A lot of investors still do not understand what is the meaning of TDS (Tax Deducted at source) is and how it’s related to their taxation. While the concept is very easy overall, seen that tons of investors still get confused when TDS is cut on their Fixed Deposits at maturity and they feel that they don’t need to pay any tax now, or feel that they don’t have to pay any tax on their Fixed Deposit interest just because it was below 10,000 and TDS was not cut.
What is Tax Deducted at Source (TDS) ?
TDS or Tax deducted at Source is a tax collection mechanism by Government of India, where at the time of transaction itself, the tax is deducted by the paying party and directly deposited to the income tax department. It’s assumed that the receiving party (one who gets the money) will have some tax liability. Now at the end of the year when you find out your tax liability, the TDS amount is the tax you have have already paid and now you need only pay the balance amount. So in a way, TDS is a good thing for 2 reasons.
You automatically pay a part of your tax liability and income tax department receives their tax collection. So TDS is always a mechanism, to reduce tax chori 
.
Example 1 – TDS cut by Employer
When a company pays salary to employees, you must have seen that they pay the salaries after cutting the tax amount. So at the start of the year itself, after the employee declares his 80C investments, HRA, LTA and other tax deductions which he will avail, the employer ‘estimates’ what will be the tax outgo of the employee and then each month they cut a certain amount as tax (TDS) and pay directly to the income tax department. And then at the end, the employee calculates his actual income tax liability to be paid.
If the Tax Liability is more than TDS cut, he pays rest of the tax money and files the returns. If the Tax to be paid is less than the TDS amount, in that case he can claim for a refund in the tax returns.
Example 2 – TDS cut by Banks on Fixed Deposits
When you open a Fixed Deposit, you earn some interest in a year. Now the rule is that if the interest amount each year exceeds Rs 10,000 on your fixed deposits (across the different branches of the same bank also), the TDS has to be deducted by the bank. Now a lot of people confuse this by paying the tax. The rule is that any amount you earn as interest is taxable.
Even if the interest is Rs 100 or Rs 1000, you still need to pay the tax on that amount. Just that if the interest exceeds Rs 10,000, the bank will cut the tax directly and pay the tax to govt.
That will make sure that you pay your tax in advance itself (you know how difficult it is to pay tax when you have finished that money at the end). Note that TDS is also applicable in case of Sweep in Accounts and MODs (Multi option Deposit Scheme by SBI)
What about NRI Fixed Deposits ?
In case of NRIs the sad part for them is that there the TDS is cut @ 30% on any interest income earned on NRO fixed deposits (no limit of Rs 10,000 interest.) Even if they earn Rs 1,000 as interest, they still pay TDS @ 30%. Note that the Fixed Deposits in NRE and FCNR accounts are totally tax free in India, hence no Tax or TDS. A lot of NRIs send money back to India and invest in Fixed Deposits in their NRO account. If they have to pay tax at the end, well and good, else they need to file the tax returns and claim it back.
Make sure you quote your PAN
A lot of times, PAN card number is asked by banks or at other places before the payment is made to you. Do you know that there is a reason for it? If there is any TDS to be cut, they first check if PAN number of the receiving party is available or not. If PAN number was given by the party, then the TDS is cut at a lower rate, but if PAN number is not quoted, then TDS cut is high.
For example, in the same Fixed Deposit amount, do you know that the TDS is cut @ 10% if PAN number is given, but if PAN is missing, then its 20% TDS? These are the numbers of individuals (not companies, LLPs or corporate bodies.)
You should also know that in this budget TDS @ 1% is to be cut for any real estate transaction above 50 lacs!
Make sure you ask for TDS certificates
Who ever cuts the TDS and pays it to income tax department has to issue you TDS certificates as the proof that you have paid the TDS. The document they give you is called the ‘TDS certificate.’ You would need this document if you want to show that TDS amount is being adjusted in your tax payment. Generally as a rule, all the parties send the TDS certificates to you, but make sure you are proactive in asking’ it from them.
TDS cut by bank, but you don’t have to pay any Tax
At a lot of times, it so happens that you don’t have to pay any tax at the end of the year and you already know it, but just because your deposits are earning more than Rs 10,000 of interest income, the bank cuts the TDS amount and then you have to claim it back by filing a return.
All those people can simple submit Form 15G/15H to bank (each year) and then the bank will not cut the TDS.
Form 15G and Form 15H are forms which can help a person avoid TDS incase one does not have to pay income tax at the end of the year. Form 15H is for senior citizens and form 15G is for others. In this article we will see how a person can avoid payment of TDS by submitting these forms 15G and 15H.
Courtesy: News Papers, Internet
Aryan Singhania
simple & easy to understand.
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