What is TDS? TDS is a Tax Deducted at Source which is the collection of revenue by the government that that is paid by individuals on certain types of incomes i.e. the deductor, the person paying the income deducts the tax and pays the balance to the deductee, the person receiving the income. Provided under the Income Tax act of 1961, u/s 192, this tax collection system is managed by the Central Board for Direct Taxes and falls under the Dept. of Revenues managed by the IRS (Indian Revenue Service) overlooked by the Ministry of Finance.
The process of TDS In the employee’s monthly pay, the employer deducts a certain percentage from their pay packages. After these taxes are deducted, the employees receive a pay by which the employer will credit the same in favour of the Central Government in any branches of the RBI, SBI or any other authorized banks, within 7 days of the last day of the month for which income tax has been deducted from the employees’ salaries.
At the end of the financial year, every salaried employee (from whom the deductions have been made) is issued a Form 16 from the employer. For any other income other that salary, Form 16A is issued. By this form, employees can file for returns as TDS means paying more taxes than needed. This is your TDS certificate and functions as the best proof for your regular income tax payment. In case of home loans or any other loans issued to the individual, the banks often rely on this certificate which serves as a mark of their true income credibility and financial capacity. To make it easier, individuals can now verify their Form 16 details online.
Can TDS be avoided? First and foremost one has to find out whether one is eligible or not to pay TDS. Therefore, two conditions must be satisfied. First, the estimated taxable income for the financial year should be below the basic exemption limit i.e 2 lakh for individuals below 60 years and HUFs, 2.5 lakh for senior citizens and 5 lakh for a senior citizen above 80 years. Secondly, the interest income for all sources should not exceed the basic exemption limit (only applicable to Form 15G). The individual however has to specifically mention his expected income in the form. This could be fixed incomes from salaries, capital gains and income from other sources although the interest from PFs, PPFs and tax-free bonds can be excluded.
It is best to provide the form than risk TDS because the rules can be very cumbersome indeed. The forms have to be submitted at every branch of the banks you have a deposit. Some banks insist on forms to be submitted even when the interest is less than the threshold limit of Rs. 10,000. In case the combined interest of all branches is above this limit, TDS will be deducted if the forms aren’t submitted. Once deducted, it can only be reclaimed by filing your income tax return.