TDS Full Form | What is TDS – Rates, Certificate, Benefits, Rules

TDS Full Form

TDS is an essential term in taxation with significant bearing on the taxpayers. This article intends to impart information on TDS and TDS Full Form.

After going through this write-up, you will know what TDS stands for and the meaning of TDS. Know the benefits, eligibility, and rules for TDS. To make you know more, we have included the TDS rates as well.

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What is the full form of TDS?

TDS is used as an acronym for Tax Deducted at Source.

What is TDS?

TAX Deduction at Source

It is a direct taxation mechanism that was introduced to collect taxes from the source of the income itself.

According to the Income Tax Act, any person or company making a payment is required to deduct tax at the source if the payment exceeds the threshold limit.

TDS is deducted at the rates which the tax department prescribed.

The amount deducted as the TDS is remitted to the central government and the deductee can check the amount in the form 26AS or TDS certificate issued by the deductor.

The entity that makes the payment after deducting TDS is called a deductor. The entity receiving the payment is called the deductee.

TDS should be deducted irrespective of the mode of payment and should be linked to the PAN of the deductor and deductee.

Let’s understand the concept of TDS through an example.

The payment to be made is a professional with a specified tax rate of 10%. XYZ Ltd. makes a payment of Rs 20000/- towards professional fees to Mr. A.

Here, XYZ Ltd. shall deduct a tax of Rs 2000/- to Mr. A. The amount is Rs 2000/- will be directly credited to the government by them.

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What are the TDS rates?

We have listed below a few common types of payment on which tax is deducted at source along with the relevant sections and the TDS rates applicable.

SectionType of PaymentRate (%)
192Income from salaryCalculated based on existing slab rate in force
194Dividend u/s 2(22)10
194 AIncome from interest (apart from securities)10
194 CPayment or credit to a contractor or sub-contractor (resident)For HUFs and individuals – 1
For others – 2
194 DInsurance commissionFor HUFs and individuals – 5
For others – 10
194 GCommission on sale of lottery tickets10
194 HCommission on brokerage5
194 IRental income receivedPlant, machinery or equipment – 2
Furniture, fixtures, land, and building – 10
194 IATransfer of any immovable property (apart from rural land)1
194 JProfessional or technical fees or remuneration or royalty to director10
194 LAAcquisition of any specific immovable property10

Why is the TDS certificate?

Form 16, Form 16 A, and Form 16 B are TDS certificates.

These certificates are to be issued by the person who deducts the TDS to the assessee from whose income TDS was deducted while making payment.

For example, Form 16 A is issued by banks to the depositor when TDS is deducted on interest from fixed deposits. An employer issues Form 16 to its employee.

FormFrequencyCertificateDue date
Form 16YearlySalary payments31st May
Form 16 AQuarterlyNon-salary payments15 days from the due date of filing the return
Form 16 BEvery transactionSale of property
Form 16 CEvery transactionOn rent

What is the benefit of TDS?

There are several benefits from TDS for both the government and the taxpayers.

When making payments through cash, cheque, or credit card, a certain amount of tax is deducted that is directly deposited with the central government.

TDS has several benefits which are as follows:-

  • It helps in preventing tax evasion
  • Serves as a steady source of revenue for the government
  • Helps in preparing tax collection
  • It is known to widen the tax collection base

TDS is deducted on several types of payments which are as follows:-

  • Salaries
  • Commission payments
  • Rent payments
  • Interest payments by banks
  • Consultation fees
  • Professional fees

What are the rules for TDS?

There are certain rules concerning the tax deducted at the source. An entity should meet these rules adequately to avoid penalty, interest, or fees.

The prominent rules related to TDS are as follows:-

  • The tax deducted at source should be deducted at the time when the payment is either due or when the actual amount is made, whichever is earlier
  • Every individual, irrespective of being an employer or otherwise, should credit the TDS to the government’s account by the seventh day of the following month
  • In case of delay of TDS deduction, it attracts and interest of 1% per month until the tax is deducted
  • In an instance of non-payment or late TDS, an interest of 1.5 % per month is levied until the tax is not deposited

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