What is Tax Deducted at Source (TDS)?

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All About TDS

One of the popular words we hear in the income tax returns is TDS. TDS stands for tax deducted at source. What does it exactly mean? Here, we help you understand the concept and reason behind TDS. According to the Income Tax Act, any person or company making a payment is required to deduct tax when the payment exceeds the prescribed limits. These payments can be in form of salary, commission, professional fees, interest etc. The person/company making the payments needs to deduct tax before releasing it. This tax deducted is forwarded in the account of Central Government. Let’s understand it with the help of an example.

TDS Example
For example, there’s a company ABC Ltd which hires the professional services of Mr. Shyam, a website developer and he charges Rs. 80000 for his services.  Now, if the TDS rate is 10%, then the company will deduct tax 10% of Rs. 80000 and will make total payment of Rs. 72000 (Rs. 80000 – Rs. 8000) to Mr. Shyam. The Rs. 8000 deducted by ABC Ltd. will be credited directly to Central Government.

TDS


TDS Deductions
TDS is deducted in these types of payments:
  • Salary
  • Interest earned by bank deposits
  • Commission earned
  • Rent received
  • Income from winning lottery, puzzles etc.
  • Insurance commission
  • Income from winning horse races
  • Fees earned
Is TDS an Advance Tax?
Yes, a type of. TDS deducted is directly linked to the PAN of the deductor and deductee. The TDS deducted can be claimed in form of the tax return at the time of filing Income Tax Return.

What is TDS Return?
The deductor files TDS return, a quarterly statement given to IT department. The details include PAN of deductor and deductee, amount of tax paid to the government and TDS challan information.

What are the various TDS Return Forms?
  • Form 24Q: TDS on Salary
  • Form 26QB: TDS on payment for transfer of immovable property
  • Form 27Q: TDS where deductee is non-resident or foreign company
  • Form 26Q: TDS in any other case
How is TDS Linked to PAN?
TDS deductions are linked to PAN for both the deductor and deductee. If TDS is deducted from any of your income, you must consider Form 26AS. It is a consolidated tax statement and lists out the details of TDS deducted from your income for all kinds of payments made to you. Form 26AS also lists the income tax directly paid by you in form of advance tax or self assessment tax.
We are sure you have plenty of more questions in your mind. Feel free to ask them in the comments section below.

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