The full form of TDS is Tax Deducted at Source. It was designed to collect taxes at the point of receipt of a person’s income. TDS is used by the government as a tax-collecting mechanism to reduce tax fraud by taxing individual income partially or totally when it is created rather than at a later stage.
TDS is levied on a variety of income sources, including wages, commissions, interest, dividends, and so on. TDS is not applicable to all revenues, payments, or individuals. The Income Tax Act has proposed varied TDS thresholds for various payments and receivers.
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Necessary Points to remember in TDS
- TDS is based on the idea that every individual making a specific type of payment to another individual must deduct and deposit tax at the point of origin at the rates specified in the Income Tax Act.
- Individuals must make the payment in order to deduct the tax and deposit it with the government.
- The deductor is an individual or organisation that is eligible to deduct taxes before they are paid.
- The individual who is responsible for paying the tax is known as the deductee.
- Form 26AS is a document that shows the amount of income tax deducted and deposited in an individual’s name or PAN in a certain fiscal year.