There is a high chance that you will have at least heard of the term TDS. It refers to Tax Deducted at Source. Simply put, it is the tax that is deducted from the taxpayer’s payment, which is made by the employer. The employer is tasked with deducting the TDS and safely depositing it with the Income Tax Department. TDS is a predefined share of the total monthly income. The Income Tax Act of 1961 states that every organisation or individual has to pay this tax when their income crosses a specific threshold.

In this article, we will look at the TDS meaning, its components, how it works, and the penalties attached to late or not paying the TDS.

• TDS applies to various income sources such as salaries, interest, rent, and winnings.
• TDS ensures tax is collected at the time of payment, reducing tax evasion.
• Delays in tax deduction, payment, or filing returns can attract penalties.

The first step in understanding TDS is to learn its meaning. TDS is an advance tax that is levied periodically by the Indian government. The TDS, or a part of it, can be claimed as a refund when you file your tax return

TDS deductions are made on income from the following sources:

• Salary
• Rent
• Commission earned
• Contractor payments
• Bank interest payments
• Amount under LIC
• Consultant or professional fees
• Commission or brokerage
• Interest on securities
• Insurance commission
• Deemed dividend
• Compensation for the acquisition of immovable property
• Remuneration paid to company directors
• Winnings from card games, lottery, crosswords, etc.
• Immovable property transfer
• Interest other than the security interest

A TDS deduction is made by the party making the payment. It could be an organisation or an individual. They have to make the deduction at the given rate and deposit it with the IT Department every fiscal year.

Not complying with the taxation laws around TDS can result in penalties. These are usually levied as fees and interest on the base amount which is taxed.

Some of the common kinds of penalties are concerned with:

Tax deduction

Under this, the tax levied on you is deducted when the payment is made. If there are delays in this process, it attracts a 1% interest penalty every month until the deduction is made.

TDS payment

The taxable sum, as per the applicable TDS rate, should be paid to the Indian Government every month by the 7th day. If the TDS payment is delayed or not made at all, it attracts a 1.5% per month penalty until the sum has been deposited. The rate of 1.5% is charged on the cumulative payable amount.

TDS return filing

It is mandatory to file TDS returns on the last day of January, May, July, and October. In case the returns are delayed or not filed at all, the Income Tax Act states that a penalty of Rs. 200 will be charged every day until the day that the return is finally filed.

It is easy for you to check the status of TDS deductions online. Here are the steps for checking the TDS payment status online:

• As the first step, you should visit the IT Department’s official website and choose the option for new user registration.
• After this, you will be required to input your PAN (Permanent Account Number) details for password generation.
• Then, you can log in with your user ID and password and choose the option to view Form 26AS or your tax credit statement.
• As the first step, you will be redirected to the TDS Reconciliation Analysis and Correction Enabling System. Here, your tax liabilities will be displayed in detail. This also contains details of advance tax, TDS, and more.

Tax Deducted at Source (TDS) is a crucial component of the Indian taxation system. It is designed to ensure tax compliance by deducting tax directly from income sources. With predefined rates, TDS applies to a wide range of income streams. Timely compliance with TDS rules, including filing and payments, is essential to avoid penalties. Understanding how TDS works helps individuals and organisations stay compliant while efficiently managing their tax obligations.