Everything You Need to Know About Tax Deducted at Source And Its Importance In India

The Indian government and the Income Tax Department require every individual and entity to pay taxes on eligible transactions. Most tax-eligible transactions are taxed at the hands of the payee, who gets the amount from a payer. In the case of salaried employees, where employees get a monthly salary, they are required to pay taxes on their entire taxable income. However, for a better taxation approach and to avoid tax evasion, the Income Tax Department levies Tax Deducted at Source (TDS), where the payer, such as the employer, deducts the TDS amount based on a specific rate from the employee salary and deposits it with the government.

If you are an earning individual or if you employ others, you may be liable to pay or deduct TDS and deposit it with the government. This blog will help you understand What is TDS and how it is levied.

• TDS (Tax Deducted at Source) is a tax system where tax is deducted at the source of income.
• TDS is deducted by the payer, such as an employer, bank, or any entity making payments to the payee.
• TDS collects tax directly from the income source, ensuring the government pays its share and reducing tax evasion.

Tax Deducted at Source (TDS) is a taxation system implemented by the government of India in which a specific amount is deducted at the point of income generation. This ensures that tax liabilities are met throughout the year rather than at the end of the financial period. The payer is responsible for deducting TDS and must deposit the amount with the government before and periodically before the due date.

Here are income sources on which TDS is deductible:

• Salary
• Interest on bank deposits
• Rent
• Professional Fees
• Commission or Brokerage
• Payments to contractors
• Dividend income
• Purchase of immovable property
• Sale of goods
• Lottery, winnings, and prizes
• Insurance Commission
• Payments to non-residents

As per the income tax laws, the payer who is making the payer is responsible for deducting the TDS amount. The payer, who may be an employer, bank, or any other entity making payments, deducts a certain percentage of the amount as tax before disbursing the remaining sum to the payee (the person receiving the income).

Here are the forms associated with TDS:

Here are the TDS certificates issued against various TDS return forms:

Here are the due dates for submitting TDS forms:

If the payer does not deduct TDS on time, a penalty of 1% per month or part of the month applies from the date the tax was deductible until it is deducted. For late deposit of TDS after deduction, the penalty increases to 1.5% per month until it is paid to the government.

You can visit the official income tax portal and log in using your PAN number to find out the TDS amount deducted from your salary or earnings. From here, download Form 26AS, which contains all the details about the TDS deduction.

A TDS refund occurs when the tax deducted at source exceeds the actual tax liability of an individual or entity. If the total TDS amount deducted throughout the financial year is higher than the tax due based on income, the taxpayer can claim a refund while filing their Income Tax Return (ITR).

TDS is a compulsory tax that the payer deducts from the payment made to individuals and other entities. The Indian government requires the payer to deduct TDS and deposit it before the due date to avoid penalties. Now that you know what is TDS, you can better adhere to tax laws.