TAX PAYMENT - Know how to track your TDS


D··············· id you know that most of you pay taxes throughout the year? One way of doing is to pay advance tax in September, December and March in case your advance tax liability crosses `10,000 in that particular fiscal year.
The government is not the only entity that collects taxes.
Your employer is among the largest in an army of entities that collects taxes on the gov- ernment's behalf. So, if you are a salaried employee, your em- ployer would deduct taxes throughout the year. If you have invested in bank or com- pany fixed deposits (FDs), your bank and company would de- duct a certain percentage of tax at the time of paying you interest. This proportion of tax is called tax deducted at source, or TDS.

If you are a non-resident In- dian and sell a property, the buyer deducts TDS from the sale consideration and pays you the rest; he pays the TDS to the government. TDS is a mechanism to ensure tax com- pliance. Tax experts say that almost 40% of direct tax collec- tion earned by the government of India comes through TDS.

When you file your income- tax returns, usually 31 July of the next fiscal year, you calcu- late your total tax liability and deduct any amount that you have paid through TDS. What- ever remains is your final tax liability. Let's take a look at how TDS affects you.
If you are a salaried employee Every time you get your monthly salary, your em- ployer deducts TDS and gives you the rest. Though there is a specified TDS rate for income apart from salary, there is an exception with the way it is deducted with respect to sala- ries. Here, TDS gets deducted based on your salary and in- come-tax slab. Say, you earn `8.20 lakh a year. After maxi- mizing your investment under section 80C of up to `1 lakh and getting an additional `20,000 de- duction by investing in infrastructure bonds un- der section 80CCF, your taxable salary comes to `7 lakh. Based on your in- come-tax slab, in this case 20%, your total tax on the salary works out to be `76,220.
This is the TDS that your em- ployer deducts in instalments from your monthly salary.

Tip: Don't forget to submit proof of investment Typically, your employer spreads this TDS throughout the year. If you wish to lower the TDS deducted, you need to submit a declaration of your investments in tax-saving in- struments in that particular fiscal year.

“It's advisable to submit such a declaration towards the beginning of the financial year so that your employer knows your tax-saving plans and de- ducts TDS appropriately,“ says Gautam Nayak, partner at Contractor, Nayak and Kishnadwala, a chartered ac- countant firm. So, for FY11, you should have submitted your declaration, typically, by May and June 2010. You, how- ever, need to submit the proof of such investments towards the end of the fiscal year--by January or February. If you invest in bank and company FDs If you earn at least `10,000 from bank FDs per branch of a bank, your bank will deduct TDS at the rate 10% on the to- tal interest payable annually.
The same limit applies to in- terest earned on government of India (taxable) bonds that give 8% and Senior Citizen's Savings Scheme that gives 9%.
For interest earned on compa- ny FDs, the taxable limit is lower at `5,000.

Since interest on FDs is taxa- ble at your income-tax rates, TDS is a way to ensure that a portion of tax due from you is recovered; the rest you have to settle individually.

Interest on non-convertible debentures held in dematerial- ized form, in other words that are listed on stock exchanges, is exempt from TDS.

This also means that when you file your tax returns, you need to submit details of tax already paid in the tax return.
Such details are provided to you by the deductor in the form of a TDS certificate. For instance, banks are mandated to provide you a TDS certifi- cate. From your total tax liabil- ity, you deduct the TDS al- ready recovered, and pay the rest with your tax returns.

V.N. Kulkarni, chief counsel- lor, Abhay Counselling Cen- tres, Bank of India, and a for- mer banker, says: “One month after the financial year ends, it is the duty of the bank to send the TDS certificate to cus- tomers who ask for it. Banks do not charge for the TDS certificate.

Usually it takes seven working days to get the certificate.“

Bankers are usu- ally busy during the fiscal year ending period, but since you have to file your returns by 31 July, you get enough time to demand the cer- tificate and get it within time.
If your total annual income is not taxable If you fall into this category, you have the option to submit a decla- ration to your bank or company--before they pay you in- terest and thereby deduct TDS--so that they do not de- duct TDS from interest due to you. Called Form 15G (or Form 15H if you are a senior citizen), you need to submit it in case your annual income is below the taxable limit (`1.6 lakh for men, `1.9 lakh for women and `2.4 lakh for senior citizens).

You can download Form 15G or Form 15H from www.in- cometaxindia.gov.in or get your chartered accountant to send you a copy of the form.
Some companies send you a copy of this form, which you just need to fill and send it back to them.

If, however, either your taxa- ble income exceeds the basic exemption limit or the total in- terest earned through all bank deposits cumulatively of one branch/payer is more than the basic exemption limit, you can't submit Form 15G.

Note that if you do forget to submit Form 15G and TDS gets deducted, you are eligible for a tax refund. “Typically, the re- fund comes only after about two years. It's better and more efficient to submit the form and save on TDS,“ says Nayak.

Tip: Have a permanent ac- count number (PAN)

TDS is charged at 10% if you quote your PAN on your in- vestment. Else, the TDS rate is the applicable TDS or 20%, whichever is higher.

Remember this twist: As per the Income-tax Act, you are el- igible for an exemption from TDS provided your tax on esti- mated total income is nil and maximum interest from a bank FD in a single branch is less than the basic exemption limit.

There's a twist though. As- sume you have invested in two FDs in two different bank branches. The first FD is `15 lakh and the second FD is `10 lakh. Both earn an interest of 8%; you earn `1.20 lakh from the first FD and `80,000 in the second. Also assume that you have no other income and you invest, say, `20,000 in a Public Provident Fund (PPF) under section 80C. Your taxable in- come comes down to `1.80 lakh (`2 lakh as bank FD inter- est less `20,000 invested through PPF that is eligible for tax deduction). If you are a male (eligible for a basic ex- emption of `1.60 lakh), your taxable income comes down further to `20,000 and your tax liability according to the 10% tax slab becomes just `2,000.

You may think that you should submit Form 15G for at least one if not both the FDs and claim an exemption from TDS.
In which case, your money in ex- cess of your tax liability of `2,000 is not blocked. Unfortunately, as per the law, you can't submit Form 15G as your estimated tax liability is not “nil“. Your TDS comes to `20,000 (10% on the first FD's interest of `1.20 lakh or `12,000 and 10% on the sec- ond FD's interest of `80,000 or `8,000) and this amount will get deducted. You would then have to file for a refund of `18,000 TDS, which is in excess of your tax liability of `2,000.

kayezad.a@livemint.com