What is Tax Deducted at Source (TDS)

Tax Deducted at Source (TDS) is a procedure implemented by the Indian government to collect taxes at the source of income. A certain percentage of tax is deducted by the payer at the time of making payments to the receiver, and this amount is then remitted to the government. TDS is applicable to a wide range of income categories such as salaries, interest on fixed deposits, rent, commissions, etc. TDS helps prevent tax evasion and understanding it is crucial for both payers and receivers of income in India.

TDS has to be deducted at the rates prescribed by the tax department. The company or person that makes the payment after deducting TDS is called a deductor and the company or person receiving the payment is called the deducted. 

It is the deductor’s responsibility to deduct TDS before making the payment and deposit the same with the government. TDS is deducted irrespective of the mode of payment–cash, cheque or credit–and is linked to the PAN of the deductor and deducted.

The following are a few types of payments on which TDS should be deducted:

• Salaries
• Interest payments
• Commission payments
• Rent payments
• Consultation fees
• Professional fees

However, individuals are not required to deduct TDS when they make rent payments or pay fees to professionals like lawyers and doctors. 

TDS is one kind of advance tax. It is a tax that is to be deposited with the government periodically, and the deductor is responsible for making the deposit on time. 

For the deductee, the deducted TDS can be claimed in the form of a tax credit while filing their ITR. If excess TDS has been deducted then the deductee will be eligible for a refund. 

What is a TDS return?

A deductor has to deposit the deducted TDS to the government and the details of the same have to be filed in the form of a TDS return.  A TDS return has to be filed quarterly. Different types of TDS deductions have to be filed using different TDS return forms. 

Preparing TDS returns can be done easily using the ClearTDS software. 

For any further queries, reach out to us by sending an email to tds@cleartax.in.