Tax Deduction at Source (TDS) is a system introduced by the Indian government to collect taxes at the source of income.
What is TDS?
TDS is a method of collecting income tax in India, where the person responsible for making the payment of specified nature to any other person deducts a certain percentage of tax before making the payment.
The main objective of TDS is to ensure that taxes are paid timely and to avoid tax evasion.
The TDS system is governed by the Income Tax Act, 1961 and the rules framed thereunder.
The Central Board of Direct Taxes (CBDT) is the authority responsible for administering the TDS system in India.
TDS is deducted at different rates for different types of incomes.
The current TDS rates for various types of incomes are as follows:
For salary income, TDS is deducted at the rate of up to 30%.
For commission or professional fees, TDS is deducted at the rate of 10%.
For interest income, TDS is deducted at the rate of 10%.
For rent income, TDS is deducted at the rate of 2% for individuals and 5% for others.
Deductor and Deductee
The person responsible for making the payment is called the deductor and the person to whom the payment is made is called the deductee.
The deductor is responsible for deducting the TDS and depositing the same with the government.
The deductee is responsible for providing the necessary details to the deductor for the purpose of TDS deduction.
TDS Return and Compliance
The deductor is also required to furnish TDS return to the government, in the prescribed format, on a quarterly basis.
TDS is a very important aspect of the Indian tax system, as it helps the government to keep a track of the tax collection and also helps to increase the compliance level among the taxpayers.
TDS and Tax Liability
It is important to note that TDS is not the final tax liability of the deductee.
The deductee is required to file his income tax return and claim credit for the TDS deducted.
TDS Default and Penalties
In case of TDS default by the deductor, he is liable to pay interest and penalty as per the provisions of the Income Tax Act.
The deductor is also liable to be prosecuted for the default under the Act.
TDS is an important aspect of the Indian tax system and helps the government in timely collection of taxes.
TDS is applicable on various types of incomes and the rates vary for different types of incomes.
TDS is not the final tax liability of the deductee, as the deductee is required to file his income tax return and claim credit for the TDS deducted.
TDS default by the deductor attracts interest and penalty as per the provisions of the Income Tax Act.