The full form of TDS is Tax Deducted at Source. TDS basically means that the payer (any company or business firm) can deduct the tax from the income of the recipient (the one receiving the payment) and pay the remaining amount to the recipient.
In India, there are certain rules and obligations under the Indian Income Tax Act, 1961. Under this Act, the relevant amount of income tax has to be deducted at source before the recipient receives the remaining amount. It is a part of the Indian Revenue Service and is administered by CBDT (Central Board of Direct Taxes), which is part of the Revenue Department. This procedure is very important during tax audits.
The person who is liable to pay tax to the government is called Assessee. The assessee should file quarterly income tax returns with CBDT. This helps to understand the amount of TDS that is deducted and paid to the government in a given quarter.
There are also some groups of individuals to whom TDS is not applicable. Briefly, there are different TDS tables provided by the Income Tax Act, 1961 for different categories of groups and individuals with different pay scales.
In countries like New Zealand, South Africa, etc., these individuals who are on a payroll with tax are also known as PAYE i.e. Pay-As-You-Earn Tax and in a few other countries like the United States, pay-as -you- the term go is used.
The Indian Income Tax Act came into force in 1961. There are different types of TDS rates for different types of income and payments under different sections of the Income Tax Act 1961. Although it is important that one must understand that there is a certain level of margin . which TDS is applicable. TDS on certain transactions is deducted only when the amount of payment or salary is above a specified margin level. If the amount does not exceed the specified level, TDS is not deducted in any form.
Benefits of TDS
- This helps salaried people pay their taxes in easy installments every month as they earn, reducing the burden of paying a lump sum at the end of the year.
- This income tax, if properly collected throughout the year, helps the government to get enough funds for the smooth running of the government.
- It also helps the government to receive the tax at the time of payment itself to avoid any fraud by the individual or the company.
Apart from individuals or companies, TDS also applies to immovable property. This comes under Section 194lA of the Income Tax Act, 1961. It states that 1% TDS is deducted on sale of property, but the rate can go up to 20% if the person transferring the property does not provide a valid PAN. Under section 194lB of the Income Tax Act, 1961, tax is also deducted at source if the rent exceeds 50,000 per month by an individual landlord.