TDS Explained — What it is, How it Works, and Checking Credits

Whether you are a salaried employee looking at a surprisingly low net pay on your payslip, or a freelancer noticing a client paid 10% less than the invoice amount, you have encountered TDS. Tax Deducted at Source (TDS) is a concept that frustrates many, but understanding how it works is the key to ensuring you aren't paying the government more than you legally owe.

What is TDS?

The government doesn't want to wait until the end of the year to collect taxes, nor do they want to chase millions of individuals for payment. TDS is essentially a “pay-as-you-earn” advance tax collection mechanism. The Income Tax Act legally requires the person paying you (your employer, your bank, or your business client) to deduct a specific percentage of tax before handing the money over to you. The deductor then deposits this tax directly into the government's account against your PAN.

Common TDS Rates in India

The rate of deduction depends entirely on the nature of the payment:

• Salary (Section 192): Employers calculate your projected annual tax and deduct proportionally every month.
• Professional/Technical Fees (Section 194J):Freelancers, consultants, and agencies often face a 10% deduction.
• Bank Interest (Section 194A): Banks deduct 10% if FD interest exceeds ₹40,000/year (₹50,000 for senior citizens).
• Rent (Section 194I): Often 10% for specified rent payments above thresholds.

How to Check Your TDS Credits (Don't Trust, Verify)

Never blindly assume that a client or employer actually deposited the tax they deducted from you. If they don't deposit it, the government won't give you credit for it.

You must log into the Income Tax e-Filing portal and check your Form 26AS and your Annual Information Statement (AIS). These documents show exactly how much TDS has been linked to your PAN. Your deductor should also issue a TDS certificate (Form 16 for salary, Form 16A for other income) at the end of the year.

How to Get a TDS Refund

TDS is an advance tax, not your final tax liability. Often, too much TDS is deducted. For example, a freelancer might have 10% deducted on ₹5 lakh of gross receipts (₹50,000 TDS), but after deducting business expenses, their actual tax liability might be zero.

To get your money back, you must file an Income Tax Return (ITR). The portal calculates your final tax, subtracts the TDS already paid, and credits the excess amount (refund) to your verified bank account.

Consequences of Non-Deduction for Businesses

If you are a business owner paying rent or professional fees, you are the deductor. Failing to deduct TDS, or deducting it but failing to deposit it with the government on time, has severe consequences. The expense may be disallowed and you may face penal interest.

Summary: Treat TDS as money in a temporary lockbox. Always reconcile Form 26AS/AIS and file your ITR to reclaim your hard-earned cash.