TDS is a method of tax collection where a specified percentage of tax is deducted by the payer at the time of making payments such as salaries, rent, interest, dividends, commissions, etc.
The deducted tax is then remitted to the government on behalf of the recipient. TDS is governed by the Income Tax Act, 1961 and it aims to deduct tax at the source of income, ensuring a steady revenue stream for the government and preventing tax evasion.
TDS applies to various types of payments made by individuals or entities and is deducted based on prescribed rates and thresholds. Tax Deducted at Source plays a crucial role in the Indian tax system and helps in the smooth collection of taxes throughout the year.
For example, before paying the landlord, TDS at the rate of 5% must be subtracted from any amount paid by an individual for housing rent over Rs 50,000.
Also Read: How is income from Mutual Funds taxed in 2024?
Failure to follow the prescribed rules regarding the deduction of TDS and filing TDS returns can result in a levy of penalties, and in severe cases, authorities may even impose imprisonment.
TDS on Salary and Dividend
| Section | Nature of Transaction | Threshold Limit | TDS Rate |
| 192 | Salary | Basic Exemption | 10%-30% |
| 194 | Dividend | Rs. 5000 | 10% |
Under section 192 of the Income Tax Act, TDS rate is determined based on the salary you receive from your employer, which categorizes you into different tax slab rates.
According to your tax slab, the rate for TDS deduction on salary ranges from 10% to 30%.
In accordance with section 194, 10% TDS is withheld if dividends exceed Rs 5,000 annually.
You can master your tax planning strategy for Financial Year 2024-25 here.
