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The Beginner’s Guide to TDS: A Step-by-Step Walkthrough

This comprehensive guide provides a step-by-step walkthrough, explaining the basics of TDS, its rules, and how to file TDS returns. By following TDS guidelines and leveraging available resources, individuals and organizations can efficiently manage their tax liabilities.
Tax Deducted at Source(TDS)

The concept of TDS is simple, yet confusing for many people. Generally, any individual who has recently started earning finds this heavy jargon, like TDS return or TDS return filing, quite intimidating, and they face a hard time understanding the application and their rights when it comes to paying the taxes. 

This article will guide you through the basics of TDS, the rules associated with the TDS, and it will teach you how to file the TDS return.

What exactly is Tax deducted at Source (TDS)?

In simple words, Tax deducted at source, or TDS is an income tax system, that was introduced with the aim to collect taxes from the very source of income. It is the amount deducted by the individual (deductor) who is expected to make any specified payment to any other person (deductee) and deposit the same into the government’s account.

There are various metrics to determine the TDS rates, such as the age brackets or the income of an individual. TDS is extremely helpful in reducing or eliminating tax evasion. And also, by this mechanism, the taxpayer does not have to pay the whole lump sum amount as an annual tax at the end of the financial year.

Example of TDS

Suppose a company MASM Ltd. has to pay Rs. 1,00,000/- to Mr. MA as a professional fee, and the specified tax rate is 10%. Then MASM Ltd. shall deduct a tax of Rs. 10,000/- and make a payment of Rs. 90,000/- to Mr. MA, and the amount of Rs. 10,000/- is directly deposited to the account of the government.

TAX

Rules for Tax Deducted at Source

In order to avoid any penalties, fees, or interest related to Tax Deducted at Source (TDS), it is crucial to adhere to the rules set by the government. The primary rules relating to TDS are:

  • Tax Deducted at Source needs to be deducted when the payment is due or made, whichever is earlier.
  • A delay in deducting TDS may result in a 1% per month interest until the tax is deducted. 
  • It is mandatory for every person, including employers, to credit the tax deducted to the government’s account by the 7th day of the following month. 
  • In case of late or non-payment of TDS, may result in a 1.5% per month interest until the tax is deposited.

Types of TDS

The income sources that are qualified for TDS are given below:

    • Salary
    • Bank Interest
    • Compensation for acquiring immovable property
    • Transfer of immovable property
    • Brokerage or Commission
    • Payment of rent
    • Contractor payments
    • Amount under LIC
    • Winning from games like a crossword puzzle, card, lottery, etc.

What is TDS Rate on Salary?

Old Tax Regime

The TDS rates on salary are determined by the income tax slab in which an individual falls. These rates are revised by the government from time to time.

The following were the TDS rates for individuals according to the old tax regime:

Income Range TDS Deduction
Up to Rs. 2.5 lakh No deduction
Rs. 2.5 lakh – Rs. 5 lakh 5% deduction
Rs. 5 lakh – Rs. 10 lakh 20% deduction
Above Rs. 10 lakh 30% deduction

New Tax Regime

The new tax regime was introduced in Budget 2020. It offers taxpayers a choice of two sets of tax slabs: the old tax regime and the new tax regime. The new tax regime has lower tax rates, but it does not allow taxpayers to claim certain exemptions and deductions that are available under the old tax regime.

The following are the tax slabs under the new tax regime:

Income Range TDS Deduction
Up to Rs. 3 lakhs No deduction
Rs. 3 lakhs – Rs. 6 lakhs 5% deduction
Rs. 6 lakhs – Rs. 9 lakhs 10% deduction
Rs. 9 lakhs – Rs. 12 lakhs 15% deduction
Rs. 12 lakhs – Rs. 15 lakhs 20% deduction
Above Rs. 15 lakhs 30% deduction


The following are some of the exemptions and deductions that are not available under the new tax regime:

  • House rent allowance (HRA)
  • Leave travel allowance (LTA)
  • Medical expenses
  • Education expenses
  • Donations to charitable organizations

Difference between New Tax Regime and Old Tax Regime

The following table summarizes the key differences between the new tax regime and the old tax regime:

Feature New Tax Regime Old Tax Regime
Tax rates Lower Higher
Exemptions and deductions Fewer More
Default regime Yes No
Eligibility Taxpayers who do not claim any exemptions and deductions Taxpayers who claim a lot of exemptions and deductions

 

Ultimately, which tax regime is better for you depends on your individual circumstances. 

  • If you do not claim any exemptions and deductions, then the new tax regime may be a good option for you. 
  • If you claim a lot of exemptions and deductions, then the old tax regime may be a better option for you. 

The best way to decide which tax regime is right for you is to consult with a tax advisor.

Note: In order to provide a simplified method of calculating TDS and evaluating the actual salary of an employee, there has been a surge of many payroll software and employee management system in the market. One of the best software out there is SalaryBox, which not only calculates the payroll by deducting TDS, PF, and other taxes but also integrates the payroll software with the leave management system.

Tax slab

TDS Return Filing

As per the guidelines of the Income Tax Department, it is mandatory for all individuals falling under the taxable bracket to file their TDS (Tax Deducted at Source) returns. The process of filing TDS returns can be done online through the official Income Tax e-filing portal. 

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The filing process can be completed online, and once submitted, the details of the TDS return will be reflected on the payee’s Form 26AS.

When filing TDS returns, certain crucial details are required, such as,

  • PAN details of both, the deductor and the deductee
  • Information on the TDS challan
  • Paid tax amount to the government
  • Other relevant information (if needed)

Due Date for TDS Return Filing

Here is a table for the due dates for filing TDS returns for the financial year 2022-23 (the assessment year 2023-24):

Quarter Due Date
April-June 31st July
July-September 31st October
October-December 31st January
January-March 31st May

If you fail to file your TDS returns by the due date, you may be liable to pay penalties. The penalties for late filing of TDS returns are as follows:

  • First default: ₹100 per day for each day of delay, up to a maximum of ₹5,000.
  • Second default: ₹200 per day for each day of delay, up to a maximum of ₹10,000.
  • Third and subsequent defaults: ₹500 per day for each day of delay, up to a maximum of ₹20,000.

How to file the TDS return online?

To file a TDS return, you can follow these steps:

  1. Visit the official website at www.incometaxindiaefiling.gov.in
  2. Log in to your account
  3. Select the relevant form for filing your TDS return. Generally, the form for TDS return is Form 26Q or Form 24Q, depending on the type of payment made.
  4. Fill in all the required details in the form, such as the name of the deductor, TAN (Tax Deduction and Collection Account Number), PAN (Permanent Account Number), amount of TDS deducted, and other relevant information.
  5. Verify all the details provided and make any necessary corrections before submitting the form.
  6. Once you have verified the form, submit it by clicking on the ‘Submit’ button.
  7. After submission, a confirmation message will appear on your screen, indicating that your TDS return has been successfully filed.
  8. You can also download a copy of the filed TDS return for your records.

TDS Deduction from Salary

Calculation of TDS deduction from the salary of an employee is typically a complicated process for an employer. As per the Income Tax Act, the TDS deduction for salary income is not fixed and depends on the income slabs of an employee. And the employer has to calculate the tax liability based on the ‘Average rate of Income Tax.’

In order to provide a simplified method of calculating TDS and evaluating the actual salary of an employee, there has been a surge of many payroll software and employee management system in the market. One of the best software out there is SalaryBox, which not only calculates the payroll by deducting TDS, PF, and other taxes but also links the payroll software with the leave management system. 

Conclusion

Tax Deducted at Source (TDS) is an essential component of the Indian taxation system that enables the government to collect taxes at the source of income. As a beginner, understanding the concept of TDS can be daunting, but by following the rules and regulations associated with TDS, you can ensure compliance and avoid any penalties or fines. It is crucial to file your TDS returns on time, which can now be done conveniently online through the official Income Tax e-filing portal. 

With the help of various payroll software available in the market, like SalaryBox, calculating TDS deduction from salary has become more manageable for employers. By being aware of the TDS guidelines and utilizing the available resources, individuals and organizations can efficiently manage their tax liabilities and contribute to the nation’s growth.

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