We receive income through different ways, it can be your Salary, Dividend income from mutual funds or stocks, commission, rent, interest on your Bank Fixed Deposits / Securities etc.,
The providers of these incomes (like your company / bank) can deduct a certain percentage of income as TDS (Tax Deducted at source) based on certain threshold limits.
In this post, let’s discuss – What is TDS? What are the latest TDS Rates AY 2024-25? How much TDS is payable by the NRIs for FY 2023-25? What are the general misconceptions on Tax Deducted at Source?….
What is TDS?
TDS is deducted as per the Indian Income Tax Act, 1961. IT is controlled by the Central Board for Direct Taxes and it is a part of the Indian Revenue Service Department.
TDS or tax deducted at source is a process of collecting Income Tax at source by the GOI (Government of India). It is a deduction of tax from the original source of income. It is essentially an indirect method of collecting tax which combines the concepts of “pay as you earn” and “collect as it is being earned.”
TDS is calculated and levied on the basis of a threshold limit, which is the maximum level of income after which TDS will be deducted from your future income/payments.
Let us understand about TDS with an example;
You book a Bank Fixed Deposit for Rs 1 cr for 1 year @ 7% pa interest rate. You will earn an interest income of Rs 7,00,000 after one year. Your Bank may deduct TDS at the rate of 10% i.e., Rs 70,000 (10% of Rs 7,00,000) and deposits this Rs 70,000 with Income Tax Department (on behalf of you). Bank issues you a TDS certificate which reflects this deduction.
Besides interest income earned on bank deposits, TDS is levied on various incomes & expenditures. Salary income, lotteries, interest income from post office, insurance commission, rent payment, early EPF withdrawals, sale of immovable property, rent payments on property etc., fall under the ambit of TDS.
TDS deductions that are given in your Form 16 / Form 16A can be cross checked using Form 26AS. The TDS amounts reflected in Form 26AS and Form 16/16A should always match.
Latest TDS related Amendments effective from FY 2023-24
- Section 192A : The TDS rate on Employees Provident Fund withdrawal for employees who do not have PAN has been reduced from the maximum marginal rate of 30% to 20%.
- Section 193 : The TDS exemption on interest from listed debentures has been removed. Thus, tax has to be deducted on interest income of above Rs 5000, on such specified securities as well.
- Section 194BA : TDS introduced on income from online gaming, applicable from 1st April, 2024.
- Section 194N : The TDS threshold on cash withdrawal by co-operative societies has been increased. Starting April 1st, 2023, tax will be deducted on cash withdrawals exceeding Rs 3 crore, instead of the previous limit of Rs 1 crore.
- Section 196A : Non-residents earning income from mutual funds in India can provide a Tax Residency Certificate from April 1st, 2023, to avail the benefit of TDS as per the rate given in the tax treaty, instead of the flat rate of 20%.
Latest TDS Rates AY 2024-25 |Revised TDS Rate Table FY 2023-24
Below are the latest TDS rate table applicable for the Financial Year 2023-24 (Assessment Year 2024-25) based on the Budget 2023 amendments;
| Section | For Payment of | Threshold limit | TDS Rate % |
|---|---|---|---|
| 192 | Salary Income | Income Tax Slab | Slab rates (Based on old or new tax regimes) |
| 192 A | EPF – Premature withdrawal | Rs 50,000 | 10% If no Pan, TDS @ 20% |
| 193 | Interest on Securites | Rs. 10,000 | 10% |
| 193 | Interest on Debentures (applicable to listed NCDs too) |
Rs 5,000 | 10% |
| 194 | Dividend (Dividend other than listed companies) |
Rs 5,000 | 10% (No TDS on Div Payouts by REITs / InvITs) |
| 194 A | Interest other than on securities by banks / post office | Rs. 40,000 (Rs 50,000 for Senior Citzens) |
10% |
| 194 A | Interest other than on securities by others | Rs. 5,000 | 10% |
| 194 B | Winnings from Lotteries / Puzzle / Game | Rs. 10,000 | 30% |
| 194 BA | TDS introduced on income from online gaming, applicable from 1st April, 2024 | NA | 30% |
| 194 BB | Winnings from Horse Race | Rs. 10,000 | 30% |
| 194 D | Payment of Insurance Commission (Form 15G/H can be submitted) |
Rs. 15,000 | 5% (Individuals) 10% (Companies) |
| 194DA | Payment in respect of Life Insurance Policy | Rs 1,00,000 | 5% |
| 194E | Payment to non-resident sportsmen/sports association | – | 20% |
| 194 EE | Payment of NSS Deposits | Rs 2,500 | 10% |
| 194 G | Commission on Sale of Lottery tickets | Rs 15,000 | 5% |
| 194 H | Commission or Brokerage | Rs 15,000 | 5% |
| 194 I | Rent of Land, Building or Furniture | Rs. 2,40,000 | 10% |
| 194I | Rent of Plant & Machinery | Rs. 2,40,000 | 2% |
| 194 IB | Rent (Tenant has to deduct TDS) (Individuals who are not liable to Tax Audit) |
Rs 50,000 (per month) | 5% |
| 194 IA | Transfer of Immovable Property , other than Agricultural land | Rs. 50 lakh | 1% |
| 194IC | Payment of monetary consideration under Joint Development Agreements | – | 10% |
| 194J | Fees for professional or technical services | Rs 30,000 | 2% (or) 10% |
| 194LA | Payment of compensation on acquisition of certain immovable property | Rs 2,50,000 | 10% |
| 194 LB | Interest from Infrastructure Bond to NRI | NA | 5% |
| 194 LD | Interest on certain bonds and govt. Securities | NA | 5% |
| 194N | Cash withdrawal during the previous year from one or more account maintained by a person with a banking company, co-operative society engaged in business of banking or a post office: | > Rs 1cr (Co-op Society > Rs 3 cr) |
2% |
| 194NF | Cash withdrawal from a bank without filing ITR | > Rs 20 lakh | 2% |
| 194NF | Payment of certain amounts in cash to non-filers | > Rs 1Cr | 5% |
| 194Q | Purchase of goods (applicable w.e.f 01.07.2021) | Rs 50 lakh | 0.10% |
| 194S | TDS on the payment of cryptocurrencies or other virtual assets | NA | 1% |
| 206AA | TDS applicable in case of non-availability of PAN | NA | Higher of 20% or applicable rate |
| 206AB | TDS on non-filers of ITR at higher rates (applicable w.e.f 01.07.2021) |
– | 5% or Twice the rates in force |
| 194P | TDS on Senior Citizen above 75 Years (No ITR filing cases) | – | Slab Rates |
| 206AA | TDS in case of Non-availability of PAN | NA | Higher of 20% or Twice the rates in force |
Latest TDS Rate Chart for NRIs in AY 2024-25
- Interest earned on Non Resident Ordinary Account (NRO) is taxable. A TDS of 30% is applicable on it. But interest earned on Non Resident External (NRE) accounts and Foreign Currency Non Resident (FCNR) accounts is not taxed in India. Therefore there is no tax deducted at source.
- Under Section 195, when an NRI sells property, the buyer is liable to deduct TDS @ 20% on Long Term Capital Gains. In case the property has been sold before 2 years (reduced from the date of purchase) a TDS of 30% shall be applicable (on Short Term Capital Gains).
- The rate of TDS will be determined as per rules of Income Tax Act 1961 and DTAA with residence country of the policy holder if it has been signed. (Related Article : ‘What is Double Taxation Avoidance Agreement (DTAA)? | Is Income earned outside India Taxable?‘)
- Section 196A : Non-residents earning income from mutual funds in India can provide a Tax Residency Certificate from April 1st, 2023, to avail the benefit of TDS as per the rate given in the tax treaty, instead of the flat rates.
- NRI Investments in Shares / Mutual Funds – Below are the TDS rate applicable on MF redemptions by NRIs for FY 2023-24 / AY 2024-25.
TDS is Income Tax? Misconceptions on Tax Deducted at Source (TDS)
One of the biggest misconceptions that exist in the mind of many honest taxpayers is that since they receive their salary/ other payment after deduction of Tax at Source (TDS) and thus they are not required to file their Income Tax return (ITR), assuming that their tax liability has been discharged. Following are some of the common misconceptions on TDS;
No TDS means no Tax liability :
There is a common misconception / myth that if there is no TDS then the schemes (or) investments are tax-free.
For example – If an employee withdraws his EPF money before 5 years of service and if the withdrawal amount is less than Rs 50,000 then TDS is not applicable.
But, this does not mean that the withdrawal is Tax-free. It is just that there is no need for an employer/EPFO (Deductor) to deduct TDS on these types of withdrawals. However, the onus of paying taxes (if any) on this EPF amount lies with the employee.
So, whether it is EPF withdrawals within 5 years or National Savings Certificates (5 year tenure) or any other investments, the interest income is taxed until and unless it is specifically mentioned that the income from that scheme is tax free. For example PPF enjoys tax benefit for which its interest is non-taxable. (Related Article : ‘Tax Implications of EPF, PPF & NPS Wtihdrawals‘)
TDS deduction removes tax liability completely
It’s a misconception that, if the employer has deducted TDS, you need not worry about filing your income-tax return. Your employer deducts TDS on your salary income only, whereas you may have income from other sources (like interest income from Bank Deposits, rental income etc.,) and you have to include those in your Tax Returns.
Another misconceptions is – ‘No additional Income Tax is payable, if taxes are already deducted (TDS) on income’. Actually, depending on nature of income, TDS rates vary. On salaries, employers adjust the rate such that the entire tax liability of the employee is deducted by the year-end. On fixed deposit interest, banks charge TDS at 10%. But if the deposit holder does not provide his PAN, banks deduct tax at 20 per cent.
If your income tax slab rate is different to that of the TDS rate then you may have to pay the ‘balance tax’ or in some cases you can claim ‘refund’ too. It is advisable to be aware of TDS rates on various incomes that you have.
The TDS rate can be say 10% , whereas your are in the 20% tax slab, in this case you have to pay the differential tax (this can be Advance Tax or Self-Assessment Tax). If you are not a tax assessee then you can claim the TDS amount as refund by filing your Tax Returns. If you are in 10% tax bracket and the TDS rate is also 10% then there is no need to pay any additional tax.
Most of the Senior Citizens submit Form 15H to avoid TDS. In many cases, senior citizens feel if they have done this, they are not liable to pay tax. But if you have two or three fixed deposits in separate banks and you submit a Form 15G or 15H in all the banks, you will have to pay tax if the total interest from all the fixed deposits exceeds the taxable income limit.
Like most of us, the Government doesn’t like to wait for its money. It wants us to pay tax dues or at least a portion of it as and when we get our incomes. So, make sure you meet the compliance requirements which are related to TDS. Kindly note that false declarations for TDS avoidance can result in penalties and interest charges. So, kindly avoid doing it!
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(Post first published on : 26-July-2023)
