What is TDS? Full Form, Meaning, Deduction Limits & How to Claim a Refund

TDS (Tax Deducted at Source) is a tax collected by the government when income is paid, like salary or interest. The payer deducts it before payment and deposits it with the government.

Even in my 40s, I still panic when I misplace a ₹500 note I clearly remember keeping in the morning. So, it was no surprise when 19-year-old Rohan freaked out after receiving only ₹47,500. The thing is, he was promised ₹50,000 for his freelance project. No, it is not a scam, it’s TDS, baby!

Here’s how Rohan’s payment looked:
 

This is just a glimpse of how TDS (Tax Deducted at Source) works. For many teenagers, and even adults, it still feels like a confusing and mysterious section of tax. But not anymore! In this blog, we’ll explain how TDS works and find out if you can claim it back. ‘Toh chaliye shuru karte hain!’

TDS Ki Kahani, Humari Zubani!

TDS stands for Tax Deducted at Source. Just like it sounds, it’s a tax that gets cut right at the source of your income. The government tells whoever is paying you (like your employer or bank), “₹50 overacting ke kaat!”

Okay, let’s stop joking and get a bit serious. If someone owes you money (like salary or interest), they deduct tax before giving you the rest. Then they deposit that deducted tax directly to the Income Tax Department in your name. 

When you file your ITR, you can see all these TDS amounts already paid.

For example, you are earning ₹50,000 interest from a fixed deposit. The bank will cut 10% TDS = ₹5,000 and credit ₹45,000 to you.
That ₹5,000 goes to the tax department. When you file your return, you can adjust it, either as paid tax or even get a refund if your total tax is lower.
 

When & How Much TDS Is Cut?

TDS is not deducted on every payment. It only applies if the amount goes over a set limit. These limits depend on what kind of payment it is: salary, rent, fees, etc. 

Let’s look at the key limits and rates as per the income tax rules.
 

So yes, TDS limits aren’t the same across all payments. They differ by type, frequency, and tax section. Always match your transaction to the right section before deducting.

For example, Ritika rents a commercial office space in Delhi and pays ₹60,000 per month to the landlord. Since the rent exceeds ₹50,000 per month, she must deduct 10% TDS under Section 194I.
 

Ritika will deposit this ₹72,000 with the Income Tax Department on behalf of the landlord and issue them a TDS certificate (Form 16A).

What are TDS Forms & Certificates?

If you're the one deducting or collecting TDS, you must have a TAN (Tax Deduction and Collection Account Number). It’s a 10-character unique ID issued by the Income Tax Department.

You need to quote TAN in all TDS-related paperwork. From tax returns, challans, to certificates, to ensure the tax credit is applied correctly. Without it, TDS filing isn’t allowed.

Once tax is deducted, the deductor must issue a certificate to the payee as proof. A TDS certificate is proof that tax was deducted from your income and deposited with the government.

Here are the two common TDS certificates:

Remember, neither form can be downloaded by the payee. Only the deductor can generate them via the TRACES portal. If you don’t receive yours, you can check your Form 26AS for TDS entries. 

How to Claim a TDS Refund?

Let’s say someone deducted more TDS (Tax Deducted at Source) from your payment than necessary. You can get this extra money back from the Income Tax Department. Here’s how you can claim your refund:

Step 1: Collect all your TDS papers

Before you do anything, keep these documents ready:

• Form 16 (if you get a salary): given by your employer
   
• Form 16A (if you earn other income like rent, interest, or commission): given by whoever paid you
   
• Form 26AS: shows how much TDS has been deducted in your PAN. You can download Form 26AS from https://www.incometax.gov.in

Step 2: File your ITR (Income Tax Return)

In this step, you need to file your return online. Don’t worry, it’s not hard. Here’s what you do:

1. Go to https://www.incometax.gov.in
    
2. Register using your PAN if you’re a first-time user. 
    
3. Fill in and verify your details. 
    
4. In the fourth step of registration, secure your account.
    
5. Log in using your PAN and password
    
6. Select "e-File" > "Income Tax Return"
    
7. Choose the correct year (e.g., 2024-25 for income earned between April 2024 and March 2025)
    
8. Fill in your details: name, address, income, TDS deducted (this is where you match with Form 26AS)
    
9. At the end, the site will calculate your total tax
   • If you paid more TDS than you should’ve, it will show a refund amount
      
10. Submit the form online
     
11. E-verify using Aadhaar OTP or net banking

Once submitted and verified, your refund will be processed. It usually comes to your bank account within a few weeks.

Step 3: Use Form 15G or 15H (to stop TDS in future)

If your income is below the tax limit, no TDS should be deducted at all. You can prevent future TDS by giving a simple form to the person or bank paying you:

• Form 15G: for people below 60 years
   
• Form 15H: for people 60 years and older (senior citizens)
   

You give this form to your bank or company at the beginning of the financial year. It tells them:

"My income is below the tax limit, so please don’t deduct any TDS."

You can download the form from your bank's website or ask for it in person.

Here is the summary of all three 3 steps:
 

For Example, Ramesh earns ₹2.5 lakhs in a year from interest. His bank deducted ₹5,000 as TDS. But Ramesh’s income is below the tax limit. So:
 

1. He files ITR with Form 16A and 26AS
    
2. It shows ₹5,000 extra paid
    
3. The govt refunds ₹5,000 to his bank account
    
4. Next year, he gives Form 15G to the bank to stop TDS upfront

‘Dekha, it is so easy. Befaltu mein ghabra rahe the!’

Conclusion

TDS helps the government collect tax early, but if too much is deducted, you can easily claim it back. You just need the right knowledge and the right forms. With Form 16, 26AS, and ITR, you can track, file, and receive refunds without hassle.

Frequently Asked Questions
 

Is TDS applicable to cash withdrawals?
Yes, if you withdraw more than ₹1 crore in a year from your bank account, TDS at 2% is deducted.
 

Can TDS be deducted on advance payments?
Yes, TDS applies even if you pay in advance for services or contracts, once the threshold limit is crossed.
 

What happens if TDS is not deducted?
The payer may be charged interest and, penalty, and may not be allowed to claim the related expense in tax filings.
 

Is TDS applicable to freelancers and influencers?
Yes, if their earnings cross ₹30,000 under Section 194J or ₹15,000 under Section 194M in a financial year.
 

Can TDS be deducted without a PAN?
Yes, but the rate will be higher (for example, 20%) if the person receiving the payment doesn’t provide their PAN details.

Apply for Loans Fast and Hassle-Free

Apply Now

About the Author

LoansJagat Team

We are a team of writers, editors, and proofreaders with 15+ years of experience in the finance field. We are your personal finance gurus! But, we will explain everything in simplified language. Our aim is to make personal and business finance easier for you. While we help you upgrade your financial knowledge, why don't you read some of our blogs?