Tax deducted at source (TDS) is the process of charging and collecting tax at the source of income. The TDS rate depends on several factors.
One such factor is the nature of income. For instance, there are different TDS rates for salary income, and incomes from interest earned on deposits and investments, commission, rent, brokerage, professional fees, royalty, and so on.
TDS rates also differ based on whether or not the recipient of the income has furnished the permanent account number (PAN) to the deductor. If PAN has not been provided, TDS can be charged at the rate of 20% or higher.
Residential status of the income recipient—resident individual or a non-resident individual (NRI)—can also affect the TDS rate. For instance, when an NRI sells a property held for more than two years, the buyer is liable to deduct TDS at the rate of 20%; if the property was held for less than two years, a TDS of 30% is applicable. But if the seller is an Indian resident, TDS is charged at the rate of 1% on the total value, and that too, if the property value is more than ₹50 lakh.
However, the recipient of the income can make a declaration to avoid paying unnecessary TDS, if he or she falls in the lower tax bracket. Once TDS is deducted, it is the liability of the deductor to remit the collected tax into the government’s account within the stipulated time.