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Tax Deducted at Source (TDS)

Tax deducted at source (TDS), as the name implies aims at collection of revenue at the very source of income.

  • TDS stands for tax deducted at source.
  • As per the Income Tax Act, any company or person making a payment is required to deduct tax at source if the payment exceeds certain threshold limits.
  • TDS has to be deducted at the rates prescribed by the tax department.

It is essentially an indirect method of “collecting tax which combines the concepts of pay as you earn” and “collect as it is being earned.”


TDS – Tax Deducted at Source broken down:


Significance & Concept of TDS:

  • TDS significance to the government lies in the fact that it prepones the collection of tax, ensures a regular source of revenue, provides for a greater reach and wider base for tax. At the same time, to the tax payer, it distributes the incidence of tax and provides for a simple and convenient mode of payment.
  • The concept of TDS requires that the person on whom responsibility has been cast, is to deduct tax at the appropriate rates, from payments of specific nature which are being made to a specified recipient. The deducted sum is required to be deposited to the credit of the Central Government.
  • The recipient from whose income tax has been deducted at source, gets the credit of the amount deducted in his personal assessment on the basis of the certificate issued by the deductor.
  • While the statute provides for deduction of tax at source on a variety of payments of different nature, in this chapter, we will discuss various provisions relevant only to the salaried class of taxpayers, which means TDS done by the employer (Deductor) while paying the salary to the employee (Deductee).

Who is a Deductor and Deductee?

  • 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 deductee.
  • 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, whether cash, cheque or online, and is linked to the PAN of the deductor and the deductee.

TAN - Tax Deduction and Collection Account Number:

TAN stands for Tax Deduction and Collection Account Number. 

It is a unique alphanumeric code assigned to entities or individuals who are responsible for deducting or collecting tax on behalf of the government. 

TAN serves as an identifier for tax deducted at source (TDS) or tax collected at source (TCS) transactions.

In simple terms, just like PAN number is allotted to all the taxpayers, TAN number is allotted to the Deductors.

TDS Process

TDS deduction is not a simple process, and includes Remittance, Return Filing, Issue of Form 16, Credit in 26AS, etc. A brief explanation has been given below:


TDS Deduction: 

It refers to the act of deducting a certain percentage of tax from specific payments made to vendors, contractors, employees, or other payees at the time of making such payments.

TDS is applicable in various scenarios, such as salary payments, interest, rent, professional fees, and more. The rules and rates vary depending on the nature of the payment and the provisions of the tax laws

The person or entity making the payment (often referred to as the deductor or payer) is responsible for deducting the appropriate TDS amount from the payment and remitting it to the government within the specified timelines


Mr. Shubham received ₹ 8,10,000 after deduction of TDS of ₹ 90,000. What shall be the gross total income which will be assessed to income tax for Shubham ?

Rs.8,10,000
Rs.9,10,000
Rs. 9,00,000
Nil

TDS Challan:

To remit the deducted TDS amount to the government, the deductor is required to fill a TDS challan, which includes details of the TDS deducted and other relevant information. The challan is submitted to an authorized bank or can be paid online. TDS is to be deposited on a monthly basis.


TDS return filing: 

It involves reporting the details of TDS deductions made during a specific period to the tax authorities. It is a form of compliance that ensures that the deductor has correctly deducted and remitted TDS as per the tax laws.


Filing TDS returns involves reporting the details of TDS deductions made during a specific period to the tax authorities. TDS return filing is governed by the Income Tax Act, and it is mandatory for deductors to submit TDS returns on time. The TDS return filing is done on a quarterly basis.


TDS remittance involves deducting taxes at the source of various payments, while TDS return filing involves reporting and reconciling these deductions with the tax authorities. 
It's essential for businesses and individuals to comply with TDS regulations to avoid legal issues and ensure accurate tax payments. 

Form 16

Form 16 is a certificate issued under the Indian Income Tax Act, 1961, and is related to Tax Deducted at Source (TDS). This form is specifically issued for TDS deductions made on salary.


Form 16 is issued by a deductor (a person or entity who deducts TDS) to the deductee (the person from whose income TDS is deducted) as a proof of TDS deduction on salary. It provides details of the TDS deducted and deposited with the government.


Form 26AS

Form 26AS is a statement that provides details of any amount deducted as TDS or TCS from various sources of income of a taxpayer. It also reflects details of advance tax/self-assessment tax paid, and high-value transactions entered into by the taxpayer.

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