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Full Form of TDS
Full Form of TDS
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What Is Full Form Of TDS?
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The full form of TDS is Tax Deducted at
Source. TDS provisions are in the Income-
tax Act, 1961. Using TDS, income tax is
collected at the source of income
generation. One who makes a payment to
another person deducts TDS from the
amount and remits the amount to the
government on the receiver's behalf.
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In this fashion, the tax authorities get a
specified tax percentage in advance. Then,
at a later date, the receiver will file his
income return, offer the income for tax, and
take credit for the TDS deducted earlier.
However, it is a crucial tax collection
process, ensuring that the government gets
a steady revenue throughout the year. It also
helps in promoting compliance with rules
related to tax payment and collection.
Full Form Of TDS Explained
The full form of TDS is Tax Deducted at
Source. It is a steady source of revenue for
the government and ensures that the tax is
diligently collected at the source of the
income itself. It is a good practice of tax
collection in an economy.
However, the TDS rates many change and
depend of the tax laws applicable in the
country and type of payment which is being
taxed. So I is important for the tax payer as
well as the deductor to know the rules of the
concerned jurisdiction or consult a tax
professional regarding the process.
The full form of TDS in income tax, as the
name suggests process not only promotes
tax collection, but also reduces evasion of
tax. Since is provides revenue to the
government, the money can be used for
various productive purpose like
infrastructure development, financing new
projects or any other type of investments for
the purpose of development.
The payer ('Deductor') deducts a specified
percentage of tax on specified income on
behalf of the income's recipient
('Deductee'). The amount deducted in E-
Challan ITNS 281 deposits with the
government. The deductor also must file
quarterly TDS returns. The receiver can
claim credit of the TDS deducted while filing
the Income-tax return by deducting the tax
payable amount. The person who should
deduct TDS must specify under the sections
covering TDS. It deducts at the time of
payment or credit, whichever is earlier.
Interest, penalties, and prosecutions are
associated with TDS provisions. Hence, the
deductor should promptly comply with the
requirements of TDS. Further, the rates of
tax and sections should be correctly
accounted for by filing quarterly returns.
One should correctly enter the PAN number
of parties. One must track the due dates of
various filings and tax deposits.
Example
Let us understand the concept of full form of
TDS in income tax with the help of a suitable
example, as given below:
If A pays ₹10,000 to B as consultancy
charges, then A needs to deduct 10%,
₹1,000, remit to the government, and pay B
₹9,000. The amount received by B will be
₹9,000 as a bank receipt and ₹1,000 as TDS
credit with the government. B can adjust the
TDS credit when filing the income return
with the tax payable by B. For example, at
the end of the year, if B has a tax payable of
₹5,000, B can adjust ₹1,000 of TDS credit
and remit the balance of ₹4,000 to the
government.
Types
The full form of TDS in banking and
corporate world, which is tax deducted as
source, has specified the TDS deduction for
different types of payments in TDS sections
192 to 196 D. The common and most
frequent heads where it deducts are
payment in nature of salary, interest,
dividend, commission or brokerage,
contractors, rent, transfer of immovable
property, payment to a non-resident, and
professional consultancy. The rate of TDS
deduction is enclosed as an annexure. It
deducts as per the rates, and deduction is
subject to threshold limits of payment given
under these sections. In payment to non-
residents, rates per DTAA also need to be
considered.
Why Is TDS Deducted?
The government uses Tax Deducted at
Source as a tool to check tax evasion. It is
deducted at the time of income generation
by the third party rather than by the income
earner. In this way, the government collects
tax in advance rather than at a later date
while filing income tax returns or paying
advance tax. It also brings to the knowledge
of the tax authority's various incomes
earned by the receiver of income, which
they can verify using the income tax return
filed.
TDS Certificate
The deductor issues Tax Deducted at
Source certificate to the deductee. It is
mandatory to issue the certificate to the
deductee. Form 16 is the annual TDS
certificate relating to salary, and Form 16 A
is a quarterly TDS certificate for other than
salary. They provide all TDS details for
transactions between the deductor and the
deductee. One should generate a TDS
certificate only from the Traces portal. The
process for a TDS certificate is: Deductor
logs into the traces portal and goes to the
"Download" tab. One must select the form
and details filled in, after which one can
download the TDS certificate. One must
issue a TDS certificate within 15 days of
filing quarterly TDS returns.
Payment Due Dates
Let us learn the payment dates as per the
full form of TDS in banking and corporate
environment. The due date for TDS payment
is as follows:
For government deductors – 7th of
the next month if paid through
challan. The same day, if paid
through book entry.
For non-government deductors –
For April to Feb – the 7th of next
month, and for March – the 30th of
April.
The due date for filing a TDS return is as
below:
Quarter Period Due Date
1st Quarter 1 April to 30 June 31 Jul
2nd 1 July to 30
31 Oct
Quarter September
3rd Quarter 1 Oct to 31 December 31 Jan
31
4th Quarter 1 Jan to 31 March
May
TDS on property purchase – the time limit is
the 30th day of the following month in which
purchased the property.
Procedure For E-Filing Of TDS
Return
Prerequisites:
Valid TAN no and E-filing portal
login.
Prepare statements using Return
Preparation Utility (RPU) validated
with File Validation Utility (FVU)
downloaded from Tin-NSDL.
Valid DSC must register in e-filing.
Alternatively, one can link the
Principal contact's PAN with Aadhar
or bank account validated to file
using EVC.
Procedure to Upload:
Log in to the Income-tax e-filing
portal.
Go to TDS – Upload TDS.
Select appropriate details for “FVU
Version,” “Financial Year,” “Form
Name,” “Quarter,” and “Upload
Type.”
Click validate to validate statement
details.
Upload the TDS ZIP file. A
statement prepared using the utility
downloaded from the Tin-NSDL
website or third-party software.
Affix the digital signature and click
on the “Upload” button.
Advantages
The process has some advantages as
mentioned below:
It helps in minimizing the possibility
and prevention of tax evasion. In
this way it ensures that entities and
individuals make their tax payments
on time.
It generates steady cash flow for
the government. This regular
income stream can be used by the
government for various purposes
like through proper financial
budgeting and planning.
It helps the deductee reconcile
income generated with the TDS
deduction by the deductor. This
makes the calculation very simple
for both.
The burden of tax collection
responsibility of the government
lessens as the tax deposit shifts to
the deductor. Since the tax payment
is done in small amounts throughout
the year, it is less burdensome and
easily manageable.
Disadvantages
Some of the notable disadvantages of the
process is given below:
Increase in compliance burden for
deductors.
The blockage of cash flow as TDS
is deducted at the time of income
generation, while credit is available
only when filing an income tax
return.
In case of the wrong deposit of TDS
by the deductor, the deductee could
not claim TDS credit for no fault of
his.
Thus, there is always a room for
error and penalty, which puts
additional responsibility and
pressure on both the deductor and
deductee.
The deductor should strictly abide
by the rules and laws of the
process. This may not always be
followed diligently, leading to issues
and delay.
Small business who depend n their
cash flow to run the business may
be affected due to te TDS because
their income reduces, leading to
liquidity issues for the business.
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