Tax Deducted at Source (TDS)
Tax Deducted at Source (TDS)
Tax Deducted at Source (TDS) is employed by the Indian government to collect tax directly from your income at the generation source. It essentially acts as an advance payment towards your final tax liability.
The Logic Behind TDS
The primary objective of TDS is to streamline tax collection and curb tax evasion. By collecting taxes throughout the year, the government ensures a regular flow of tax revenue. It minimizes the possibility of individuals collecting significant tax dues at the end of the financial year. This method also simplifies the tax filing process for individuals.
How Does TDS Work?
TDS applies to different income sources, including salary, interest on investments like fixed deposits, rental income, and payments for professional services. The deductor, the entity responsible for paying the income, withholds a specific percentage of the payment as TDS. This deducted amount is then deposited to the Income Tax Department on the taxpayer's behalf.
TDS Rates and Thresholds
The applicable TDS rate depends on the type of income and the taxpayer's tax residency status. The Income Tax Act prescribes specific sections that govern TDS rates for different income categories. For instance, your investment declarations and tax bracket determine TDS on salary income. There are also thresholds for income types. For example, TDS is not applicable on interest earned from fixed deposits up to Rs. 40,000 for regular citizens and Rs. 50,000 for senior citizens in a financial year.
How to Track Your TDS
Form 16, issued by your employer, reflects the total TDS deducted from your salary throughout the financial year. Similarly, banks and other deductors provide TDS certificates (Form 16A) for other income sources. The Income Tax Department also offers a consolidated view of your TDS deductions through the online portal "[Income Tax Department's e-filing website]". This comprehensive information is crucial for filing your income tax return.
Claiming TDS Refunds
You can claim a refund if the total TDS deducted throughout the year surpasses your final tax liability. While filing your income tax return, you can claim this by adjusting the TDS amount against your tax payable.
The Role of TDS in Tax Compliance
TDS plays a crucial role in promoting tax compliance in India. It assures that a significant portion of the tax is collected, lowering the risk of defaults. It prompts people to file their income tax returns, as claiming TDS refunds needs filing first.