What is TDS and How it is calculated?

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What is TDS

TDS stands for ‘Tax Deducted at Source’. It is a form of direct tax. Every person, before making payments in relation to service taken, dividend, rents, interest, commission, or any such payment as per provisions of TDS, shall deduct a percentage to tax and deposit the same with the government.

Tax deducted at source is the tax deducted by the payer before paying the amount to the payee.

After deducting the tax, the payer must deposit the same with the government and file deductee details in the quarterly return.

The government uses tax deducted at source as a tool to collect tax in order to minimize tax evasion by taxing the income (partially or wholly) at the time it is generated rather than at a later date.

Income tax TDS is a kind of advance tax that can be claimed by the deductee/payee in the form of a tax refund at the time of filing Income Tax Refund.

Deductor: The person who makes the payment and deduct a percentage of tax from the amount. The onus of depositing the tax with the government lies on the deductor.

Deductee: The person who receives the after-tax payment for his goods/services and who shall claim credit of this TDS against the tax liability while filing his return.

What is TDS Return?

A deductor must deposit the deducted TDS amount to the government on or before the specified dated and file the deductee details in the quarterly TDS return with NSDL. There are mainly two types of TDS returns:

  • Form 24Q: In order to file details relating to TDS deductions from salary, Form 24Q is required to be filed.
  • Form 26Q: In order to file details relating to TDS deductions other than salary, Form 26Q is required to be filed.

A deductee can view Form 26AS for the details of their income (on which taxes have been deducted) as well as the taxes that have been paid by or on your behalf by the deductor (could be your employer, bank etc) to the Government treasury for which tax credit can be claimed. To understand the new format of Form 26AS you may refer to the blog on Form 26AS : Now more than just taxes paid history of the Assessee!!

Correction in TDS Return Filing.

After filing TDS returns, there are chances the deductor might notice that certain details are entered wrong say PAN number, or the statement might have been processed with defaults. So to know the defaults raised by the department, the deductor shall request for justification report from TRACES.

Justification Report consists of details of defaults/errors identified by the Income Tax Department (ITD) while processing the statement filed by deductor for a particular quarter of a financial year. Once the defaults are identified, correction shall be made in the following steps:

Online correction-

Online correction is made when new challan is to be added to the statement or make any other corrections like PAN updates. In order to do online correction, the deductor should make sure that digital signature is updated in TRACES profile. Then follow the steps to make corrections-

Step -1: Login to TRACES site

Step -2: Go into “Request for correction” in “Default” tab.

Step -3: Place the request for online correction.

Step -4: Make the required changes and submit the correction for final processing.

Step -5: Track the correction request in the “Default” tab.

Offline correction:

A deductor can also make corrections through offline mode, except adding a challan. Following are the steps to be followed for offline correction-

Step -1: Login to TRACES site

Step -2: Request for “Consolidated statement”(Conso file) for the required financial year and the relevant quarter.

Step -3: Conso File shall be made available within 2-3 days. Download the Conso File from the download.

Step -4: Read the Conso File in the relevant software and then do the correction as identified by the deductor.

Step -5: Once the correction is done, file the consolidated statement on the Income Tax department.

Step -6: Check the status of the statement filed.

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