Tax deducted at source or TDS is nothing but the tax collected at the income source itself. As experts opine, this is not a direct method for collecting tax because the person from whom TDS is collected pays as he or she earns. This means that he or she will get only the remaining income after the tax is collected. This TDS concept helps the government because the government gets the tax money much earlier than in the other normal cases in which the tax-payer pays his or her tax only at the end of the financial year.
The fact is that TDS is a regular and good source from which the government gets a good amount of revenue. As far as the tax payer is concerned, his or her tax burden gets distributed because tax is deducted from whatever income he or she earns. If TDS is not deducted, he or she may have to pay the bulk tax amount at the end of the financial year and it may be burdensome for the individual. That is the reason most of the tax payers may consider this as a convenient way of paying their tax though there are many other people who do not like tax to be deducted from their incomes.
In the TDS concept, it is the responsibility of the employer or the person making the payment to ensure that tax is deducted at the rates applicable while every payment is made to the recipients. The employer or the person deducting TDS should remit the tax amounts thus deducted to the government. The income tax department will keep the amounts deducted as credits in the account of the individual. The employer or the person who makes these tax deductions at source issues certificates to the individual from whose incomes such deductions have been effected.
There are a few points that should be borne in mind as far as TDS or Tax Deducted at Source is concerned. Let us have a look.
TDS is applicable only for certain income types. The types of income that fall under the purview of TDS are salaries to employees, amounts of interests earned on deposits in banks or in certain specified non-banking institutions, interests earned on bonds, lottery winnings and winnings in horse races.
The Indian government has fixed certain specific rates for deducting TDS. The employer or the person who deducts TDS will check if the earnings of the individual exceed the threshold amount specified by the government and only if the earnings exceed the threshold amount, they will start deducting TDS.
The individual should consider all his or her incomes and compute his or her income tax and if the tax amount exceeds the TDS, he or she will pay the differential tax. If the tax is less than the TDS, the individual will get a refund.
The employer or the person responsible for deducting TDS should deposit the amount with the government within the first week of the next month after the deduction has been made. The employer or the person should file the details of all such TDS deductions once in every three months. There are prescribed forms for filing these details.
From the foregoing, it is quite evident that the concept of TDS is beneficial to both the government and the individuals.