TDS or Tax Deducted at Source is a type of tax that is deducted from an individual’s income on a periodical or occasional basis. TDS can be applicable for income that are regular as well as irregular in nature. Income Tax Act, 1961 regulates TDS in India through Central Board of Direct taxes (CBDT) under the Indian Revenue Services (IRS). TDS rule directs the payee or employer to deduct a certain amount of tax before making full payment to the receiver. TDS is applicable for salary, commission, professional fees, interest, rent, etc.
TDS is collected as a means to keep a stable revenue source for the government throughout the year, while desisting people from avoiding taxes. The percentage of TDS will be based on income slabs rates. Similarly, each type of income has its own percentage of tax that is calculated when the amount meets certain limit.Since TDS is collected at source without the calculation of INVESTMENT that is eligible for tax deductions, hence, an individual can declare and submit his investment proof in order to file a return and claim for the TDS refund.An individual is required to file TDS return in order to receive TDS refunds and to maintain a healthy financial record.
TDS is a small amount of tax that can be deducted monthly, annually, periodically or occasionally from the earning of an individual or a business the earning is not limited to salary but also includes interest, commission, fee etc.
TDs is not collected on payments made to the Reserve Bank of India, the Government of India etc. TDS will not be collected when interest is credited or paid to:
Central or State Financial Corporations.
Interest paid under Direct Taxes or refund from the IT department.
UTI, LIC and other insurance or co-operative societies.
Interests earned from recurring deposit or savings account in cooperative societies or banks.
Interest in Indira Vikas Party, KVP, or NSC.
Interest earned in NRE account.
All institutions notified under no-TDS.
A deductor is required to issue a TDS certificate called form 16 for salaried employees and form 16A for non salaried employees within a specified time.