What are TDS provisions, exemption thresholds and claim of credit?

Tax Deducted at Source (TDS) was introduced by the government to crack down on the tax evaders. TDS is basically collecting tax at source. TDS can also be considered a prepayment of tax. As per the TDS concept, if the payment exceeds a defined threshold, then a company or a person making the payment (deductor) must deduct tax while making a payment. The deductor must then deposit the tax deducted into the account of the central government on behalf of the recipient of income. TDS is applicable at various rates as specified by the Income Tax Department. The person from whose payment tax is being deducted (deductee) is issued a TDS certificate by the deductor.

TDS Provisions

The person receiving income (like salaried individuals) faces TDS in the form of a tax deducted salary paid to them. TDS laws have given the authority to the payee or employer, to deduct tax prior to making the full payment to the employee. 

TDS helps make sure the government knows the details of the recipient such as his PAN, and total income earned. Any TDS deduction also gets mapped to Form 26AS. 

TDS Exemption Threshold

Tax has to be deducted by the deductor at the rates (specified below) if the amount payable is more than the threshold limit as given in the following table, the below rates are applicable for FY 2018-19:

Section

Sources of Income/Expenses

Threshold Limit

TDS Rate (%)

Individual / HUF

Other deductees

192

Payment of Salary Income

As per the Income tax slab rate

   192 A

Premature withdrawal of Employee Provident Fund( with effect from 1st June 2015)

Rs 50,000

10%, In the case of no PAN- 20%

10%, In the case of no PAN- 20%

193

Interest on Securities

Rs 10,000

10%

10%

193

Interest on Debentures

Rs 5,000

10%

10%

194

Dividend Income (other than the dividend referred to in Section 115-0)

Not Applicable

10%

10%

194 A

Interest other than ‘interest on securities’ like interest on bank deposits, interest on loans and advances, interest on post office deposits etc.

Rs 10,000 in case the TDS payer is a bank or any banking institution, banking co-operative society and the post office.Rs 5,0000 for senior citizens.

10%

10%

194 B

Prize money, Winning from lottery, crossword puzzle etc.

Rs 10,000

30%

30%

194 BB

Winning from horse race/Jackpot

Rs 10,000

30%

30%

194C

Payments to contractors and sub-contractors

Rs 30,000 for Single Payment and Rs 1,00,000 for Annual Payment

1%

2%

194 D

Insurance commissions paid by Insurance companies to its agents

Rs 15,000

5%

5%

194 H

Commission or Brokerage

Rs 15,000

5%

5%

194 I

Land and building or furniture or fitting

Rs 1,80,000

10%

10%

 

Rent, Plant and machinery

Rs 1,80,000

2%

2%

194 J

Royalty, professional or technical services

Rs 30,000

10%

10%

There have been changes to the threshold in some the aforementioned section applicable from the FY 2019-20 onwards. For instance,

1. Under section 194A, the threshold of interest earned on bank/post office deposits has been raised from Rs 10,000 to Rs 40,000.

2. Tax deduction limit on rent under section 194I has also been increased from Rs 1,80,000 to Rs 2,40,000.

Claiming TDS Credit

A TDS deductor must issue TDS certificates to the deductee. This includes banks and employers. For instance, employers issue Form 16 to their employees annually, whereas a bank provides Form 16A quarterly to the deductees whose tax was deducted at source. 

The TDS certificate states how much tax was deducted as TDS along with the income received from the employer/ deductor. You can view and download your Form 26AS by logging into TRACES through your PAN. Verify your Form 16 or Form 16a with Form 26AS, and claim TDS credit while filing your tax returns. If you have TDS in excess of your tax liability, then you will be eligible for a refund once you file your income tax returns.

How to avoid TDS

If an individual expects his total income in a financial year will be below the exemption limit i.e Rs 2.5 lakh or Rs 3 lakh in case of senior citizens, he can ask the deductor not to deduct TDS by submitting Form 15G/15H. 

While receiving payment which is subject to TDS, deductee is required to provide his PAN to the deductor to avoid higher amount of TDS.

The author is ClearTax CEO. Views expressed are his own