The Indian taxation regime for long has been a complex structure. A number of modalities form part of this system ranging from the myriad Indian Revenue services to the more individual forms of accounting government proceeds. Amongst all the different institutions working in this field and the various tax forms available with the transacting parties, TDS is one type which predominantly stands out. The whole affair of accounting credit and forming the government’s portion in a transaction, is what the TDS process systematically individualizes. The particular form of tax is a type of the ‘direct’ form of revenue for the country rather than the more prevalent indirect form. The direct form requires the assessed to himself deposit the tax, notwithstanding the indirect system where the government eventually acquires their portion, through a number of agreements and parties. The whole process of collecting and filing TDS is prima facie confusing and exalting. Accordingly, this feature, in order to simplify this exiguous type of revenue collection, analyzes the various facets in the process of filing it and more importantly provides the mechanisms available to claim refunds.
THE TDS SYSTEM- AN OVERVIEW
TDS stands for Tax Deducted at Source, which as the name suggests means the amount paid as tariffs at the initial stages of a transaction. It is a portion of the revenue reduced from the agreement and made out to the government, generally by the person making such payments. It is a form of an advanced tax paid by the hiring party to the government, and in many cases acts as a replacement for the revenue paid after the actual receipt of income i.e., a replacement for what’s otherwise known as income tax. It is essentially a tool used by the government to check and control tax evasion by collecting the revenue from parties right when the transaction is made, instead of asking for returns at a later period. The system of taxation is applicable on various types of commerce and business transactions. A few more defined heads are as such- Salary payments, interest handouts, consultation payments, rent, commission etc., The TDS provisions may seem predominantly extensive; however, it’s not appliable on all undertakings and has different percentage requirements or revenue cuts for different types of agreements. The same amount of TDS will not be asked on a rent payment as the amount asked on a dividend received from a stock investment. The government has a different set of percentages as defined in the income tax act, and qualifies these, via factors such as the type of transaction, the category of recipients etc., Moreover, the government can even establish differing rules for TDS payments depending on the nationality or the residence of the involved parties. For instance, a redemption amount on a mutual fund payout does not entail a TDS cut for Indian residents; however, NRIs or Non-resident Indians are required to pay a tax percentage on such an investment.
The TDS payments are also only applicable once the threshold limit is crossed; no advanced tax is collected if the value of the payment for a specific agreement does not cross the minimum bar. For Instance, a citizen over the age of sixty is not required to pay TDS on a fixed deposit with a total holdings of less than fifty thousand. The TDS procedure allows mechanisms for the one making the payments to be able to cross-check with the revenue department and ensure that the amounts deposited by him are accordingly recorded via form 26AS of the Income Tax Department website. (TRACES)
Nevertheless, the more helpful aspect of any feature on tax regulations is the one which provides a way to avoid such payments, and if already paid, then a way to collect refunds. The next section of this feature essentially deals with these functions.
THE REIMBURSEMENT PROCEDURE
Tax Deducted at Source, as discussed above, is an amount calculated on the basis of the projected returns of an Individual throughout a fiscal year. For instance, an amount is deducted by an employer from his employee’s salary based on the projections that the employee presents about his earnings in the following year. It is a provision of the Income Tax act, is regulated by the Central Board of Direct Taxes, and is held applicable on entities which qualify the minimum threshold requirements for an audit.
The situation for a refund arises when an entity makes a projection at the start of the year for his expected income to be X, but at the end of the fourth financial quarter his income differs and comes out as Y, which is less than the projected amount; hence, allowing the said person to claim a refund on the TDS he had paid on the basis of the excess amount. Essentially if an Individual were to pay sixty thousand in TDS amounts at the start of the year; expecting to earn an amount which necessitates such a tax reduction in the upcoming period but actually earns an amount less than his calculations, then he may file for a return on his TDS payments. The above-mentioned situation is a very conventional turn of events where the Income Tax department regularly gives out refunds.
The process involved in claiming a refund seems prima facie challenging; however, a comprehensive overview of the same very easily solves the many descriptive irregularities. Moreover, for a TDS amount to be refunded the process takes close to three to six months until a credit notification pops up from your bank. Nevertheless, the whole procedure is best laid out in three ways:
1. Employer deducts an excessive amount
If your employer cuts an amount more than what your actual tax payables should be, then you may file a refund claim. The Income-tax department essentially calculates your income and cross-checks the taxes according to the projected rates and then stipulates whether you qualify for a return or not. The process requires you to submit your bank details, IFSC code and name so that if a deductible amount is eventually found, then it can straight away be transferred to your account.
2. Excessive TDS amounts from Fixed Deposits (non-senior citizens)
If the returns from your fixed deposits do not fall under taxable clauses, but your bank is still filing taxes on your interest payouts, then there are two ways in which you may proceed to claim a refund. The simple way will be to declare the interests in your income tax amounts which the ITR department, upon cross-checking, will allot back to you.
The more complex way is to file form 15G which essentially tells your bank that your income does not fall under a tax bracket and the amounts already cut must be refunded.
Nonetheless, for you to be able to claim a tax exemption on your FDs the total return must be below the taxable threshold.
3. Excessive TDS amounts from Fixed Deposits (senior citizens)
The returns for senior citizens or individuals above the age of sixty are understood to be non-taxable, hence if your bank is taxing you for your returns on an FD and you qualify a senior citizen then its advisable for you to file a form termed 15H, and stipulate that your taxed amounts are returned and no future interests are taxed.
The feature aims to give a brief overview of how the TDS system works, what are the various steps involved in the process and the systematized way to claim refunds. It doesn’t necessarily talk about a uniform method to access tax deductions, because there doesn’t really exist one; however, it gives differentiated ways to pursuit reimbursements in a generic number of situations. The tax world and the modalities surrounding it are no doubt incredibly extensive; however, this particular piece tries to simplify the generally exalting aspects of TDS and give more specific solutions for refunds.
This article has been written by Sri Hari Mangalam, 2nd Year BA LLB student at The West Bengal National University of Juridical Sciences.