TDS (Tax deducted at Source)

Most of us are well versed with the abbreviation TDS, however not many know what it literally means? TDS is Tax deducted at source and was introduced by the income tax department, with an aim to gather tax from the very source of income. Which implies someone (deductor) who is liable to make payment of specified nature to the other person (deductee) shall deduct tax at source and remit the same into the account of the Central Government.

What is TDS?

TDS is a technique of collecting income tax in India as per the provisions of the income tax Act of 1961. The Central Board for Direct Taxes (CBDT) is chargeable for managing it. TDS is applicable on followingsTDS on salary, commission, brokerage, royalty payments, contract payments, interest earned on many monetary investments, earnings from lotteries, rent income and professional fees etc. except that, TDS is collected so as to keep the revenue supply stable for the government. Throughout the year that prevents individuals from evading taxes.

What is the importance of TDS?

Paying a large quantity of tax at one go is not a feasible option for everybody, so TDS allows you to pay your tax on your income as and once you earn it. However, if you are feeling that TDS deduction is an unnecessary burden on the salaried individuals then you will be wrong, because it includes a set of benefits.

Advantages of TDS

TDS is subtracted when you begin earning and depends on the amount you earn. Besides, TDS benefits each the government and also the Taxpayers. Following are the benefits of TDS.

• TDS reduces the probabilities of evasion (avoidance) because the tax is collected at the source.

• It is one amongst the steadiest sources of revenue for the government.

• The collection base is widened as most of the people have to pay TDS in some or the other form.

• It is convenient for the people because the tax gets subtracted automatically.

TDS Calculation

The percentage of tax that is calculated is completely different for every kind of income. Since TDS is collected at the source without the calculation of investment that is eligible for tax deductions, an individual, in that case, has a chance to declare and hand over his proof of investment whereas filing a return and claiming TDS refund. And payments like the commission, salaries, interest payment, fees to lawyers and freelancers are subject to TDS.