TDS Explained: How Tax Deducted at Source Works in India

What Is TDS?

TDS (Tax Deducted at Source) is a mechanism where the payer deducts a percentage of tax from certain payments before paying the recipient. It is a way for the government to collect income tax at the point of payment rather than waiting for the annual return.

Common TDS Situations

Salary (Section 192): Employer deducts TDS from salary based on your estimated annual income. Shown in Form 16.

Fixed Deposit interest (Section 194A): Banks deduct 10% TDS when FD interest exceeds Rs 40,000 per year (Rs 50,000 for senior citizens).

Rent above Rs 50,000/month (Section 194IB): Tenant must deduct 5% TDS on rent payments to landlord.

Freelance/professional fees (Section 194J): 10% TDS on professional payments above Rs 30,000.

Sale of property (Section 194IA): Buyer deducts 1% TDS when property sale value exceeds Rs 50 lakh.

How to Check Your TDS

Form 26AS: Annual TDS statement available on the income tax portal (incometax.gov.in). Shows all TDS deducted against your PAN.

Annual Information Statement (AIS): More comprehensive version of 26AS showing all financial transactions linked to your PAN.

What to Do If Excess TDS Is Deducted

File your ITR and claim a refund. If your actual tax liability is lower than TDS deducted, the difference is refunded by the Income Tax Department (typically within 3-6 months of filing for e-verified returns).

Submitting 15G/15H to Avoid FD TDS

If your total income is below the taxable limit:

15G: For individuals below 60 years

15H: For senior citizens (60+)

Submit these forms to your bank at the start of each financial year. The bank will not deduct TDS on FD interest if 15G/15H is submitted and your income is genuinely below the taxable threshold.