If you have ever noticed your salary being less than expected, or your FD interest being lower than promised, TDS is likely the reason. Tax Deducted at Source is how the government collects income tax in advance. Here is how it works and how to get your money back if too much was deducted.
What is TDS?
TDS (Tax Deducted at Source) is a mechanism where the payer deducts a percentage of tax before paying you. The deducted amount is deposited with the government on your behalf. It applies to salary, interest income, rent, freelance payments, and more.
Think of it as an advance tax payment - you will adjust it when filing your income tax return.
Who Deducts TDS?
- Employer: Deducts TDS from your salary based on your declared investments
- Bank: Deducts TDS on FD interest exceeding ₹40,000/year (₹50,000 for senior citizens)
- Client/Company: Deducts TDS on freelance/contract payments exceeding ₹30,000
- Tenant: Deducts TDS on rent exceeding ₹50,000/month
- Buyer: Deducts TDS on property purchase above ₹50 lakh
Common TDS Rates
| Income Type | Section | TDS Rate | Threshold |
|---|---|---|---|
| Salary | 192 | As per slab | Basic exemption limit |
| Bank FD interest | 194A | 10% | ₹40,000/year |
| Freelance/professional | 194J | 10% | ₹30,000/year |
| Rent (by individual) | 194-IB | 5% | ₹50,000/month |
| Property sale | 194-IA | 1% | ₹50 lakh |
| Commission | 194H | 5% | ₹15,000/year |
| Lottery/game show | 194B | 30% | ₹10,000 |
If you do not provide your PAN, TDS is deducted at 20% (the higher rate).
📋TDS on Salary - How It Works
Your employer calculates your estimated annual tax based on your salary structure and declared investments (proof submitted in January-February). This annual tax is then divided by 12 and deducted monthly.
- Submit investment declarations early (April) to avoid over-deduction
- Submit actual proofs by January-February
- If you switch jobs mid-year, share Form 12B with the new employer so they account for TDS already deducted
Form 16 - Your TDS Certificate
Form 16 is a certificate issued by your employer showing salary paid and TDS deducted. It is your primary document for filing income tax returns. It has two parts:
- Part A: TDS deducted quarter-wise (auto-generated from government records)
- Part B: Salary breakup, deductions claimed, tax computation
Employers must issue Form 16 by June 15 each year.
Form 26AS - Your Tax Passbook
Form 26AS is a consolidated statement of all TDS deducted against your PAN from all sources - salary, banks, clients, property transactions. You can view it on the income tax portal (incometax.gov.in). Always cross-check Form 26AS with your records before filing ITR.
How to Claim TDS Refund
If more TDS was deducted than your actual tax liability, you get a refund when you file your income tax return:
- File your ITR on incometax.gov.in
- Report all income and deductions accurately
- The system automatically calculates if you are due a refund
- Refund is credited directly to your bank account (linked via PAN)
- Typical processing time: 2-6 months
Form 15G/15H - Avoid TDS on FD
If your total income is below the taxable limit, you can submit Form 15G (under 60) or Form 15H (senior citizens) to your bank to prevent TDS deduction on FD interest.
- Submit at the start of each financial year (April)
- Must be submitted to each bank where you have FDs
- If you do not submit and TDS is deducted, you can still claim a refund when filing ITR
- False declaration can lead to penalties - only submit if your income is genuinely below the taxable limit
TDS for Freelancers
If you work as a freelancer or consultant, clients deduct 10% TDS on payments above ₹30,000/year under Section 194J. Tips for freelancers:
- Always share your PAN with clients - otherwise 20% TDS applies
- Track all TDS deducted using Form 26AS
- Claim business expenses to reduce taxable income
- File ITR-3 or ITR-4 (for presumptive taxation under 44ADA)
- Pay advance tax quarterly if your total tax exceeds ₹10,000/year