Tax Deduction at Source (TDS) rates for the Fiscal Year 2016-17 & Assessment Year 2017-18:
Tax Deduction at Source i.e. TDS came into existence with an objective to collect income tax at the point of origin of income by the Government of India (GOI). As per the norm, a person (deductor or payer) who is liable to make payment of specified nature to another person (deductee or payee) shall deduct TDS and remit the same into the account of the Central Government.
The provisions of Tax Deduction at Source i.e. TDS apply to several payments such as salary, brokerage, rent, professional fees, interest, insurance commission, contract payments, royalty, early EPF withdrawals, etc.
Let’s understand the concept of Tax Deduction at Source i.e. TDS with an example:
Mr. Ramesh has made a fixed deposit of Rs. 10 lakhs for one year in ABC Bank Ltd. The annual interest paid on the deposit is Rs. 75,000 calculated @ 7.5% p.a.
As per the TDS norm, the bank has to deduct the TDS on the interest paid on fixed deposit @ 10%. In the example above, the TDS for an amount of Rs. 7,500 will be deducted ( 75,000*0.1) and the remaining amount i.e. Rs. 67,500 (Rs. 75,000 – Rs. 7,500) will be paid to Mr. Ramesh. The TDS amount of Rs. 7,500 will be paid by the bank to the central government and will be treated as the prepaid tax by Mr. Ramesh. Thereon, the bank will issue a TDS certificate i.e. Form 16A to Mr. Ramesh reflecting the TDS deduction.
Note:
If your tax liability is nil or lower than the Tax Deduction at Source i.e. TDS amount deducted, you can claim the refund of the full/excess amount by filing the income tax returns. On the other hand, if you fall in the higher tax bracket i.e. 20%, and the TDS rate is 10% then you have to pay the differential tax. In case you fall in the 10% tax slab, and the TDS rate is also 10% then you don’t have to pay any additional tax.
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Applicable TDS Rates for FY 2016-17 & AY 2017-18
The above table illustrates the Tax Deduction at Source i.e. TDS rates applicable for different categories of income.
1. Salary Income:
Income chargeable under the head “Salary”, is taxable as per the Section 192 of the IT Act, 1961. The tax is calculated at the average rate of income tax, as computed based on the rates in force and the deduction is made at the time of the actual payment.
TDS is deducted based on the Income tax slab of the individuals.
Note: Once your employer deducts the TDS, you are required to file income tax returns if in case you have any income from other sources such as rent, interest income on bank deposits, etc.
2. EPF Withdrawal:
With effect from June 01, 2016, no TDS will be deducted for withdrawal up to Rs. 50,000 if the year of service is less than five years. In case, the withdrawal amount exceeds Rs. 50,000 with service less than five years, then:
• If Form- 15G/15H is not submitted, TDS will be deducted at the rate of 10% provided PAN is submitted.
• If PAN is not submitted, TDS will be deducted at maximum marginal rate i.e. 34.608%.
Note:
If you withdraw the EPF amount before five years of service and the amount withdrawn is less than Rs. 50,000 (effective June 01, 2016) then TDS will not be deducted. However, this withdrawal is not tax-free, and you are liable to pay tax on the withdrawal amount.
Also read: EPF withdrawal rules 2016 & Complaints
3. Income from Insurance Commission:
The threshold limit for TDS has been reduced from earlier Rs. 20,000 to Rs. 15,000 with effect from June 01, 2016. Also, the TDS rate applicable for the AY 2017-18 is 5% compared to 10% till the AY 2016-17.
4. Income from Life insurance policy:
TDS rate has been reduced from earlier 2% to 1% with effect from June 01, 2016.
5. Income from deposit under National Savings Scheme:
TDS rate has been reduced from earlier 20% to 10% with effect from June 01, 2016.
6. Income from Commission paid on the sale of lottery tickets:
The threshold limit for TDS has been increased from earlier Rs. 1,000 to Rs. 15,000 with effect from June 01, 2016. Also, the applicable tax rate has been reduced from earlier 10% to 5%, effective from June 01, 2016.
7. Income from Brokerage/ Commission:
The threshold limit for TDS has been increased from earlier Rs. 5,000 to Rs. 15,000 with effect from June 01, 2016. Also, the applicable tax rate has been reduced from earlier 10% to 5% effective from June 01, 2016.
8. Income from Horse Races:
The threshold limit for TDS has been increased from earlier Rs. 5,000 to Rs. 10,000 with effect from June 01, 2016.
9. Income from compensation on acquisition of certain immovable property:
The threshold limit for TDS has been increased from earlier Rs. 2,00,000 to Rs. 2,50,000 with effect from June 01, 2016.
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Listed below are some other sources of income and the applicable TDS rates on these income:
1. Income from the investment made in a securitisation trust (specified in Explanation of section115TCA):
This source of income falls under Section 194LBC. The applicable interest rate is 25% in case of Individual or HUF and 30% in case of any other person.
2. Payment to contractor/ sub-contractor:
This source of income falls under Section 194C. In case of payments to individuals/HUF, applicable TDS rate is 1%. For payments to others, TDS rate is 2%.
3. Payment on account of repurchase of unit by Mutual Fund or Unit Trust of India:
This category of income comes under Section 194F, and the applicable TDS rate is 20%.
Also read: Income Tax Deductions 2016-17 for tax planning
4. Investment fund paying an income to a unit holder [other than income which is exempt under Section 10(23FBB)]:
This category of income comes under Section 194LBB, and the applicable TDS rate is 10%.
5. Payment for the repurchase of unit by Mutual Fund or UTI:
Such payments are defined under Section 194F. Under this, the person responsible for paying any amount to any person is required to deduct income-tax at the rate of 20%.
6. Income from units of a Business Trust:
As per the section 194LBA(1), any business trust is required to deduct tax at the rate of 10%, for the distribution of:
1. Any interest received or receivable by it from an SPV to its unit holders.
2. Any revenue received from renting or leasing or letting out any real estate asset owned directly by it, to its unit holders.
