What is TDS (Tax Deducted at Source) in Income Tax?
Why is TDS Important?
TDS plays a vital role in the Indian taxation system. It:
Ensures timely collection of tax for the government
Prevents tax evasion by collecting tax in advance
Reduces the burden on taxpayers at the end of the financial year
How Does TDS Work?
When a specified payment such as salary, rent, interest, professional fees, or commission is made, the payer deducts a prescribed percentage of tax before making the payment. This deducted tax is deposited with the government on behalf of the payee.
Example:
If you earn interest on a fixed deposit of ₹10,000 and the applicable TDS rate is 10%, the bank will deduct ₹1,000 as TDS and deposit it with the government. You will receive ₹9,000, and the deducted ₹1,000 will be reflected in your Form 26AS.
Key Points about TDS:
TDS rates vary depending on the nature of payment and the taxpayer’s status.
If excess TDS is deducted, taxpayers can claim a refund while filing their Income Tax Return (ITR).
PAN or Aadhaar must be provided to avoid higher TDS deduction.
Forms like 15G/15H can be submitted to prevent TDS deduction in certain cases.
Always cross-check TDS deductions through Form 26AS or the Annual Information Statement (AIS) before filing ITR.
Conclusion:
TDS is not only a compliance requirement but also a mechanism that helps taxpayers distribute their tax liability evenly throughout the year. Understanding TDS is essential for better tax planning, avoiding penalties, and ensuring smooth ITR filing.
👉 For a detailed explanation, watch my video .