What is TDS deduction: Meaning, Applicability & Refund Process

Key Takeaways:

• TDS (Tax Deducted at Source) is collected before the income reaches you, like salary, rent, interest, or fees, ensuring early tax compliance.
   
• TDS rates and rules differ by payment type (salary, property, consulting, etc.) and are governed by sections like 192, 194A, 194J, and 194IA.
   
• If excess TDS is deducted (due to exemptions or low income), you can claim a refund by filing your ITR and verifying it on time.
   
• TDS certificates like Form 16, 16A, or 16B act as proof of tax already paid, and are essential during tax filing.
   
• Refund delays are usually due to wrong bank details or unverified returns, always track status via the Income Tax Portal or NSDL TIN.
   

BONUS: FOR SENIOR CITIZENS AND LOW-INCOME EARNERS, SUBMITTING FORM 15G/15H TO BANKS IN ADVANCE CAN HELP PREVENT UNWANTED TDS DEDUCTIONS ENTIRELY, SAVING TIME AND PAPERWORK LATER.

TDS, or Tax Deducted at Source, is a system where tax is collected at the source. It helps the government receive steady revenue and reduces tax evasion.

Let’s take the story of Rajeev Mehra, a 32-year-old salaried professional from Pune. In FY 2024-25, Rajeev earns ₹10 lakh per year. His employer deducts TDS monthly from his salary before paying him. Around ₹10,000 gets deducted monthly as TDS, totalling ₹1.2 lakh annually. 

But Rajeev had investments under Section 80C and health insurance deductions under 80D that brought his taxable income much lower. When he filed his ITR, the system showed he had overpaid through TDS. He e-verified his return, and in 25 days, ₹35,000 was credited back to his bank account as a refund. 

In this blog, you will learn everything about TDS, what it is, when it applies, how it is deducted, refund rules, and tracking processes.

What is TDS Deduction?

TDS is governed by the Income Tax Act, 1961. It applies when specified payments are made, such as salaries, interest, rent, commission, and fees. It helps the government collect taxes in advance and ensures traceability.

Example: Pooja Nair, a freelancer from Bengaluru, received ₹80,000 from a fintech platform for her services. The platform deducted 10% TDS, i.e., ₹8,000, before paying her ₹72,000. This was recorded in Form 26AS under her PAN.

Types of TDS with Applicable Sections

The table below explains the major types of TDS, their applicable sections under the Income Tax Act, and the limits where TDS becomes mandatory: 

Knowing which section applies to which payment type helps you deduct or receive TDS correctly and stay compliant with tax rules.

Applicability of TDS:

TDS applies when payments exceed a specific limit. It’s deducted by the payer (called the deductor) and deposited with the Income Tax Department. The payee (deductee) receives the remaining amount after deduction.

Example: Arjun Desai, who recently sold a house worth ₹85 lakh in Ahmedabad, received ₹84.15 lakh in his bank after 1% TDS (₹85,000) was deducted by the buyer and paid to the IT department under Section 194IA.

Common Scenarios of TDS Applicability

This table shows real-world situations where TDS is commonly deducted, who deducts it, the applicable rate, and the certificate issued: 

Understanding these TDS scenarios helps both payers and receivers track deductions correctly and use the right forms during tax filing.

TDS Refund Process

When TDS exceeds your actual tax liability, due to deductions, exemptions or nil total income, you can claim a refund. This is done by filing your Income Tax Return (ITR) on time.

Example: Fatima Sheikh, a retired teacher from Lucknow, earns ₹3.2 lakh yearly from bank interest. Even though her income is below the taxable limit, the bank deducts ₹32,000 TDS under Section 194A. On filing ITR-1, she claimed the excess amount and got a refund within 30 days.

TDS Refund Process Steps:

The steps below explain how to claim and receive a TDS refund using the Income Tax portal and other digital tools:
 

By following these steps on time, taxpayers can ensure a smooth and quick refund process without delays or errors.

How to Track TDS Refund?

The status can be tracked through the Income Tax e-filing portal or via NSDL’s TIN refund site.

Example: Ritika Sharma, a UX designer working with a fintech startup, used the NSDL site to check refund status after filing ITR. She found the refund was processed but had failed due to an incorrect IFSC code. She corrected it and received the credit in 10 days.

Tracking Options and Troubleshooting

The table below shows where and how you can track your TDS refund status, along with common issues and their solutions:

Tracking your refund regularly helps spot problems early, so you can fix them quickly and avoid long delays in receiving your money.

Difference Between TDS, Advance Tax, and Self-Assessment Tax:

All three are ways of paying income tax to the government, but they work at different stages.
 

TDS is automatic, advance tax is paid as you go, and self-assessment tax fills any final gaps before filing your return.

Conclusion

TDS is not a problem. It helps make tax payments easier. People like Rajeev, who have a job, and Fatima, who is a retired teacher, both deal with TDS. If you know when TDS is taken and how to get it back, you can manage your money better. You don’t have to worry during tax season.

As Amitabh Bachchan said in Anand, “Babu Moshai, zindagi badi honi chahiye, lambi nahi.” And when your tax refund comes on time, life does feel a bit better and lighter.

FAQs

Q1. Can I claim a TDS refund if the deductor didn’t deposit it with the Income Tax Department?
You can’t claim the refund until the deductor actually deposits the TDS. However, if it’s shown in your payslip/invoice but not reflected in Form 26AS, you should contact the deductor and raise a grievance.

Q2. What if I’m a freelancer working with international clients, does TDS still apply?
If you're paid directly by foreign clients, TDS doesn't apply. But if the payments are routed through Indian platforms or aggregators, TDS may apply under Section 194J or 194O.

Q3. How does TDS apply in property purchases made jointly?
When buying property jointly, TDS under Section 194IA is divided in proportion to ownership. Each buyer must deduct and deposit 1% TDS separately if the property value exceeds ₹50,00,000.

Q4. I received a gift voucher from a fintech platform, will TDS be deducted?
If the voucher is worth more than ₹20,000 and part of a business or promotional payment, TDS under Section 194R may apply, even if it’s not in cash.

Q5. What if I received TDS certificates late or not at all from the deductor?
You can still file your return using Form 26AS and match entries. If a certificate is missing but the tax appears in Form 26AS, it’s valid proof. If not, contact the deductor immediately.