What is Tax Deducted at Source? – Meaning, Types, Latest Updates and Exemptions

In India, when you earn an income, the entity providing the income, i.e., the payer, is required to deduct tax at source. This tax is referred to as Tax Deducted at Source or TDS. The payer deducts a certain specific percentage of the income as TDS. In this article, you can get information on what TDS is, its importance and budget updates on TDS.

Tax Deducted at Source or TDS is a form of tax that, as the name suggests, is deducted at the source where an income is generated. TDS is applicable on salaries, interests, commission payments, dividends, etc.

For instance, as a salaried individual, your employer pays you an income. If you are liable to pay tax, your employer will deduct TDS which will be a percentage of your salary.

Now that you know what is TDS in income tax, you may be wondering that if you are going to eventually pay your taxes, why TDS is important. Note that TDS is intended to prevent tax evasion. TDS, in a way, is a form of advance tax, where your employer or payer collects tax from you and pays it to the government. TDS is also intended to ease the burden of the taxpayers having to pay tax in lumpsum.

At the time of filing your income tax returns, you are to subtract the TDS amount from your actual tax liability and pay the balance as tax.

The following types of income transactions are subject to TDS payments:

• Salary

• Interest on securities

• Interest on other than securities (Fixed Deposits, interest on Loans, etc.)

• Rent

• Professional Fees

• Brokerage Commission

• Insurance Commission

• Commission on Sale of Lottery Tickets

• Commission on Contractual Work

• Dividends

• Winnings from Lottery

• Winnings from Horse Races

• Earnings from Online Gaming

• Life Insurance Policy Payments

• Sale of Property

Latest Updates on TDS

The Union Budget 2023 proposed certain changes in the TDS infrastructure:

• Section 194BA: Online gaming platforms are required to deduct TDS from a player’s net winnings in a financial year. The TDS rate is 30%.

• Section 196A: From 1st April 2023, non-residents earning income from Mutual Funds in India can avail of the TDS benefit as per the rate provided in the tax treaty instead of the usual 20%.

• Section 192A: The TDS rate has decreased to 20% from 30% for employees on withdrawal of Employee Provident Fund (EPF) without a Permanent Account Number (PAN).

• Section 194N: The TDS threshold has been increased on cash withdrawal by co-operative societies. Co-operative societies can withdraw up to ₹3 Crore cash in a year without being subjected to TDS payments.

• Section 193: There will be no exemption for TDS on interest from listed debentures.

How to Know the Amount of Tax Deducted By Payer

Here are different ways you can find out the amount the payer has levied as TDS:

• You can ask the payer to furnish you with a TDS certificate.

• You can check Form 26AS​ from your e-filing account on the Income Tax filing portal.

• You can use the “View Your Tax Credit” facility available on the Income Tax website.

When is TDS Not Deducted?

In the following cases, the payer is not required to deduct tax at source:

• In the case of salary, if the net taxable income is less than the maximum amount not subject to tax (i.e. ₹2.5 Lakh for a non-senior citizen individual, ₹3 Lakh for Senior Citizens and ₹5 Lakh for Super Senior Citizens), no TDS will be deducted.

• For rent payments in respect to any land, building, furniture, fitting, plant and machinery, if the amount paid does not exceed ₹2.4 Lakh, no TDS will be levied.

• No TDS will be levied if the sum paid to a seller for the purchase of goods does not exceed ₹50 Lakh.

• No TDS will be applicable to residents if the sum paid to a contractor in a single payment does not exceed ₹30,000 or in aggregate does not exceed ₹1 Lakh in a year.

• No TDS will be applicable to Fixed Deposit interest if the interest does not exceed ₹40,000 (₹50,000 for resident senior citizens). As the FD accountholder, you are required to submit forms 15G/15H in the bank to qualify for this exemption.

• No TDS will be deducted if the winnings from horse races, lottery, gambling, etc., do not exceed ₹10,000 in a financial year.

If you hold a Fixed Deposit or Recurring Deposit Account with HDFC Bank and are subject to TDS on interest earnings, you can conveniently download your TDS certificate. Simply log into NetBanking, and select ‘TDS Inquiry’ under ‘Request’. Select the financial year and quarter for which you need the certificate.

Get started here.

*Disclaimer: Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice from before you take any/refrain from any action. Tax benefits are subject to changes in tax laws. Please contact your tax consultant for an exact calculation of your tax liabilities.