This article is for understanding the basic concepts of Tax Deducted at Source (TDS). Here we will try to explain it in non-technical language. Though a most common terminology, the mechanism should be understood for better dealing with and handling the TDS issue.
What does TDS stands for?
TDS stands for tax deduction at source.
Why TDS is deducted?
In very simple words, TDS is nothing but a real time collection of Tax. So instead of the person who is earning money will pay the taxes at the year end, the TDS mechanism ensures that tax is collected as and when income is earned.
Imagine, in the absence of TDS, the Government will not get any penny of tax until she pays it voluntarily. But in the presence of TDS, Government is also getting revenue, throughout the year.
And that's not it, TDS mechanism also ensures that the income earners are "flagged" in the Government records. We will see how that happen in the latter part of this article. Thus the TDS hits two birds in one stone, One is it generates tax revenue, second it creates a record of who is earning taxable money.
How does TDS mechanism works?
For explaining this just go through following diagram:
As can be seen in the diagram, the TDS is deducted and paid to the Government. And credit is given to the tax payer to the extent her TDS is deducted.
What is Form 26AS?
Form 26AS is a record of your TDS credit avaialble with the Government. It is available in electronic form on the website www.incometaxindiaefiling.gov.in. The information is updated in the Form 26AS, as and when the deductor pays the TDS to Government and files information report - also called as E-TDS return.
Who has to deduct TDS?
Companies, trusts, partnership firms, societies have to deduct TDS irrespective of their business size. On the other hand Individual businessman and HUF (Hindu Undivided Family) are liable to deduct TDS only when they had done a sales of One Crore (or 25 lacs if they are service provider) in the immediate preceding year.
For which types of payments TDS is deducted?
TDS is deducted for payment of following nature:( applicable for FY 2016-17)
What does TDS stands for?
TDS stands for tax deduction at source.
Why TDS is deducted?
In very simple words, TDS is nothing but a real time collection of Tax. So instead of the person who is earning money will pay the taxes at the year end, the TDS mechanism ensures that tax is collected as and when income is earned.
Imagine, in the absence of TDS, the Government will not get any penny of tax until she pays it voluntarily. But in the presence of TDS, Government is also getting revenue, throughout the year.
And that's not it, TDS mechanism also ensures that the income earners are "flagged" in the Government records. We will see how that happen in the latter part of this article. Thus the TDS hits two birds in one stone, One is it generates tax revenue, second it creates a record of who is earning taxable money.
How does TDS mechanism works?
For explaining this just go through following diagram:
What is Form 26AS?
Form 26AS is a record of your TDS credit avaialble with the Government. It is available in electronic form on the website www.incometaxindiaefiling.gov.in. The information is updated in the Form 26AS, as and when the deductor pays the TDS to Government and files information report - also called as E-TDS return.
Who has to deduct TDS?
Companies, trusts, partnership firms, societies have to deduct TDS irrespective of their business size. On the other hand Individual businessman and HUF (Hindu Undivided Family) are liable to deduct TDS only when they had done a sales of One Crore (or 25 lacs if they are service provider) in the immediate preceding year.
For which types of payments TDS is deducted?
TDS is deducted for payment of following nature:( applicable for FY 2016-17)
- Rent payment (if amount exceeds Rs.1,80,000 in a year)
- Professional fees (if amount exceeds Rs.30,000 in a year)
- Salary Payment (if annual salary amount less deductions exceed basic taxable limit)
- Contractor Payment (if one payment exceeds Rs.30,000 or annual payments exceed Rs.1,00,000)
- Payment to Non Residents
- TDS is also deductible on Purchase of immovable property if the value exceeds Rs.50 lacs.