Tax Deducted at Source (TDS)

Why TDS Matters

TDS helps the government maintain steady tax collection throughout the year, reducing the risk of underpayment at the end of the financial year.

For taxpayers, higher thresholds mean fewer deductions. For instance, senior citizens now get TDS-free interest income up to ₹1 lakh, up from ₹50,000 earlier, offering more breathing room. Similarly, the rent TDS threshold has tripled to ₹6 lakh per year, allowing landlords to earn more without automatic deductions.

Challenges of TDS

TDS can result in over-deduction. Even if your total income is below taxable limits, TDS may still apply unless you submit Form 15G or 15H. For example, if your bank deducts 10% TDS on your interest income, but your total income is below the taxable slab, you may end up waiting for a refund.

Thresholds also vary across income types, adding complexity. A single lottery win over ₹10,000 triggers TDS, whereas senior citizens get ₹1 lakh of interest income TDS-free.

There is also a compliance burden. If you are responsible for deducting TDS (like paying freelancers or contractors), delays invite penalties of 1% per month on unpaid TDS amounts.

How to Manage TDS Efficiently

If your total income is below taxable limits (₹3 lakh for seniors), filing Form 15G or 15H can prevent TDS on your interest income.

To avoid breaching thresholds on interest income, you can spread fixed deposits across different banks, keeping the annual interest below ₹50,000 (or ₹1 lakh for seniors) at each bank.

Using Section 80C deductions through tax-saving investments like ₹1.5 lakh in fixed deposits can also help lower your overall tax liability, ensuring better tax efficiency.

Final Thoughts

While TDS keeps tax collection smooth and timely, managing it carefully ensures you’re not paying more than necessary. With the new thresholds from April 2025, reviewing your income sources, submitting the right forms, and spreading out investments can help you keep more of your earnings while staying compliant.