How is TDS Calculated? A Step-by-Step Guide to TDS Calculation

Learn how to calculate TDS with our step-by-step guide. Understand rates, deductions, and compliance with tax regulations.

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TDS Calculation: 1) Determine the Nature of Payment: Identify if TDS is applicable. 2) Check the TDS Rate: Refer to the latest tax regulations for the applicable TDS rate. 3) Calculate TDS: Multiply the payment amount by the TDS rate. For instance, if the payment is ₹10,000 and TDS rate is 10%, TDS is ₹1,000. 4) Deduct TDS from Payment: Subtract the TDS from the payable amount and deposit it to the government using the correct form within the stipulated time.

FAQs & Answers

  1. What is TDS? TDS stands for Tax Deducted at Source. It is a tax collected at the source of income, where the payer deducts the tax before making a payment to the recipient, ensuring timely tax collection for the government.
  2. Who is responsible for deducting TDS? The responsibility to deduct TDS lies with the person or entity making the payment. This includes employers deducting TDS from salaries, businesses deducting from contractor payments, and financial institutions deducting from interest payments.
  3. What forms are used to deposit TDS? TDS can be deposited using Form 281 for quarterly returns and must be paid through the designated modes as specified by tax authorities. It's crucial to deposit TDS on time to avoid penalties.
  4. What happens if TDS is not deposited on time? If TDS is not deposited on time, the deductor may face penalties, including interest on late payment and potential legal actions. Timely payment helps maintain compliance with tax regulations.

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