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.

Also Read:- Important Functions of RBI

What is the full form of TDS?

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

What is TDS?

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.

Must Read:- Banking System in India

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.

Section	Type of Payment	Rate (%)
192	Income from salary	Calculated based on existing slab rate in force
194	Dividend u/s 2(22)	10
194 A	Income from interest (apart from securities)	10
194 C	Payment or credit to a contractor or sub-contractor (resident)	For HUFs and individuals – 1
For others – 2
194 D	Insurance commission	For HUFs and individuals – 5
For others – 10
194 G	Commission on sale of lottery tickets	10
194 H	Commission on brokerage	5
194 I	Rental income received	Plant, machinery or equipment – 2
Furniture, fixtures, land, and building – 10
194 IA	Transfer of any immovable property (apart from rural land)	1
194 J	Professional or technical fees or remuneration or royalty to director	10
194 LA	Acquisition of any specific immovable property	10

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.

Form	Frequency	Certificate	Due date
Form 16	Yearly	Salary payments	31st May
Form 16 A	Quarterly	Non-salary payments	15 days from the due date of filing the return
Form 16 B	Every transaction	Sale of property
Form 16 C	Every transaction	On 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

Things to Know:- Functions of Commercial Banks

Other Popular Posts from Author:-

Insurance Definition and Types

Consumer Rights in India

Rainwater Harvesting