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TDS Rates as per FY 2018-19

TDS (Tax Deducted at Source)

What is Tax Deducted at Source? How Does it work?

Introduction

TDS stands for ‘Tax Deducted at Source’. TDS was introduced to collect tax at the source from where an individual’s income is generated. Lets discuss about TDS in detail.

TDS (Tax Deducted at Source)

What is TDS ?

  • Tax Deducted at Source ie. TDS was introduced to collect tax at the source from where an individual’s income is generated. 
  • The government uses TDS as a tool to collect tax in order to minimize tax evasion by taxing the income (partially or wholly) at the time it is generated rather than at a later date. 
  • TDS is applicable on the various incomes such as salaries, bonus, interest received on bank deposits, interest on securities, commission received, rent or purchase of a property etc. 
  • TDS is not applicable to all incomes and persons for all transactions. Different rates of TDS have been prescribed by the Income Tax Act for different payments and different categories of recipients.
  • For example, payment of redemption proceeds by a debt mutual fund to a resident individual is not subject to TDS but for a Non-resident Indian is subject to TDS. 
Example
  • Let us take an example of TDS assuming the nature of payment is professional fees on which specified rate is 10%.
  • Suppose Yadnya Ltd makes a payment of Rs.50,000/- towards professional fees to Mr. Rahil, then Yadnya Ltd shall deduct a tax of Rs.5,000/- i.e. 10% of Rs.50,000/- and make a net payment of Rs.45,000/- (50,000/- deducted by Rs.5,000/-) to Mr. Rahil.
  • The amount of 5,000/- deducted by Yadnya Ltd will be directly deposited to the credit of the government and it will issue a certificate to Mr. Rahil stating the same.
Detailed Income Tax Knowledge Bank by Invest Yadnya
Detailed Income Tax Knowledge Bank by Invest Yadnya
Objectives of TDS

TDS follows the “pay as your earn” concept. Its basic objectives are as follows :

  1. Tax Deducted at Source facilitates the sharing of the tax collection responsibility between the deductor and the government, ensuring a regular inflow of cash to the latter.
  2. It enables salaried individuals to pay taxes in easy installments each month, thus preventing them from the burden of lump sum tax payments.
  3. TDS empowers the government to receive the necessary funds all year round which aids it in running the country smoothly.
  4. It ensures that the tax net is spread wide enough and prevents tax evasion.

How Does TDS Work?

  • TDS works on the concept that every person making specified type of payments to any person shall deduct tax at the rates prescribed in the Income Tax Act at source and deposit the same into the government’s account. 
  • The person who is making the payment is responsible for deducting the tax and depositing the same with government. This person is known as ‘deductor’. On the other hand, the person who receives the payment after the tax deduction is called ‘deductee’.
  • Form 26AS is a statement which shows the amount of tax deducted and deposited in a person’s name/PAN.  Therefore, an individual can view/check the TDS from incomes paid to him by viewing this Form 26AS.
  • Each deductor is also duty bound to issue a TDS certificate certifying how much amount is deducted in the deductee’s name and deposited with the government. 
  • Thus, The entity making a payment (which is subject to TDS) deducts a certain percentage of the amount paid, as tax and pays the balance to the recipient. The recipient also gets a certificate from the deductor stating the amount of TDS. The deductee can claim this TDS amount as tax paid by him (i.e. the deductee) for the financial year in which it is deducted. 
  • The deductor is duty bound to deposit the TDS with the government. Once deposited this amount reflects in the Form 26AS of individual deductee on the TRACES website linked to the income tax department’s e-filing website. 

TDS Rates As per FY2018-19 (AY2019-20)

Tax Deducted at Source - TDS Rates As per FY2018-19
Tax Deducted at Source – TDS Rates As per FY2018-19
  • One must note that TDS on specified transactions is deducted only when the value of payment is above the specified threshold level. No TDS will be deducted if the value does not cross the specified level. 
  • Different threshold levels are specified by the Income Tax department for different payments such as salaries, interest received on bank deposits and as well as securities, commission received etc. 
  • The details regarding TDS rates of different nature of payments and corresponding sections, their respective threshold limits and payee type are mentioned in the above table.

TDS Deduction Exemptions

TDS is exempted from the payment of interest from the following cases :

  • Payments in favor of RBI, or towards the central government
  • Banking companies
  • Financial corporations formed under the finance bill of union government or any state
  • Income Tax refund
  • Direct taxes interest payment
  • LIC, UTI and investments in co-operative societies
  • Interests earned in recurring deposit or any savings account held with any commercial banks or cooperative societies
  • Interest earned on Indira Vikas Patra (IVP), NSC or KVP
  • Interest earned on NRE account
  • Any institutions notified as Nil TDS organization

Summary

  • Tax Deducted at Source (TDS) is a system of taxation where the person/entity responsible for making specific payments deducts the applicable tax before the payment is credited to the receiver. 
  • TDS is applicable on the various incomes such as salaries, bonus, interest received on bank deposits, interest on securities, commission received, rent or purchase of a property etc. 
What does the tax rebate of Rs5lac in the Union Budget mean for a common man

How you may not have to pay tax even with Rs 9.5 Lakhs income

Income Tax Rebate explained with Example

On 1st Feb, our Finance Minister Mr. Piyush Goyal presented an interim budget for 2019-20. In the budget presented by him, he proposed to grant full tax rebate on Taxable Income up to Rs. 5,00,000. The said amendment is proposed to take effect from FY 2019-20.

Let us understand the interpretation and impact of the said amendment.

What does the tax rebate of Rs5lac in the Union Budget mean for a common man
Income Tax Slab Income Tax Rebate Income Tax exemption

It is a rebate and not exemption!!

First and foremost thing to understand that it is a rebate i.e. concession from tax. Basic exemption limit is NOT increased to Rs. 5,00,000. When basic exemption limit is increased, persons having income below exemption limit are exempted from filing of IT Return. Rebate provides a partial concession from tax payable amount. It does not exempt a person from filing of IT Return.

No Change in the Basic Exemption Limit

As stated earlier, there is no change in the current tax slabs or tax rates. Therefore, income in FY 2019-20 is taxable in the same manner as FY 2018-19.

For the taxpayers below 60 years of age-

Income Slab Tax Rates
  FY 2018-19 FY 2019-20
Up to Rs. 2,50,000 0% 0%
Rs. 2,50,001 to Rs. 5,00,000 5% 5%
Rs. 5,00,001 to Rs. 10,00,001 20% 20%
Above Rs. 10,00,000 30% 30%

For the taxpayers between 60 years to 80 years-

Income Slab Tax Rates
  FY 2018-19 FY 2019-20
Up to Rs. 3,00,000 0% 0%
Rs. 3,00,001 to Rs. 5,00,000 5% 5%
Rs. 5,00,001 to Rs. 10,00,001 20% 20%
Above Rs. 10,00,000 30% 30%

It is a Rebate under Section 87A. What is it?

Section 87A of Income Tax Act provides for a tax rebate upto Rs. 2,500 is available for the taxpayers having taxable income of Rs. 3,50,000 or less. Today, Finance Minister proposed to increase the said income limit of Rs. 3,50,000 to Rs. 5,00,000. He proposed to grant full tax rebate on net taxable income up to Rs. 5,00,000. It means that no tax shall be payable if the taxable income is Rs. 5,00,000 or less.

This provision under section 87A can be availed only by RESIDENT INDIVIDUAL TAXPAYERS. HUFs having taxable income up to Rs. 5,00,000 should pay tax as per normal tax slabs. Here is the comparison of the existing tax rebate and proposed amendment.

Particulars Tax Rate Reference FY 2018-19 FY 2019-20 FY 2018-19 FY 2019-20
Net Taxable Income after deductions   ARs. 5,00,000 Rs. 5,00,000 Rs. 3,50,000 Rs. 3,50,000
Tax Payable            
(i) Up to Rs. 2,50,000 0% B(i) + B(ii) Nil Nil Nil Nil
(ii) Rs. 2,50,000 – Rs. 5,00,000 5%   Rs. 12,500 Rs. 12,500 Rs. 5,000 Rs. 5,000
Total Tax Payable   B = B(i) + B(ii) Rs. 12,500 Rs. 12,500 Rs. 5,000Rs. 5,000
Less: Rebate under section 87A   C Nil (Rs. 12,500) (Rs. 2,500) (Rs. 5,000)
Tax Payable after Rebate   D = B – C Rs. 12,500 Nil Rs. 2,500 Nil

As we can see in the above example,

Here as you can see, For FY 2018-19, rebate is available only up to taxable income of Rs. 3,50,000 therefore for income of Rs. 5,00,000 taxpayer has to pay tax as per normal tax slabs. From FY 2019-20, it is proposed to grant full rebate upto Rs. 12,500, for net taxable income up to Rs. 5,00,000. Similarly, in FY 2018-19, rebate was allowed only up to Rs. 2,500 therefore, even if the taxable income is Rs. 3,50,000, taxpayer had to pay tax of Rs. 2,500 on the income. In FY 2019-20, considering the proposed amendments, no tax payment would be required in the said situation.

No exemption from filing of Income Tax Return

As discussed earlier, it is not increase in the basic exemption limit, therefore taxpayers are not exempted from filing of income tax return. Rebate can be claimed only if the income tax return is filed. Therefore, for the taxpayers whose Gross Total income (i.e. income before claiming deductions under section 80C to 80U) is more than the basic exemption limit (i.e. Rs. 2,50,000 or Rs. 3,00,000 as the case may be), must file their income tax return on or before due date (i.e. before 31st July)

What is meant by Net Taxable Income?

Net Taxable Income is the income on which the actual tax is calculated. Income earned by a taxpayer is divided into 5 major heads

  • 1. Income from Salary
  • 2. Income from House Property
  • 3. Income from Capital Gain
  • 4. Income from Business or Profession
  • 5. Income from Other Sources

Therefore, income earned from all these sources form a ‘Gross Total Income’. Taxpayer can claim deductions under section 80C to 80U from the Gross Total Income.Net Taxable Income is the income arrived after deducting the Deductions from Section 80C to 80U.

Deductions that will reduce your tax burden

Standard Deduction on Income from Salary / Pension.

In case of salaried taxpayer or pensioner, a flat deduction of Rs. 50,000 has been proposed. This deduction will be deducted directly from your salary. It means this deduction shall be considered in your Form 16 and taxable salary as per form 16 shall be net of this standard deduction of Rs. 50,000.

Interest on Housing Loan – Section 24(b)

If you have a taken a housing loan and paying interest, then you can claim deduction up to Rs. 2,00,000 under section 24(b). This will be considered as your negative income from house property. It means, your gross total income shall be calculated after deducting the above two expenses.

Deduction under Section 80C

Deduction up to Rs. 1,50,000 can be claimed under this section. Investments in PPF, EPF, Life Insurance, ELSS, Sukanya Samriddhi, Tax Saver FD, SCSS, Housing Loan Principle, Contribution to NPS under section 80CCD(1). Are eligible for deduction under section 80C.

Section 80CCD (1B) Additional Contribution In National Pension Scheme (NPS)

This section provides a deduction up to Rs. 50,000 over and above the limit of Section 80C (Rs. 1,50,000). Investment under this section is open for self employed taxpayers as well. In short, both salaried employees as well as self employed taxpayers can avail deduction up to Rs. 50,000 under this section. Apart from the above, here are some popularly known tax deductions. So, collectively the above four expenses / investments help you to reduce your taxable income up to Rs. 4,00,000.

Particulars Salaried Taxpayer Self Employed Taxpayer
Standard Deduction Rs. 50,000 Nil
Interest on Housing Loan Rs. 2,00,000 Rs. 2,00,000
Investments eligible for deduction under section 80C Rs. 1,50,000 Rs. 1,50,000
Additional contribution to NPS Rs. 50,000 Rs. 50,000
Total reduction in Taxable Tncome Rs. 4,50,000 Rs. 4,00,000

Here we can see, the above 4 deductions reduce the taxable income by Rs. 4,00,000 to Rs. 4,50,000.

It means, If the investments are planned smartly, even a taxpayer earning Gross Income of Rs. 9,00,000 to Rs. 9,50,000 (before claiming these deductions) can be relived from the tax burden. Because after claiming the above deductions his taxable income shall reduce to Rs. 5,00,000 or less, which is not taxable as per proposed amendments. Apart from the above, there are few more options which will help you to reduce your taxable income.

Section 80D – Health Insurance Premium

A taxpayer below 60 years can claim deduction up to Rs. 25,000 on payment of Health Insurance and Preventive Health Checkup. A taxpayer above 60 years can claim deduction up to Rs. 50,000 on payment of Health Insurance and Preventive Health Checkup. Similar deductions are available for the payment of premium on behalf of parents. Deduction in case of parents is in addition to the deduction claimed for yourself. It means, if you have paid Premium of Rs. 25,000 for yourself and Premium of Rs. 50,000 for your senior citizen parents, then you may get a total deduction of Rs. 75,000

Section 80TTA – Deduction on SB Interest

This section is only for taxpayers below 60 years of age. Deduction up to Rs. 10,000 is available for SB Interest earned during the year. It means if interest of Rs. 12,000 is earned on savings in banks, then Rs. 10,000 can be claimed as deduction under section 80TTA and only Rs. 2,000 shall be taxable. If SB Interest is less than Rs. 10,000 then entire amount of SB Interest shall be claimed as deduction under section 80TTA.

Section 80TTB – Deduction on SB Interest

This section is only for taxpayers of age 60 years and above. Deduction up to Rs. 50,000 is available for SB/FD and RD Interest earned during the year. If total of SB + FD + RD interest is less than Rs. 50,000, then entire interest can be claimed as deduction under section 80TTB. Now, suppose, the total of SB + FD + RD interest is Rs. 55,000 then, deduction of Rs. 50,000 shall be claimed and balance amount of Rs. 5,000 shall be taxable.

What about HRA and LTA Exemption?

Now, HRA and LTA are your salary components. To claim HRA Exemption, one needs to submit his rent paid receipts. To claim LTA exemption, one needs to submit his bills of domestic travel to the employer. After considering your expenses, employer shall avail the exemption from HRA and LTA. The exempt amount shall be reduced from taxable salary of the employee. Standard deduction is also reduced from the taxable salary however, submission of bills is not necessary in case of standard deductions. Let understand how the taxable salary is calculated

Mr. Guru is a salaried employee. The salary components are given below-

Particulars Gross Amount Exemptions (as calculated by employer on submission of bills)
Basic Salary Rs. 3,00,000
HRA Rs. 2,40,000 Rs. 1,80,000
Leave Travel Allowance Rs. 1,00,000 Rs. 60,000
Performance Incentive Rs. 60,000
Total Salary Rs. 7,00,000

Now, taxable salary shall be calculated as –

Particulars Reference Amount
Basic Salary A Rs. 3,00,000
House Rent Allowance B = Rs. 2,40,000 Less Rs. 1,80,000 Rs. 2,40,000
Leave Travel Allowance C = Rs. 1,00,000 Less Rs. 60,000 Rs. ,100,000
Performance Incentive D Rs. 2, 60,000
Gross Salary E = (A +B +C + D) Rs. 9,00,000
Less: Exemptions    
HRA F (Rs. 1,80,000)
Leave Travel Allowance G (Rs. 60,000)
Standard Deduction H (Rs. 50,000)
Total Exemptions I = (F + G + H) Rs. 2,90,000
Professional Tax J Rs. 2,500
Taxable Salary K = (E – I – J) Rs. 9,00,000 – Rs. 2,90,000 – Rs. 2,500 Rs. 6,07,500

Example showing the impact of this proposed amendment

How the impact of this amendment will affect taxpayers under different tax slabs? Let us understand with the help of example. We will take three situations. Income details are given below-

Particulars Reference Case I Case II Case III
Salary before standard deduction A Rs. 9,00,000 Rs. 10,00,000 Rs. 20,00,000
Less: Standard Deduction B (Rs. 50,000) (Rs. 50,000) (Rs. 50,000)
Taxable Income from salary C = A-B Rs. 8,50,000 Rs. 9,50,000 Rs. 19,50,000
Interest paid on Housing Loan D (Rs. 2,00,000) (Rs. 2,00,000) (Rs. 2,00,000)
Gross Total Income E = C-D Rs. 6,50,000 Rs. 7,50,000 Rs. 17,50,000
Less: Deductions under section 80C to 80U        
Investment in PF / PPF / ELSS (i) (Rs. 1,50,000) (Rs. 1,50,00) (Rs. 1,50,00)
Investment in NPS – Section 80CCD (1B) (ii) (Rs. 50,000) (Rs. 50,000) (Rs. 50,000)
Total Deductions F = (i) + (ii) (Rs. 2,00,000) (Rs. 2,00,000) (Rs. 2,00,000)
Net Taxable Income G = E – F Rs. 4,50,000 Rs. 5,50,000 Rs. 15,50,000

Tax on the above income shall be calculated as

Particulars Reference Case I Case II Case III
Net Taxable Income   Rs. 4,50,000 Rs. 5,50,000Rs. 15,50,000
Tax Payable        
Upto Rs. 2,50,000 A(i) 0 0 0
Rs. 2,50,001 to Rs. 5,00,000 A(ii) Rs. 10,000 Rs. 12,500 Rs. 12,500
Rs. 5,00,001 to Rs. 10,00,000 A(iii) Rs. 0 Rs. 10,000 Rs. 1,00,000
Above Rs. 10,00,000 A(iv) Rs. 0 Rs. 0 Rs. 1,65,000
Total tax payable A = A(i) +A(ii) +A(iii) + A(iv) Rs. 10,000 Rs. 22,500 Rs. 2,77,500
Les: Rebate under section 87A B (Rs. 10,000) Rs. 0 Rs. 0
Tax payable after rebate C = A-B Rs. 0 Rs. 22,500 Rs. 2,77,500
Add: Health and Education cess D Rs. 0 Rs. 900 Rs. 11,100
Total Tax Payable E = C+D Rs. 0 Rs. 23,400 Rs. 2,88,600

As we can see above, If the taxable income is Rs. 5,00,000 or less then full tax rebate can be availed. However, if the income is more than Rs. 5,00,000 then tax is payable at normal tax rates.


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