⭐ TAX DEDUCTED AT SOURCE (TDS)
TDS stands for Tax Deducted at Source.
It is a method where tax is collected automatically at the point where income is generated.
This means that before paying you, the person or organisation deducts some tax and deposits it directly to the government.
⭐ Why TDS?
TDS is used to:
- Prevent tax evasion
- Ensure regular flow of revenue to the government
- Make tax collection easier and smoother
⭐ Where is TDS Applicable?
TDS is deducted on various types of payments, such as:
- Salary
- Bank interest
- Rent
- Commission
- Professional fees
- Contractor payments
- Purchase/sale of property
- Lottery winnings, etc.
⭐ How TDS Works (Simple Example)
Suppose you earn ₹50,000 as monthly salary and the employer must deduct ₹2,000 as TDS.
You receive:
👉 ₹48,000 (after TDS)
Employer deposits:
👉 ₹2,000 to the government under your PAN.
At the end of the year, you can claim TDS in your Income Tax Return (ITR).
⭐ Benefits of TDS
✔ For Government:
- Continuous tax collection
- Reduced tax evasion
✔ For Taxpayer:
- No huge burden of paying tax at once
- Easy to track taxes already paid
- Helps avoid penalties
⭐ TDS Certificate (Form 16 / Form 16A)
The person who deducts TDS must give you a certificate, proving:
- How much income you received
- How much TDS was deducted
These certificates help you when filing your ITR.
⭐ Difference Between TDS & Income Tax
| TDS | Income Tax |
|---|---|
| Deducted before paying income | Paid after calculating annual income |
| Deducted by employer/ payer | Paid by taxpayer |
| Periodic (monthly/when payment happens) | Annual |