The full form of TDS is Tax Deducted at Source.
TDS is essentially income tax that is deducted from payments at the time they are made. This means that instead of paying the entire income tax liability at the end of the financial year, a portion is deducted and deposited with the government regularly. The entity making the payment (the deductor) deducts the tax and deposits it on behalf of the recipient of the payment (the deductee).
Here's a breakdown of the concept:
- Tax Deductor: The person or entity responsible for deducting TDS (e.g., an employer deducting TDS from an employee's salary).
- Tax Deductee: The person or entity from whose payments the TDS is deducted (e.g., an employee whose salary is subject to TDS).
- Applicability: TDS applies to various types of income, including salaries, interest, rent, commission, and professional fees.
- Rates: The TDS rates are specified by the Income Tax Department and vary depending on the nature of the payment.
- Deposit: The deducted tax must be deposited with the government within the prescribed time limits.
- Form 26AS: A statement reflecting all TDS deductions for a taxpayer, available on the Income Tax Department website. It can be used to verify your TDS credits when filing Income Tax Returns.
In essence, TDS is a mechanism to ensure regular tax collection throughout the year, rather than waiting for the end of the financial year. It also helps prevent tax evasion.
