Tax Deducted at Source or best known as TDS is one of the modes of collecting Income-tax from the assessees in India. This is governed under Indian Income Tax Act, 1961, by the Central Board for Direct Taxes (CBDT) and is part of the Department of Revenue managed by indian revenue service, under the ministry of finance, Govt.of india.
Overview
In simple terms, TDS is the tax getting deducted from the person receiving the amount (Employee/Deductee) by the person paying such amount (Employer/Deductor). This is applicable for certain types of payments, as applicable under the Act.
In the process of TDS, deduction of tax is effected at the source when income arises or accrues. Hence where any specified type of income arises or accrues to any one, the Income-tax Act enjoins on the payer of such income to deduct a stipulated percentage of such income by way of Income-tax and pay only the balance amount to the recipient of such income.
The tax so deducted at source by the payer, has to be deposited in the Government treasury to the credit of Central Govt, within the specified time. The tax so deducted from the income of the recipient is deemed to be payment of Income-tax by the recipient at the time of his assessment.
Income from several sources is subjected to tax deduction at source. Presently this concept of TDS is also used as an instrument in enlarging the tax base. Some of such income subjected to TDS are salary, interest, dividend, interest on securities, winnings from lottery, horse races, commission and brokerage, rent, fees for professional and technical services, payments to non-residents etc. It is always considered as an Advance tax which is paid to the government.
Tax Deduction Account Number
TAN is a unique identification number for person deducting the tax. The person who is liable to deduct the Tax should obtain a TAN before deducting such Tax. TAN should applied through Form No 49B (prescribed under Income Tax Law). Such form can be submitted online at NSDL website. OR can also be submitted at Tax Information Network Facilitation Center (TIN-FC). These centers are established by NSDL (which is an appointed intermediary by the Government) across India.
TAN Application should accompany a 'proof of identity' and a 'proof of address' (photocopies) of the deductor. In case, the application is made online, these documents need to be sent over mail (post/courier) to NSDL - TAN Application division.
Once NSDL receives the TAN application along with said documents (either through TIN FC / Online), the details are verified and then sent to Income Tax Department. Once approved, Income Tax Department will allocate an unique number, and indicate the applicant through NSDL.
TAN will be 10 characters' alpha numeric string comprising of 4 Alpha - 5 Numeric - 1 Alpha. [Eg: BLRR02933A]. The first 3 characters consists of Income Tax Region Code (BLR => Bangalore) and the Fourth digit comprises of 'First Character' of deductor name (R => Relyon Softech Ltd). Remaining characters form an unique combination to get identified at Income Tax Department.
Deductor
Under the process of TDS, Deductor is a person/company who is liable to deduct the Tax at source, from the payment being made to the party. Deductor is also termed as Employer in cases where the payments are under Salaries
Deductee
Deductee is the person, from whom the tax is being deducted or accrued for deduction. Depending on the nature of the deduction being made, deductees and respective submission forms are categorized to 4 types:
- Salaries: In case of salaries, the deductee is termed as an Employee. All the information of deductions and payments in this category should be submitted in Form 24Q to the government.
- Non-Salaries - Resident: In case of non-salaries and the payment is made to a resident in India, the deductee is termed as a Deductee or a Party. All the information of deductions and payments in this category should be submitted in Form 26Q to the government.
- Non-Salaries – Nonresident: In case of non-salaries and the payment is made to a non-resident of India, the deductee is termed as a Deductee or a Party. All the information of deductions and payments in this category should be submitted in Form 27Q to the government.
TDS Certificates
A tax deductor is also required to issue TDS certificate to the deductee within specified timed under section 203 of the I T Act. The certification from the deductor, for the deduction and payment of the respective TDS amount to the bank, issued to the deductee is a TDS certificate
The deductee should produce the details of this certificate, during the regular assessment of income tax, to adjust the amount of TDS against the Tax payable by the Deductee [assessee].
Types of TDS certificates
Salaries - Form 16: In case of Salaries, the certificate should be issued in FORM 16 containing the Tax computation details and the Tax deducted & Paid details. This refers to the details submitted over Form 24Q.
Non-salaries - Form 16A: In case of Non-Salaries, the certificate should be issued in FORM 16A containing the Tax deducted & Paid details. Separate certificates should be prepared for each Section [nature of payment]. This refers to the details submitted over Form 26Q and 27Q.
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