|Area of Investment||Exempt upto (Rs)||TDS Rate|
|Salary||Threshold (2.5 lakh)||As per tax bracket|
|Lottery/ Horse race||10,000/ 5,000||30%|
|Property Rental||1.80 lakh||10%|
|Property sale||20 lakh (non-urban), Rs 50 lakh (urban)||1%|
|Gold/ Bullion purchase||2 lakh (cash)||1%|
|Payments from NSS deposits||2,500||20%|
Bank account holder S Ramesh was anticipating a bank credit of Rs 2.51 lakh from his recurring deposit. As soon as he received the SMS he had been planning how he can clear his liabilities. The short fall of Rs 1.40 lakh to clear his personal loan would be bridged once his fixed deposit (FD) matured in few days.
But to his surprise he received only Rs 1.38 lakh once the FD matured. Upon enquiring the bank told him that Rs 1,400 had been deducted as tax. He argued with the staff that no tax was cut when the recurring deposit matured, but 10% tax was cut on the FD maturity.
It took an extensive explanation by the bank manager to convince Ramesh that the bank staff hadn’t made a mistake. The difference was due to tax laws that advocate differing rates for tax deduction at source (TDS).
TDS is nothing but tax that is cut even before you see or accumulate the money. Interest earned on FDs is subject to TDS of 10% once it crosses Rs 10,000, while there is no TDS deducted on recurring deposits.
TDS is not just applicable to investments, but other earnings such as lotteries, gold or property purchase, rents received and the likes. This is the taxman’s way to curb tax evasion and keep a tab on high value transactions. The tax deduction rate applicable to each earning is different and tax is not levied on the entire sum received. It is only after the earning crosses a certain limit that TDS is deducted to ensure senior citizens and small time investments aren’t burdened.
It is imperative to know what percentage of your money would be shaved off to help you calculate your cashflow.
Have you been happy that no tax was deducted from your salary this year, while your boss had been lamenting about high tax outgo. Well, as you climb the ladder you would be complaining too because TDS is deducted before salary payment only if the taxable income is above the threshold (Rs 2.5 lakh in FY 2014-15). Tax saving investments and other deductions are taken into account before deducting your TDS from salary income.
The highest tax is applicable to money won as lottery, in puzzle competitions or horse races. No wonder why someone who wins Rs 5 crore in the popular TV show “Kaun Banega Crorepati” would take home only Rs 3.5 crore as the amount would be taxed at 30%.
But what if the winner gets a car or a refrigerator? The tax provisions say that cash as well as non-cash winnings attract TDS and hence non-cash winners would have to pay taxes from their own pockets.
There are two rules with respect to superannuation benefits handed over. When the amount is handed over upon death of the individual then no taxes are deducted at source. But if the funds are doled out upon retirement then tax deduction as per salary would be applicable.
To restrict flow of black money toward gold purchases all cash payments made to the jeweller above Rs 2 lakh would require you to cough up 1% as taxes. All those who purchase gold, silver above Rs 2 lakh would have to pay this tax upfront.
Highest exemption limit is enjoyed by property rentals. If you receive a rent above Rs 15,000 a month, which translates to Rs 1.8 lakh a year, then your money would be credited after slicing off 10% as TDS. However, the deposits paid during the rental agreement aren’t taken into account.
Also, if two owners share the property then the limit of Rs 1.8 lakh can be considered individually for both.
How to escape TDS
Banks provide a facility where one can sign the Form 15G/ H post which no TDS is deducted. But one should exercise caution and avoid submitting the form if you have taxable income, else you may be penalized.
Mutual Fund redemptions by Non-resident Indians come under the TDS net. But a lower rate of tax is applicable to NRIs residing in countries where India has double taxation avoidance agreement. One would need a certificate from the assessing officer to claim a lower rate of TDS.
Avoid mistakes with respect to your permanent account number as all entities would deduct a higher tax of 20% if incorrect PAN is mentioned or it isn’t registered at all.
But once taxes have been deducted at source, doesn’t mean your entire tax liability is taken care of. You would have to calculate the actual tax payable based on your tax bracket and then deduct the taxes already cut at source. The balance tax would have to be paid.
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