In India, the government collects income tax in multiple ways to ensure smooth revenue flow. One important method is TDS (Tax Deducted at Source). Under this system, tax is deducted from income at the time of earning or payment, not at the end of the year. This mechanism reduces the risk of tax evasion and spreads the tax burden across the year.
Meaning of TDS 🔍
TDS is simple to understand:
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The payer deducts tax before making the payment.
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The deducted amount goes directly to the government.
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The recipient receives the net income and later adjusts TDS while filing their Income Tax Return (ITR).
👉 Example: If a consultant charges ₹50,000 and the applicable TDS is 10%, the payer deducts ₹5,000 as TDS. The consultant gets ₹45,000, while ₹5,000 goes to the government as advance tax.
Payments Covered Under TDS 📑
TDS applies to several categories of payments. Here are some key ones:
| Nature of Payment | Section | TDS Rate (%) |
|---|---|---|
| Salary 👨💼 | 192 | As per income tax slab |
| Interest on securities | 193 | 10% |
| Dividend | 194 | 10% |
| Rent of land/building | 194I | 10% |
| Professional/technical fees 💼 | 194J | 10% |
| Payment to contractors 🛠️ | 194C | 1% (individual/HUF), 2% (others) |
| Commission or brokerage | 194H | 5% |
👉 If the payee does not provide PAN, a higher TDS rate applies.
TDS vs TCS ⚖️
Many taxpayers confuse TDS with TCS (Tax Collected at Source). Although both involve advance tax collection, the difference is clear:
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TDS → Deducted by the payer before making payment.
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TCS → Collected by the seller at the time of sale.
Duties of a Deductor 🧾
If you are responsible for deducting TDS, you must:
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Deduct tax at the prescribed rate.
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Deposit it with the government before the due date.
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File quarterly TDS returns (Forms 24Q, 26Q, etc.).
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Provide TDS certificates (Form 16/16A) to recipients.
👉 Non-compliance attracts interest, penalties, and disallowance of expenses.
Conclusion ✅
TDS in Income Tax ensures that tax gets collected in advance at the time of payment. It covers salary, professional fees, rent, interest, and many other categories. For taxpayers, it reduces last-minute tax burden, while for the government, it guarantees steady revenue and minimizes tax evasion.