As the deadline to file income tax return on July 31 comes closer, tax payers are advised to file their returns on time so that they don’t have to pay any fine for the dues later on. And merely because you have already paid tax deducted at source (TDS), it does not mean that you do not need to file an income tax (I-T) return.
TDS is deducted on the salary of employees when their income is more than the exemption limit. Banks are also supposed to deduct 10 percent TDS on interest when it exceeds ₹40,000. Tenants are meant to deduct TDS when rent amounts to more than ₹2.4 lakh per annum.
On the other hand, income tax is the tax liability that accrues on the total income during the year. The payment of TDS doesn't absolve you from the responsibility of filing income tax returns.
So, tax return is a statement where you declare all the income earned during the year and assess the tax liability on it and ensure that it is paid to the income tax authority.
“Even if TDS has already been deducted on your income during the year by your employer or bank, it doesn’t mean you don’t have to file the tax return. Your total tax liability could be lower or more than the total tax deducted at source. Also, one could have other sources of income, or perhaps the tax payer has made more investments than declared earlier, making them eligible for further deductions and hence lower tax liability,” explains Deepak Aggarwal, a Delhi-based chartered accountant and financial advisor.
When TDS needs to be reconciled to total tax liability:
1. Tax is higher: When income tax liability is more than the TDS paid, then you need to pay the difference. This can happen for a number of reasons.
For instance, you fall under a higher tax slab than the rate at which the TDS is deducted. When a taxpayer falls under 30 percent tax slab, he would have to pay the remaining tax liability over and above of the 10 percent TDS that was deducted during the year.
2. Tax is lower: When the tax liability is lower than the TDS paid then you need to apply for a refund. This could happen for a number of reasons.
For instance, TDS was deducted without factoring in all the investments you made that were eligible for deductions. In such a case, when you calculate the tax liability at the time of filing of return, it could turn out to be lower than the tax already paid via TDS.
Also, even when the tax liability is same as the TDS paid, t you are supposed to file the return to make this a part of your record.