TDS Refund
TDS is a process of tax collection under the Income Tax Act 1961. It should be done after making a deduction of the prescribed taxes.
This TDS tax collection system manages by the Central Board of Direct Taxes falls under the part of Revenue managed by Indian Revenue Services.
All the taxpayers are required to file quarterly returns to CBDT.
Significance of TDS
- Tax collection takes place regularly for generating a continuous stream of income for Government.
- The TDS deducted every month, so it helps in reducing the burden of paying all taxes together at the end of the year.
- This whole process of TDS is designed to help the government to collect taxes without the IT department intervening every time and every step of the way.
TDS Refund
- In case, if financial declarations made at the year beginning is somehow less or greater than the investment proofs, at the end of the financial year, in that case, refund or lump sum of taxes deduction comes into force.
- If there is a difference between the total tax deducted at the end of the financial year and the total tax liability to the income tax department for the particular financial year, a TDS refund needs to be processed.
Example 1
X works in an MNC in Bangalore, somehow X got late in submitting his document for a premium which is exempted under 80C Section and so Rs 10,000 extra TDS was deducted.
Total Tax Paid by X = Rs 40,000 (For Financial Year)
Excess tax deducted = Rs 50,000
X’s Tax Refund = Rs 10,000
Example 2
Y was not able to make investment Rs 20,000 in the investments as allotted by the employer. Y was not able to decide whether to invest in Life Insurance Policy or Fixed deposit for long term savings. Due to this missed out last date to submit the Income-tax proof as asked by the employer. It ends with Y paying more tax for the financial year even though Y had already done the investments for the concerned year.
These are some of the typical situations that are faced by the salaried individual every year by lots of individuals and so the TDS refund process comes into action. The sooner you file the income tax return the earlier you can get your TDS refunded.
Filing the TDS Refund claim
TDS refund claim is liable in those cases where the employer made the TDS deduction over and above the actual tax liability.
As per the above example: The difference between a tax deduction and tax paid can be obtained by filing a TDS refund claim in the form of Income Tax Return.
When a person is filing Income Tax Return, taxpayers need to provide his or her account number, bank details, and IFSC code. This is the only process through which the Income Tax Department returns excess tax via an account transfer.
Tips to follow to make TDS refund claim easier are as follows:
If in any of the financial year, you are confident that the TDS deduction is more than the above tax liability, then as per Section 197, you can do filing of Form 13 to avail the benefit of nil or lower Income Tax Deduction. After that, the TDS certificate received by you needs to be submitted with the authority that is liable for your TDS deduction.
It happens where the income is not available under the Income Tax bracket, but the bank has deducted the Income Tax. Refund can be claimed in two forms:
- Firstly, you can make a declaration of this income at the time of filing income tax return and the IT Department will make a refund in your bank account.
- Secondly, by filing Form 15G, the concerned bank understands that your salary does not come under any tax slab so no tax should be deducted at source at the time of maturity.
In case the bank has kept fixed deposits of a senior citizen, they get an exemption from Income Tax deduction from the interest earned on the fixed deposit. So, if you are 60 years old or above and holding fixed deposits in the bank and the interest is being taxed, then you can fill 15H for no deduction of income tax from the bank on the interest earned on your FD.
And thereafter, you can get the returns credited to your bank account by claiming it in your IT return. After that the IT department calculates the taxes and finds out the details of excess tax been paid, refund credited back to the bank account of the payee as mentioned in the IT return.
When an employee makes income declaration at the time of maturity of Fixed deposits, in that case, the lump sum amount should be mentioned. This results in making payment of hefty taxes and attract a higher tax slab (as it attracts high income for that period). So, it is advisable to declare income annually rather than declaring it at the time of maturity.
TDS Refund Interest
As per the Income Tax Section 200A, if the Income Tax Department makes a delay in paying a tax refund, then you are entitled to pay a 6% simple interest on the refunded amount.
The accrual of interest begins from the first month of the financial year that is April. But here also the interest is paid only if the refund amount is more than 10% of the total tax paid during the year. The interest that is earned on a tax refund is also taxable as it comes under the head of income from other sources.
Hassle-free tax filing
Steps are considered then one can file hassle-free tax returns:
- Beforehand tax planning is always better rather than running last-minute planning. Plan always from the first day of the financial year.
- One should always avoid filing late tax returns otherwise it results in levying of an additional penalty on the overdue tax.
- Smartly plan and manage the tax filing so that there is equalization in the TDS and tax payable. It will make the refund process of TDS simple and easier.
- One should be aware of all the tax exemptions applicable to them and should claim those to maximize the advantages.
Tax Collected at Source as per Section 206C of Income Tax Act, 1961
Tax collected at Source is a kind of tax which is collected at the time of sale of certain items by a seller based in India. There are specific rates at which the seller makes collection of taxes from the payer as given below:
- Alcoholic liquor for human consumption - 1%
- Timber obtained under forest lease - 2.5%
- Tendu leaves - 5%
- Scrap - 1%
- Minerals being coal and iron ore and lignite - 1%
- Any other forest produces other than timber and tendu is - 2.5%
- Scrap batteries
- Parking lot, toll plaza, mining, and quarrying.
- Jewelry exceeding – Rs.5 lakhs and bullion exceeding – Rs.2 lakh.
- Motor vehicle exceeding – Rs. 2 lakhs.
Common TDS Exemptions
TDS works on the assumptions of ‘what you pay as you earn it’. It is like a win-win situation for both the taxpayer and the government. TDS is also a key way of preventing tax evasion. It helps in widening the tax collection base thereby also proving a steady source of revenue to the government.
Case of TDS Exemptions
- When payment is made to Central and State corporations, banking companies, etc.
- Received refund from Income Tax Department or if any interest is paid for direct taxes.
- LIC, UTI and other insurance co-operative society.
- Interest that is earned on recurring deposits, savings accounts, and cooperative societies or banks.
- Interest earned in Indra Vikas Patra, Kisan Vikas patra or NSC.
- The interests earned in NRE accounts.
