Misconceptions about TDS (Tax denied at source)
I recently published articles on TDS for periodic deposits and TDS for the withdrawal of the EPF. I received lots of TDS comments/questions about the amount of the source. I have noticed that there are many misconceptions about TDS.
Many investors think that TDS refusal completely removes their tax liability. Another misrepresentation is – “Without TDS means, without a tax obligation“.
What is TDS?
The tax amount of the source or TDS is a tax collection process from the tax department. This involves collecting revenue at the very source of income. It is an essentially indirect tax collection method that combines the concepts of “pay as you earn” and “collect as you earned.”
Example: You reserve a bank fixed deposit for Rs 3 Lakh for 1 year @ 10% per annum. You will earn an income of interest of 30,000 pounds per year. The bank will deduct TDS at a rate of 10%, for example, 3,000 rubles (10% from 30,000 rubles) and deposits of 3,000 rubles with the income tax department (on behalf of you). The bank issues you a TDS certificate (Form 16A) that reflects this refusal.
Misconceptions about TDS
No TDS means any tax liability
For example – If an employee withdraws his EPF money before 5 years of service and if the amount of withdrawal is less than 30,000 Rs, then the TDS is not applicable.
But this does not mean that the withdrawal is tax exempt. It is only that there is no need for the employer (Deductor) to subtract the TDS of these types of withdrawals. However, the obligation to pay taxes (if any) to this amount of EPF lies with the employee.
TDS selection completely removes the tax liability
- It is a mistaken opinion that, if the employer takes away the TDS, you do not have to worry about filing your tax return. Your employer takes TDS only on income from a salary, and you may have income from other sources, and you must include those in the tax returns.
- Another misconception is – “No additional income tax will be payable if taxes are already deducted (TDS) of income“. In fact, depending on the nature of the income, the TDS rates vary. For salaries, employers adjust the rate so that the employee’s entire tax liability is deducted by the end of the year. On a fixed deposit interest, banks charge TDS to 10 per cent. But if the deposit holder does not provide his permanent account number, the bank’s tax deductible at 20 per cent.
- Most of the older citizens submit a Form 15H template to avoid TDS. In many cases, older citizens feel if they do, they are not obliged to pay taxes. But if you have two or three fixed deposits in separate banks and submit a Form 15G or 15H form to all banks, you will need to pay a tax if the total interest rate on all fixed deposits exceeds the income limit.
Latest TDS Rates FY 2018-19 (AY 2019-20)
Below are the latest TDS rates applied for the financial years 2018-19.