If you earn income in India, you have likely heard about TDS in income tax. TDS stands for Tax Deducted at Source, a system where the payer deducts a certain percentage of tax before making a payment. The government introduced TDS to collect tax at the source of income, making tax collection smoother and reducing the chances of evasion.
How TDS in Income Tax Works
When you receive payments such as salary, interest, commission, rent, or professional fees, the payer deducts TDS at a prescribed rate. For example, if your annual bank interest is ₹50,000 and the TDS rate is 10%, the bank will deduct ₹5,000 before crediting the remaining ₹45,000 to your account. The deducted amount is then deposited with the government under your PAN.
When TDS is Applicable
TDS in income tax applies to various types of payments, including:
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Salaries paid by employers
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Interest earned on bank deposits
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Rent for property exceeding certain limits
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Professional or technical service fees
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Payments to contractors
Each type of payment has a different TDS rate, as specified in the Income Tax Act.
Difference Between TDS and TCS
While TDS and TCS are both methods of tax collection, the key difference is who deducts or collects the tax. In TDS, the person making the payment deducts the tax, while in TCS, the seller collects the tax from the buyer.
How to Claim TDS Credit
You can view the TDS deducted against your PAN in Form 26AS or the Annual Information Statement (AIS). When filing your income tax return, you can claim this TDS as a credit, reducing your overall tax payable.
Income Tax Return – File here
Conclusion
Understanding what TDS in income tax means is essential for every taxpayer. By knowing the rules, rates, and applicability, you can ensure compliance, avoid penalties, and manage your tax payments effectively.