Gone are the days when paper trails and manual filing made the tax paying a tedious task. Electronic Tax Deducted at Source (E-TDS) return filing is the procedure of sending online the TDS returns to the Income Tax Department of India. With this, filing returns becomes a breeze, eliminating the paperwork woes. It is governed by the Income Tax Act 1961 and businesses must comply with the tax rules to receive return benefits of TDS and avoid fines.
eTDS translates to convenience and accuracy. Taxpayers can avail the advantages of TDS without worrying about getting cheated as they are automatically deducted. Pre-filled data ensures fewer errors and timely filing. Further, the government keeps a check on taxpayers to avoid evasion.
In simple words, TDS or tax deducted at source is the amount of income tax reduced by the person who is paying salaries, educational fees, rents, etc. as per the rates prescribed by the government. Section 23 of the Income Tax Act requires employers to deduct TDS from their employee's salary. The amount of TDS deducted acts as a stable revenue for the government and helps to manage their expenses
Any person or business making payments defined under the Income Tax Act of 1961 is obligated to withhold tax at source and submit a TDS report. This includes Hindu Undivided Families, partnership firms, businesses, LLPs, and other entities that incur different types of payments like rent, wages, interest, or any form of professional fees.
How Union Budget 2024 Affected TDS Rates?
In recent years, discussions surrounding TDS rates have garnered increased attention within the financial landscape. The Financial Bill of 2016 introduced TDS rates of 25% for individuals and HUFs and 30% for other resident entities.
TDS is applicable to the employee's tax slab rates for the relevant financial year. The TDS rates on salary are determined by the employee's tax slab rates (based on their annual income). It is deducted on a specified transaction only when the payment exceeds the specified threshold limit. For instance, Section 194 J mentions no TDS is required to be deducted if the professional fee is less than Rs. 30000. So, the threshold limit here is Rs. 30000.
While the rates vary from year to year, employers need to keep themselves updated on changes in tax laws. Recent Union Budget 2024-25 announced by Finance Minister Nirmala Sitharaman on February 1, 2024, did not mention any changes in the income tax slabs or tax rates.
What Are The Advantages and Disadvantages of TDS?
Before we begin understanding the advantages and disadvantages of TDS, it is crucial to know its main objectives.
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- While it helps the government keep a check on taxes paid by taxpayers, it also creates transparency between the government and taxpayers ensuring no discrepancies or evasion.
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- A deduction and collection account is one of the most stable income sources for the government.
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- It is automatically deducted, allowing seamless and easier for taxpayers and reducing the burden on tax collectors.
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- TDS certificate serves as proof of tax payment. E-filing of TDS returns can be used in availing loans, claims, and record keeping.
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Lastly, the implementation of E-TDS assists in broadening in tax base as it includes a large number of individuals within the tax bracket.
Benefits of TDS Filing
Faster Processing and Acknowledgement
For taxpayers, one of the major advantages of TDS returns is quicker processing and recognition of returns. since returns are submitted electronically, it cuts down the scope for inaccuracy too. Further, to ensure tax regulations are being followed in a timely, transparent and effective manner, the income tax department allows taxpayers to check their filing status online and receive a rapid acknowledgment receipt on acceptance of the e-TDS return.
Cost Effective While Being Efficient
One of the greatest benefits of TDS is that it is economical and efficient when compared to traditional paper filing. Moreover, access to previous returns is simple and businesses can focus on their main business activities while streamlining their tax compliances. At the same time, taxpayers can reduce their overall tax burden by claiming TDS as a credit against their tax liability.
Reduced Chances of Error & Possibility of Correction
Filing TDS returns reduces the possibility of making mistakes as the data is input electronically and verified by the system. While it ensures correct reporting and adherence to tax laws, it also allows you to make corrections online without any physical correction forms. The errors can be immediately found and fixed, ensuring correct tax reporting.
Timely Compliance
The TDS return is filed by the deductor on the income of the deductee, which means the deductee will not have to file tax again. This reduces the job of the deductee automatically. The tax collection authority also takes into account the earnings of every person to ensure no person escapes the tax slabs and pays taxes on time. E-filing of TDS returns makes it easy for the Income Tax Department and for the deductee as the tax system ensures timely tax payment.
Disadvantages
Income Tax Laws in India are strict and businesses or employers will have to face serious consequences for non-compliance. Moreover, the TDS tax deducted every month must be remitted to the government within a specific time.
These consequences can act as a major disadvantage to businesses. Here are a few consequences of non-compliance:
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- Late filing costs of Rs. 200 per day of delay are charged in case returns are filed after the due date
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- Section 271 H of the Income Tax Act also permits the imposition of fines.
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- An interest at the rate of 1 percent per month on the tax amount withheld at source is also chargeable.
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- Any failure to file eTDS returns may be followed by penalties and legal action.
FAQs
Who gets the TDS benefit?
TDS helps a deductee to reduce his or her burden for filing taxes. It is collected after earnings reach a certain limit. A maximum of 30 percent TDS is applicable on money won from lotteries, horse races, and other games.
How is TDS beneficial?
E-filling of TDS ensures timely compliance as it helps taxpayers avoid penalties for non-payment or delayed payment of taxes. Taxpayers have to deduct and remit taxes on time to the government. Tax amount is deducted at the source of payment, making it easier for them to pay taxes and reduce their tax liability (overall tax burden).
Can Deductor Revise TDS Returns?
TDS Returns are filled with NSDL by the deductor at regular intervals. However, if any mistake or misinformation is noticed, existing returns will have to be changed to file a revised eTDS return. However, only those TDS returns can be revised for which the statements have been issued after the fiscal year 2007-08. To begin online rectification, a taxpayer will have to register on the online portal.
Can Payee Claim Refund on TDS?
TDS is deducted by the employer before the salary is credited to the employee's account. You can claim a TDS refund when filing income tax returns for the financial year. If you have made declarations at the beginning of the year that are lower than your actual investment proofs, you are eligible for a TDS refund. The process is easy and is not time-consuming.
Is TDS Applicable on Foreign Payments?
TDS is applicable on foreign payments from a range of 10 to 40 percent, depending upon the type of payment and nature of transactions. These deductions must be made at the time of the payment and the payment recipient shall be entitled to receive the balance amount after reducing the TDS.
