Everything You Need to Know About TDS as a Startup Owner

As a new business owner, one of the most concerning tasks in your to-do list will be to streamline your taxation processes.

However, in contrast to an employee who simply needs to pay income tax on their yearly earnings, being a business owner, you will naturally have a lot more on your plate. All the way from deducting TDS from your employee’s monthly wages to paying your corporate tax on time, there are a lot of individual taxation items which require your attention. However, to keep things light and simple, in today’s blog post, we will just deal with one of the many, that is TDS or tax deducted at source.

Thus without further ado, let’s get started.

What is TDS?

One of the first and most important aspects we need to understand is the actual meaning of the term TDS and its impact on you, as a business establishment. In layman terminology, TDS is the industry acronym for Tax Deducted at Source, which essentially means that a portion of the income is deducted by the payee at the time of the transaction in order to ease the taxation process further along the line.

In India, the government has outlined a mandate wherein all registered organisations, irrespective of the industries they operate in, will need to deduct TDS from an employee’s earned wages once the same exceeds a set threshold, for example, ₹15,000 per month.

The idea behind TDS deduction is to simply ensure that every salaried professional across the country properly files their income tax returns. By deducting TDS right at the time of payment, not only does the employer make the tax filing process easier for the employees but also ensures that they stay compliant with the rules and regulations of both the central as well as state governments.

What Are the Applicable TDS Rates?

Now that you have a clear understanding of what TDS is and why you are required to make the deduction right at the time of paying your employees, the next question in line is, how much TDS should you actually deduct from your employee’s salary?

Similar to income tax slabs which are modified by the government at each year’s budget, the applicable TDS rate also keeps changing and thus, it is advised that you consult with a seasoned accountant before embarking on this.

Additionally, it goes without saying that the applicable TDS rates also largely depends on the nature of the payment as well as its amount. For example, the applicable TDS rate on a payment of ₹25,000 will definitely be lower than the applicable rate on a payment of ₹100,000. Along with this, depending on the professional designation of the receiver that is either a full-time employee or a contractor, the applicable TDS rate will be different.

Thus it is advised that you consult a seasoned accountant who can not only help you arrive at the correct TDS amounts you ought to deduct but ensure that you always maintain holistic compliance.

How to Deduct and File TDS Deductions?

As you might have guessed by now, accurately calculating the applicable TDS deductions followed by ensuring that you deduct and subsequently file the same is a complicated task, to say the least. While there are definitely a number of legacy systems you can leverage to arrive at the end result, most of the time, these are filled with unnecessary complications, which hampers the efficiency of the entire operation.

Thus, you can alternatively make use of cloud-based payroll management systems, which arrive complete with automatic TDS deduction and filing modules. As these solutions are primarily cloud-based, they are mostly up to date with the latest TDS slabs along with a slew of automations, both of which combined empowers you to process your TDS faster.

Once you have subscribed to these systems, all you need to do is accurately categorise each of your payments as either salary or non-salary and the cloud-based payroll management system will automatically take care of the rest. It will not only accurately arrive at the individual deductions you ought to make but also maintain a database of the same, such that you can further simplify your filing in the future.

As per the rules outlined by the government, you will need to file your quarterly TDS earnings under either of these categories.

  • Form 24Q: TDS from salaries
  • Form 26Q: TDS on payments other than salaries
  • Form 27Q: TDS on any sum payable to non-residents

Depending on the categories you have defined earlier, each of these filings will be auto-populated, and all you need to do is transfer the collection to the proper bank account after generating challan 281 online.

TDS Filing Deadline

As of date, the government mandates that startups file their TDS earnings across each of the four quarters and adhere to the government deadlines of the same. Although these dates frequently change, shared below is a standard timeline for reference.

  • Quarter 1: July 15
  • Quarter 2: October 15
  • Quarter 3: January 15
  • Quarter 4: May 15

In Conclusion

As you can understand by now, accurately categorising and calculating the TDS of all the payments you make as a startup is a complicated and time-consuming process, to say the least. Thus, go ahead and leverage a cloud-based payroll management system today which can not only help you streamline your TDS processes but also ensure holistic compliance.

All the best.