC Pvt. Ltd. proof of deduction of TDS. Then ABC Pvt. Ltd. will issue TDS certificate to Mr. X i.e. Form 16 A. In this case, Mr. X will get Form 16 A which is for other than salary like professional fees, interest income, rent, commission received etc.

At the end of the financial year Mr. X will file an Income Tax return, there he can claim TDS credit. If his total income in a year is not taxable. So, he can get a refund of the tax amount which is deducted in the form of TDS.

TDS is deducted at a time of payment means in financial year but you can claim TDS credit in Assessment year i.e. at the time of Income Tax Return filing.

There are many sources of Income which is applicable to TDS, many of them are:

1. Salary Income

2. Commission Received

3. Professional Fees Received

4. Rent Income

5. Dividends

6. Consultation Fees

Likewise various incomes are eligible for TDS according to applicable sections and TDS rates. TDS will deduct only if income exceeds the exemption limit.

TDS on Salary:

Under section 192 of the Income tax Act, every employer who is paying salary is liable to deduct TDS from salary income of his employee if the salary income is above basic exemption limit. Because of this mandate, employer have to deduct tax at source (TDS) before crediting that salary to employee.

TDS rates are not different for the salary income. It’s calculated on the basis of income tax slab rates which are prescribed for the Income from Salary. The employer calculates the Tax liability of the employee on the “Average Rate of Income tax”.

The average rate of Income Tax can be defined as the total tax liability divided by total income of an employee. The employer will take some tax saving investments made by an employee into account to arrive at Tax liability. Calculation of Average Rate of income tax:

Example :

Calculation of TDS from salary

Particulars Income tax Payable (F.Y. 2019-20) (In Rs.)
Income from Salary 9,00,000/-
Less: Deductions (as per the declaration submitted by the employee) 1,50,000/-
Net Taxable Income 7,50,000/-
Tax Payable* 62,500/-
Add: Health and Education cess @ 4%** 2500/-
Total Tax Liability (add cess) 65,000/-
Average rate of Income tax*** 7.22%

Tax Payable*
(5% of 2,50,000)= 12,500/-
(20% of 2,50,000)= 50,000/-
Total = 62,500/-
Add: Health and Education cess @ 4%** (4% of 62,500) = 2500/-
Average rate of Income tax***
(total tax liability/Income from salary)*100 i.e. (65,000/9,00,000)*100

Individuals must remember one thing that the above method of average rate of Income tax is applicable to only TDS from Salary. TDS on other than salary has prescribed TDS rates and TDS deduction happens on flat rates of TDS.

Thus, from monthly salary income, TDS at the rate of 7.22% would be deducted and the employee would get net salary income.

The average rate of income tax is calculated at the start of the financial year by the employer. The calculation happens on the salary income and tax saving investments made by an employee in that particular year. Employee have to give declaration about this tax saving investments and mandatorily submit documents related to it.

Salary From more than one Employer:

If any person employed with more than one employer at a time, he can provide details about his salary and TDS in Form 12B to any of the employers. Once the employer gets all kinds of information from the employee, then he / she will be responsible for computing the employee's gross salary to deduct TDS.

Eventually, if any person resigns and joins a different employer, he can provide details of his previous employment in Form 12B to his new employer. This employer will consider his previous salary and TDS will be deducted for the remaining months of the financial year.

Standard Deduction from salary:

Rs. 40,000/- has been introduced in Budget 2018 which is applicable from Financial year 2018-19. From financial year 2019-20, this standard deduction amount increased to Rs. 50,000/- per annum. This deduction is allowed except for the actual expenses incurred by the employee.

TDS Certificate:

The employer is required to issue Form 16 to his / her employee, it contains employer details with TAN number, employee details with PAN Number, salary, deductions, deducted TDS details quarter wise.

Frequently Asked Question

Ask us anything, we would definitely answer!

  • The company or person that makes payment after deducting TDS is known as Deductor. And the company or person that receives payment as income is known as deductee.

  • Form 16 is a TDS certificate which is issued by employer to employee. It is only for salaried persons. It is one of the proof of deduction of TDS by employer and deposited to the income tax department.

    Form 16A is a TDS certificate which is issued by a company or person that makes payment to another person or company as income. Form 16A is applicable to income other than salary means commission received; rent income, consultation charges etc.

  • Yes, TDS returns can file online. The Income tax department has a portal called ‘Traces’ where all work related to TDS takes place.

  • The company or person or deductor that makes payment is only liable to file TDS returns. Government enforced this liability on deductor to avoid Tax evasion. If TDS returns are not filed by it then there will be penalty or fine for late filing to the company or person that makes payment.