How to Avoid Tax Deducted at Source (TDS)?

Individuals, firms, corporates, business houses be it small or big ones will have to pay some part of their earnings as tax to the government of India. Tax collected from the people will be used for developmental/welfare activities by the government.

There are several kinds of taxes levied by the government in general to collect revenue. One such kind of tax was introduced on an individual's income is Tax Deducted at Source.

What is Tax Deducted at Source?

The term Tax Deducted at Source is popularly known as TDS. It was introduced by the Income Tax Department to collect tax at the source from an individual's income. The TDS will be applicable on individual income from various sources be it salary, receiving of commission, interest earned, dividends and so on.

Usually, the tax deducted at source is not levied on all the people and income for all the transactions. The Income Tax Act has different set of rates for tax deducted at source for different categories and payments of recipients.

The tax deducted at source works on the specific concept where in every individual is making a specified type of payments to other individual will deduct tax at the rates as pre set by the Income Tax Act of 1961 at source and the same will be deposited into the government's account.

In case of the Tax Deducted at Source, the individual who is making the payment will be responsible for deducting the tax and depositing the tax deducted amount to the government. They will be referred to as 'deductor'. The individual who will receive the payment post tax-deduction will be known as 'deductee'.

TDS Rates

The Income Tax Act has set different rates for TDS, based on the nature of the payments.

With effect from May 14, 2020, the government of India has relaxed the rates owing to the coronavirus crisis and accordingly 25% of TDS rates are trimmed on non-salaried payments like interest amount received, rent from house property or commercial establishments, dividend and so on.

Note: TDS on salaries remains intact. Tax on salaries will be deducted at the tax rates based on the income and it includes 4% of cess.

How to Avoid Tax Deducted at Source (TDS)?

If an individual's annual income is below the exemption limit during a financial year as prescribed by the government of India, then he can ask the payer not to deduct tax deducted at source by submitting Form 15G/15H.

Individuals will have to quote their PAN Card details at the time of receiving the final proceeds of the maturity value, as it is subject to TDS. The PAN details will be shown to avoid tax deduction at higher rates.

What is Form 15G?

Form 15G is submitted by individuals for claiming certain receipts without tax deduction. All the banks in India will deduct TDS on the interest income earned by a person if it exceeds Rs 40,000 per annum.

But if the total income is below the taxable limit, then that person can submit Form 15G and request the bank for not deducting any TDS on the interest income earned during a particular financial year.

What is Form 15H?

Form 15H is a self-declaration made by the senior citizens aged 60 and above to reduce the tax deducted at source (TDS) on the interest income earned during a particular financial year.

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