Race to save tax: TDS will hit in the last month, know how it will affect your salary

Tax Deduction at Source ie TDS. This is such a force, which is faced by every salary and business people every year. Especially in the last month of the financial year, March, it becomes more troublesome. We are telling about this.

Tax is levied in different ways

TDS is applicable on income earned in different ways like salary, interest, commission, dividend etc. However, this does not apply to individuals for all types of income and transactions. There are different rates of TDS as per the Income Tax Act, 1961 for categories of payments and recipients.

For example, an individual is not subject to TDS from debt mutual fund schemes. Whereas for an NRI i.e. Non-Resident Indian, it is subject to TDS.

TDS means tax deducted at source

TDS means tax deducted at source and it is levied to collect tax at the source from where the income of a person is derived. The government uses TDS as a means to collect taxes. This is meant to reduce tax evasion.

TDS works on the note that every person making any particular payment to any person shall deduct tax at source at the rates prescribed in the Income Tax Act and deposit it in the account of the government.

Payment is deposited with the government

The person paying here is responsible for deducting the tax and depositing it with the government. This person is known as the deductor. On the other hand, the person who receives the payment after TDS is called a ‘deductee’. Form 26AS is a statement showing the amount of tax deducted and deposited in the name/PAN of an individual in a particular financial year.

You can get tax information from Form 26AS

A person can check his Form 26AS to claim TDS from the income paid. Every deductor is bound to issue a TDS certificate showing the amount deducted in his name and deposited with the government. In November 2021, the government has introduced Annual Information System (AIS) and Taxpayer Information Summary (TIS).

Both the documents provide records of financial transactions which are also with the Income Tax Department. It shows the total income, source of earning and the total tax deducted on the income received.

How TDS works

The paying entity (which is subject to TDS) deducts a certain percentage of the amount paid as tax. It pays the remaining amount to the recipient. The payee also gets a certificate from the deductor stating the amount of TDS.

Tax on crypto transfer too

With effect from July 1, 2022, tax will be deducted at the rate of 1% under section 194S of the Income Tax Act on transfer of crypto assets. Tax will be deducted if the transfer amount exceeds Rs.50,000 in case of specific person (Rs.10,000 in other case).

Tax will be deducted only if the payment exceeds the prescribed limit.

We must remember that TDS is deducted on a transaction only if the payment is above a certain limit. There are different limits set by the Income Tax Department for different payments like salary, interest etc. For example, if interest is getting less than 40 thousand rupees on a bank’s fixed deposit in a year, then there will be no TDS on it. For senior citizens, this limit is more than Rs 50,000 in a financial year.

Can appeal for not deducting tax

If a person feels that his total income in a financial year will be less than the exemption limit, then he can ask the payee not to deduct TDS by submitting Form 15G/15H. While receiving payment which is subject to TDS, it is necessary to give your PAN details to the deductor to avoid deduction of tax at higher rates.

What is the current TDS rate?

The rate of TDS depends on the type of income received by you. Each income has a different limit and once that limit is crossed the TDS rate in the Income Tax Act. TDS deducted can be claimed as refund provided your tax liability for the financial year is less than the tax deducted. To claim TDS refund, you need to file Income Tax Return.