What is TDS (Tax Deducted at Source)?

Tax Deducted at Source (TDS) is one of the modes of collecting income tax. The buyer (Deductor) deducts the tax from the payment made to the seller (Deductee) and remits the tax to the Income Tax Department within the stipulated time.

The buyers (Corporate and Non-Corporate) make payment (such as Salary, Rent, interest on securities, Dividends, Insurance Commission, Professional Fees, Commission on Brokerage, Commission on Lottery Tickets, etc) to the sellers (Services) and deduct the requisite amount form such payments towards tax.

The buyer files the TDS returns containing details of the seller and the bank, where the TDS amount is deposited to the Income Tax Department (TDS). 

In this post you will learn about to "how to record TDS transaction in tally prime step by step guide.

Example of TDS

Let's assume that a start-up company pays Rs. 50,000 as rent every month to whoever owns the property. The TDS applicable to the amount is 10%, so the company must subtract Rs. 5,000 and pay Rs. 81,000 to the property owner. In this case, the owner of the property will receive Rs. 45,000 following TDS. The owner can add the gross amount of Rs. 50,000 to his income, thereby allowing him to take credit for the Rs. 5,000 that has already been deducted by the company.

Types of TDS

Here are some of the income sources that qualify for TDS:
Amount under LIC
Bank Interest
Brokerage or Commission
Commission payments
Compensation on acquiring immovable property
Contractor payments
Deemed Dividend
Insurance Commission
Interest apart from interest on securities
Interest on securities
Payment of rent
Remuneration paid to the director of a company, etc
Transfer of immovable property
Winning from games like a crossword puzzle, card, lottery, etc.

What is TDS Rate on Salary?

TDS rates on salary are the same as the tax slab rates applicable to individuals. 

Due Dates for E-Filing of TDS Return AY 2023-24

Here are the due dates for TDS Payment filing for FY 2022-23.

TDS On Professional Fees

Amendments To Section 194J

Section 194J of the TDS has been amended as part of the Finance Bill 2020. These include:

In the case of fees for technical services (which are not considered professional services), tax will be deducted at the rate of 2%. In all other cases, the rate will be up to 10%.

Who Is Required To Deduct TDS?

TDS applies in the following scenarios:

Professional service fees
Fees for technical services
Remuneration is paid to directors that do not come under ‘salary.’
Payments in the form of non-compete fees or fees paid to not share any technical expertise.

What are ‘Professional’ and ‘Technical’ Services?

Professional services under Section 194J imply any service in the following fields:

Architectural profession
Technical consultancy, or
Interior decoration

Professional services mentioned in section 44AA:

Film artist
Authorised representative
Company Secretary

Professional services related to sports activities:

Event managers
Referees and umpires
Sports persons
Sports columnists
Trainers and coaches

Filing TDS Returns

TDS must be deposited with the government and a quarterly TDS return on form 26Q must be made.