What is Tax Deducted at Source (TDS)?

Tax Deducted at Source (TDS) is a system through which the government collects tax at the point of income generation. Whether it’s your salary, interest earned on fixed deposits, or rent received, TDS ensures that tax is deducted before the income reaches you.

This not only promotes early tax collection but also helps reduce tax evasion by building a transparent trail of earnings. In this blog, we’ll break down what TDS is, when it applies, who deducts it, how to track it, and how to claim a refund if excess is deducted. Read along!

What is TDS in Tax?

TDS (Tax Deducted at Source) is a part of the Indian income tax system. When someone makes a payment, like salary, rent, or interest, they may have to deduct a portion of it as tax before paying you. This deducted amount is then deposited with the government.

TDS is mentioned in the Income Tax Act, 1961, and applies to various types of income. It helps the government collect taxes early and track income transactions through PAN (Permanent Account Number). You, as a taxpayer, can later adjust this TDS against your total tax liability when filing your income tax return.

What is TDS Deduction, and When Does It Happen?

TDS deduction happens when a person or company (called the deductor) pays you (the deductee) for certain services or earnings. A fixed percentage is deducted from your payment and submitted to the government.

TDS is deducted on payments like:

• Salary
• Bank interest
• Rent
• Professional fees
• Commission

TDS is only deducted if the amount crosses a certain limit, which differs by payment type. For example, TDS on bank interest applies if total interest exceeds ₹40,000 in a year (₹50,000 for senior citizens).

Also, individuals and HUFS (Hindu Undivided Families) usually do not need to deduct TDS unless their total business turnover exceeds ₹1 crore (or ₹50 lakh for professionals).

What is TDS, and why is it deducted?

TDS is a system that collects tax in advance and reduces the risk of tax evasion. It ensures that the government receives part of your tax liability upfront when you earn income.

Here’s why TDS exists:

• It helps the government collect revenue throughout the year.
• It keeps a record of taxable payments made to you.
• It reduces the risk of you missing your tax payments.

For you, as a taxpayer, TDS is not an extra tax. It’s like a prepaid portion of your actual tax liability. When you file your tax return, you can adjust the TDS already paid and either pay the balance or claim a refund.

What is TDS, and how is it deducted?

TDS is deducted at the time the payment is made, whether it is for salary, rent, or interest. Here’s how it typically works:

1. The payer calculates the TDS based on fixed rates under the Income Tax Act.
2. The deduction is made before the money is credited to your account.
3. The payer deposits the TDS to the government under your PAN.
4. You receive the net amount, and the deducted tax is reflected in your Form 26AS or AIS (Annual Information Statement).

For example, if your bank pays you ₹60,000 in interest per year and your PAN is registered, it will deduct TDS at 10% (₹6,000) and credit ₹54,000 to your account.

You can later claim this ₹6,000 as credit while filing your income tax return. If your total income is less than the taxable limit, you can even get this amount refunded.

How to Check and Claim TDS?

You can check how much TDS (Tax Deducted at Source) has been deducted from your income and claim it while filing your income tax return. Here’s how you do it:

How to Check TDS Deductions

1. Log in to the Income Tax Portal: Go to www.incometax.gov.in and log in using your PAN (Permanent Account Number).
2. View Form 26AS: Once logged in, go to ‘e-file’ > ‘Income Tax Returns’ > ‘View Form 26AS’. This form shows all the TDS deducted on your behalf by employers, banks, or other payers. It includes the deductor’s name, amount paid, tax deducted, and the date of deduction.
3. Check the Annual Information Statement (AIS): This statement provides a detailed summary of income, TDS, and other transactions linked to your PAN. You can find it under the ‘Services’ tab on the same portal.

How to Claim TDS Credit in Your ITR

1. File your Income Tax Return (ITR): Mention all your income sources, deductions, and the TDS amount as per Form 26AS/AIS.
2. TDS gets adjusted against your total tax: If the TDS already deducted is more than your final tax liability, you’ll get a refund. If it’s less, you’ll need to pay the balance.
3. E-Verify your return: You can e-verify using Aadhaar OTP, net banking, or digital signature. Without this step, your return won’t be processed.

If Refund Fails

If your refund isn’t processed due to incorrect bank details, update your account info and request a refund reissue through the e-filing portal.

Interest on Delayed Refunds

If the tax department delays your refund and the amount is more than 10% of your total tax, you’ll get interest at 6% per year under Section 244A.

TDS Compliance and Penalties

If you’re responsible for deducting TDS, you must follow the rules laid out under the Income Tax Act. These include deducting the correct amount, depositing it on time, filing returns, and issuing TDS certificates. Any delay or error can result in penalties and interest.

Who Needs to Deduct TDS?

TDS must be deducted by any person making specified payments such as salary, rent, professional fees, or interest. However, individuals and HUFs (Hindu Undivided Families) are required to deduct TDS only if their business turnover exceeds ₹1 crore or their professional income exceeds ₹50 lakh in a financial year.

For certain payments, such as rent and commission, even individuals or HUFS below this threshold may need to deduct TDS if the payment exceeds the specified limits under the Act.

TDS Payment and Return Filing Due Dates

TDS deducted in a given month must be deposited with the government by the 7th of the following month. For March (for non-government deductors), the due date is extended to 30th April.

TDS returns must be filed quarterly. Here’s a summary of key dates for FY 2025–26:

• Deposit Due Date: 7th of the following month (except for March: 30th April for non-government deductors)
  
• Return Filing Due Dates:
  • Q1 (Apr–Jun): 31st July
  • Q2 (Jul–Sep): 31st October
  • Q3 (Oct–Dec): 31st January
  • Q4 (Jan–Mar): 31st May

Penalties for Delay or Non-Compliance

Some penalties for delay or non-compliance are:

1. Late Filing Fee (Section 234E)

If you don’t file the TDS return on time, you will be charged ₹200 per day of delay. This continues until the return is filed, but is capped at the total TDS amount that has been paid. The fee must be paid before you can submit the return.

2. Penalty (Section 271H)

In addition to the late filing fee, you may be charged a penalty ranging from ₹10,000 to ₹1,00,000 for not filing the return or for submitting incorrect details.

However, this penalty won’t apply if:

• You have deposited the TDS
• You have paid the late fee and applicable interest
• The return is filed within one year of the due date

Interest on Late Deduction or Deposit (Section 201(1A))

Interest applies in two cases:

• If TDS is not deducted, a 1% charge is applied per month from the date the tax was due until the date it is deducted.
• If TDS is deducted but not deposited: 1.5% per month from the date of deduction to the date of deposit.

Note that even a short delay is treated as a full month for calculating interest. You must pay the interest before filing your TDS return.

Conclusion

As a taxpayer, tracking your Tax Deducted at Source (TDS) deductions helps you manage your income and claim refunds if excess tax has been deducted. Knowing the applicable rates, thresholds, and processes not only helps you stay compliant but also gives you better control over your finances.

If you’re looking to simplify this process, platforms like Appreciate can help. It offers a clear view of your income, TDS deductions, and tax liabilities in one place. Whether you want to avoid errors in TDS compliance or stay up to date on your tax records, Appreciate makes it easier to plan, track, and file, all with less effort and greater accuracy.

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Frequently Asked Questions (FAQs)

Why is TDS deducted?

TDS (Tax Deducted at Source) is deducted to collect tax at the very point where income is generated. It helps reduce tax evasion by ensuring that tax is paid as income is earned, across sources such as salary, interest, rent, and commissions.

Who is responsible for deducting TDS?

The person or organisation making the payment—called the deductor—is responsible for deducting the tax at source (TDS). This could be your employer, a bank, a tenant (if the rent exceeds a certain threshold), or any other payer. The deducted amount is then deposited with the government on your behalf.

How can I check my TDS (Tax Deducted at Source) deductions?

You can view your TDS details through the TRACES portal:

1. Visit https://contents.tdscpc.gov.in.
2. Log in using your user details, password, and TAN.
3. Navigate to the “Statements / Payments” tab.
4. Click on ‘Statement Status’ to track deductions using Token No., Date, or other filters.

Alternatively, Form 26AS or the AIS (Annual Information Statement) on the income tax portal also shows all TDS entries.

Can I claim a refund for the excess TDS deducted?

Yes. If the TDS deducted is more than your actual tax liability for the financial year, you can claim a refund. This typically happens when:

• Your income is within a lower tax slab, but a higher TDS was deducted
• You failed to submit investment proofs to your employer on time
• Banks deducted 10% TDS on FD interest, but your slab is 5%

While filing your ITR, your total tax liability is compared against the TDS paid. The Income Tax Department refunds any excess.

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