What is TDS?
Tax Deducted at Source (TDS) refers to the deduction of tax by the payer while making certain payments like salary, commission, interest, rent, etc. The person making the payment deducts the applicable tax amount and remits it to the government.
How does TDS Work?
TDS works on the principle of “pay as you earn.” The payer deducts a specified percentage of the payment as TDS and deposits it with the government. The deducted amount is then credited to the account of the payee, which can be claimed as a tax credit at the time of filing the income tax return.
Importance of TDS:
Ensures Regular Tax Collection: TDS plays a vital role in the regular collection of taxes as it helps the government receive a portion of the tax in advance.
Widens Tax Base: TDS helps in bringing a larger number of taxpayers under the tax net by compelling individuals and businesses to deduct and deposit taxes on behalf of the recipients.
Minimizes Tax Evasion: TDS acts as a check against tax evasion since it ensures that individuals and businesses make tax payments on their income at the time of receiving it.
TDS Rates and Thresholds:
Different types of payments have varying rates of TDS. For example, the TDS rate for salary payments might differ from the rate for rental income. Additionally, there are different thresholds below which TDS may not be applicable.
TDS Compliance:
It is crucial for both payers and payees to understand TDS compliance. The payer should deduct TDS correctly and issue TDS certificates, while the payee needs to include TDS details in their income tax return and avail credit for the tax deducted.
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