What Is Tax Deducted at Source Means?

Income generation always attracts taxes from the government. It does not matter whether you are an employee or a business, any kind of income which is generated by you will be subject to taxes.

In India, we have different types of taxes such as Income tax, GST, VAT, etc. Some taxes like GST or income tax are paid at the end of the set tenure but there are some taxes which is paid at the income generation point. One such tax which is paid at the income generation point is called Tax deduction at Source.

In this article, we will discuss what Tax deduction at source means, when should TDS be deducted, types of TDS deduction, etc.

But first, let’s find out what is TDS.

What Is Tax Deducted at Source Means

What is TDS?

TDS stands for Tax Deduction at Source which is a deducation of the tax which you are liable to pay. The TDS is deducted from the income-generating source other than salary income and the remaining balance amount is what you receive. It is managed by the Central Board of Direct Taxes CBDT which comes under the Income Tax Department and manages the ITR filed. While filing an ITR, TDS plays a crucial role in calculating the taxes applicable and returns that need to be provided by the bank.

Example of TDS Deduction

Let’s consider a scenario where you’ve deposited Rs.10 Lakhs into an FD account for a year with a 7.5% p.a. interest rate. The earned interest of Rs.75,000 exceeds the tax-free withdrawal cap of Rs.40,000, making it taxable.

 The tax is fixed at 10% with a PAN card and 20% without. Consequently, Rs.7,500 (10% of Rs.75,000) will be deducted as TDS, resulting in a final debit of Rs.10,67,500 at maturity.

TDS Rate Chart 2023

TDS is deducted whenever someone engages in income-generating activities other than their salary. The deduction of the TDS will be made as per the tax rate set by the Government. The following is the TDS rate chart-

SectionNature of PaymentThreshold (Rs.)Individual / HUF TDS Rates (%)Others
TDS Rate (%)
192SalariesRs. 2,50,000Slab RatesSlab Rates
192APremature EPF withdrawal*Rs. 50,00010%10%
193– TDS on interest on securities***Rs. 10,00010%10%
194Payment of dividendRs. 5,00010%10%
194AInterest issued by banks or post offices on depositsRs. 40,000
Rs. 50,000 (For senior citizens)
10%10%
194AInterest by others apart from on securitiesRs. 5,00010%10%
194BAmounts that someone has won through lotteries, puzzles, or gamesAggregate of Rs. 10,000**30%30%
194BBAmounts that someone has won from horse racesRs. 10,00030%30%
194CPayments to contractor or sub-contractor – Single PaymentsRs. 30,0001%2%
194CPayments to contractor/sub-contractor – Aggregate PaymentsRs. 1,00,0001%2%
194DPayment of insurance commission to domestic companiesRs. 15,000NA10%
194DPayment of insurance commission to companies other than domestic onesRs. 15,0005%NA
194DAMaturity of Life Insurance PolicyRs. 1,00,0005%5%
194EEPayment of an amount standing to the credit of an individual under NSS (National Savings Scheme)Rs. 250010%10%
194FPayment of repurchase of the unit by UTI (Unit Trust of India) or any mutual fundNo Limit20%20%
194GPayments or commissions on the sale of lottery ticketsRs. 15,0005%5%
194HCommission or brokerageRs. 15,0005%5%
194IRent of land, building, or furnitureRs. 2,40,00010%10%
194IRent of plant and machineryRs. 2,40,0002%2%
194IAPayment for transfer of immovable property other than agricultural landRs. 50,00,0001%1%
194IBRent payment that is made by an individual or HUF not covered under payment 194IRs. 50,000 (per month)5%NA
194ICPayments that are made under the Joint Development Agreement (JDA) to Individual/HUFNo Limit10%10%
194JFees paid for professional servicesRs. 30,00010%10%
194JAmount paid for technical servicesRs. 30,0002%2%
194JAmounts paid as royalty for sale/distribution/exhibition of cinematographic filmsRs. 30,0002%2%
194KPayment of income for units of a mutual fund, for example- dividendsRs. 5,00010%10%
194LAPayment made for compensation for acquiring certain immovable propertyRs. 2,50,00010%10%
194LBPayment of interest on infrastructure bonds to Non-Resident IndiansNA5%5%
194LBA(1)Certain income distributed by a business trust among its unit holderNA10%10%
194LDPayment of interest on rupee-denominated bonds, municipal debt security, and government securitiesNA5%5%
194MAmounts paid for contract, brokerage, commission, or professional fee (other than 194C, 194H, 194J)Rs. 50,00,0005%5%
194NIn case cash withdrawal over a certain amount takes place from the bank, and ITR is filedRs. 1,00,00,0002%2%
194NIn case cash withdrawal takes place from a bank and one does not file ITRRs. 20,00,0002%2%
194OAmount paid for the sale of products/services by e-commerce service providers via their digital platformRs. 5,00,0001%1%
194QPayments made for the purchase of goodsRs. 50,00,0000.10%0.10%
194STDS on the payment of any crypto or other virtual assetNA1%1%
206AATDS for non-availability of PANNAAt a rate higher of
Specified rate as per the act
20%
Rate in force
20%
206ABTDS on non-filers of Income tax returnNARate higher of:
5%
Twice the mentioned rate in the provision
Rate in force

Types of TDS Deduction

The following are some of the income sources that are eligible for TDS deduction-

  • Salary
  • Payments to Contractor
  • Commission payments
  • Sale of House
  • Insurance Commission
  • Interest on securities
  • Interest other than interest on securities
  • Rent Payment
  • Professional fees
  • Online Gaming
  • Winning from games like a lottery, crossword puzzle, card, etc.

What is a TDS Certificate?

A TDS Certificate is issued by the deductor, such as an account or entity, serving as proof of TDS deduction. There are two types of TDS certificates: Form 16 (issued by employers for salary deductions) and Form 16A (for deductions other than salary). FAQ

How many types of TDS are there?

TDS is deducted on various transactions, including salary, FD maturity, commission payments, insurance disbursements, and other types of income. Additionally, there are various other forms of TDS applicable in different scenarios.

Who is liable to deduct TDS?

TDS is required to be deducted at source meaning, any entity or person will deduct the TDS once at the time of payment as per the TDS Slab.

How is TDS calculated on the invoice?

To calculate TDS on the invoice, the pre-GST value, i.e., the value before the inclusion of GST, will be considered for the deduction.

How is TDS calculated on FD?

TDS deduction is computed at a rate of 10% for individuals with a PAN Card and 20% for those without a PAN Card. This deduction is applicable only when TDS surpasses the Rs.40,000/- threshold.

How much FD is tax-free?

Interest earned on FD deposits is subject to TDS taxation. However, if the interest earned is below Rs.40,000/-, the FD account remains tax-free.