Tax Deducted at Source
Tax Deducted at Source
Tax Deducted at source is also called TDS in short form. Tax deducted at source is a medium or means of collecting Income Tax in India. Provisions related to TDS are governed by the Income Tax Act of 1961 in India.
TDS or Tax deducted at source is a system which is introduced by the Income Tax Department, where the person are responsible for making specified payments such as salary, commission, interest, rent, professional fees etc. is liable to deduct a certain percentage of tax before making payment in full to the person who receives the payment. Any person who makes specified payments (mentioned under the Income Tax Act) required deducting the TDS at the time of making such specified Payments. Tax deducted at source or TDS has to be deducted at the rates decided by the department of tax.
Deductor– The person or company that makes the payment after deducting the TDS is called the Deductor.It is the responsibility of the deductor to deduct TDS before making any payment and deposit the same with the government.
Deductee- The person or company who are receiving the payment is called the Deductee.
Types of Payments on which Tax deducted at source or TDS is deducted
TDS (Tax Deducted at Source) is deducted on the following types of payments:-
- Rent Payments
- Professional Fees
- Consultation Fees
- Commission Payments
- Interest Payments by banks
TDS or Tax Deducted at source is not applicable to all the incomes and persons for all transactions.TDS is also not deducted at the same rate for all incomes which are subject to TDS.There are different TDS rates prescribed by Income Tax Act for the different types of incomes.
Tax Deducted at source works on the concept that each and every person who making specified type of payments mentioned in Income Tax Act to any person shall deduct the tax at the rates prescribed in the Income Tax Act at source and also deposit the same in the account of government.
Advantages of TDS
TDS or Tax deducted at source is also a type of direct tax which focuses on the idea of paying tax along with earning. The payment of TDS must me made irrespective of the mode of the payment it means cash, cheque, or credit. Some advantages of TDS are as given below:-
- TDS ensures a continuing flow of revenue to the government because tax deduction takes place throughout the year.
- TDS is a measure to prevent evasion of taxes.
- TDS helps in increasing the reach of tax because it is deducted at the time of payment itself preventing the fraud commitment.