TDS Rates: All You Need to Know

Tax Deducted at Source or TDS is referred to a type of tax where an individual is liable for tax deduction for services rendered. The tax deducted from the total payment amount goes to the government for various types of activities such as infrastructure development, defence, development, etc. Depending on the type of service, a certain type of tax (TDS) is levied that the payee is expected to deduct. If the individual has deducted more than the required tax amount, he/she will be eligible for a TDS Refund. The individual will require filing their TDS Return in order to receive the refund amount. TDS rates can be collected on a regular, periodic, or occasional basis; it is applicable on salary, interest, commission, fee, etc.

For every individual, the most popular and frequently used deductions are allowed under section 80C of the Income Tax Act, 1961. Few others sections for tax benefit are section 80D, section 24(b), section 80EE, section G amongst others.

Based on the salary income and the investment declaration statement, the employer will estimate the taxable income and start deducting tax on a monthly basis in the form of tax deducted at source (TDS) before paying it to the employee. If the income from the salary of an employee is more than the exempted limit, the employer will deduct TDS.

The TDS rates on income/salary are calculated on an annual basis. The TDS rates are based on various types of slabs as indicated in the Budget 2017 – 2018. The following table provides the details of income slab with their applicable tax amount in percentage

Income Tax Slabs in India for FY 2017 – 2018

For Individuals below 60 years:

Annual Income Tax Rates Education Cess Secondary and Higher Education Cess
Upto 2,50,000 Nil Nil nil
2,50,001-5,00,000 5% 2% of IT 1% of IT
5,00,001 -10,00,000 12,500 + 20% 2% of IT 1% of IT
Above 10,00,000 1,12,500 + 30% 2% of IT 1% of IT

 

 For Individuals over 60 years and below 80 years:

Annual Income Tax Rates Education Cess Secondary and Higher Education Cess
Upto 3,00,000 Nil Nil nil
3,00,001-5,00,000 5% 2% of IT 1% of IT
5,00,001 -10,00,000 10,000 + 20% 2% of IT 1% of IT
Above 10,00,000 1,10,000 + 30% 2% of IT 1% of IT

For Individuals 80 years and above

Annual Income Tax Rates Education Cess Secondary and Higher Education Cess
Upto 5,00,000 Nil Nil nil
5,00,001-10,00,000 20% 2% of IT 1% of IT
Above 10,00,000 1,00,000 + 30% 2% of IT 1% of IT

 

For the benefit of our readers, we present the steps on how TDS is calculated:

  • First compute gross salary (This includes all fixed & estimated variable components) allowing all deductions / exemptions based on Investment declaration for the whole year.
  • Add income from all other heads as reported by employee
  • Deduct loss from House Property
  • This will be the amount of total income of the employee on which income tax is required to be deducted.
  • Calculate Income-tax on such income
  • Every month, 1/12th of the amount of tax as arrived at (e) shall be deducted.
  • Any excess or deficit arising out of any earlier deduction can be adjusted by increasing or decreasing the amount of subsequent deductions during the same financial year. 

 

An employee can check if correct TDS rates have been taken while TDS has been deducted and submitted by the employer to the government. For this, the employee  has to visit the website TRACES, which is a web-based application of the Income-tax Department. It enables a PAN holder to register and view tax credit (Form 26AS) online which is updated on a near real-time basis. 

 

The employee can also claim excess tax deducted as TDS Refund. The excess amount will stand refundable. The amount of excess payment will be considered higher of the actual amount paid by the deductee or the amount of tax deducted. If there is any tax liability, the excess amount is first adjusted against that and the remaining, if any, is refunded.

 

TDS Rates – Frequently Asked Questions

 

What is a TDS Certificate?

 

  A TDS certificate is a document that is issued by a deductor to a deductee or an employer to an employee. The two kinds of TDS certificates are Form 16 and Form 16A.

What if Form 16?

Form 16 is issued by employers to employees. It contains details regarding the tax deducted over the course of the year.

What is Form 16A?

Form 16A certifies the amount deducted at source, the kind of payments and the payments that have been deposited with the IT Department. It is issued for payments apart from salary, such as rent, professional charges, bank interest payments, etc.

What are the TDS rates applicable to interest on securities?

The TDS rate for interest on securities is 10%.

What is the minimum exemption limit for individuals under 60 years of age?

Individuals who are below 60 years of age and earn under Rs.2.5 lakh will be exempt from tax.

Is TDS necessary only for a salaried individual?
A. No. TDS is a significant tax deduction for other people also like a businessman. The tax can be adjusted towards the total tax liability finally ascertained.

What should be the minimum salary of an individual to fall under the TDS bracket?
A. For a salaried person, TDS is deducted if the individual is falling under the slabs of income tax. This means that the minimum income from salary must be more than Rs. 250000 or Rs. 300000 accordingly, for TDS deduction.