Tax Deducted at Source or TDS was introduced to collect tax at the source level from where an individual’s income is generated. There is no specified rate of TDS deduction from salary income as per the current income tax laws of the government. The rate of Tax Deducted at Source is calculated on the basis of income tax slabs applicable to the taxable income of the employee. By taxing the income (wholly or partially) at the time it is generated rather than at a later date, it helps to minimize tax evasion.
Before crediting the salary to the employee, it is mandatory that every employer deduct tax at source (TDS) from the employee’s salary. it is important to understand how such deduction happens and the rate of such deduction, since TDS deduction is compulsory. If an earning person’s income exceeds the limits of an exemption, then the individual is liable to pay income tax. However, for some employees, paying a lump-sum amount of tax at one go is not feasible. TDS allows the individual to pay tax as and when he/she earns it. It enables the deduction of tax individuals in advance at periodic intervals.
Advantages of TDS
The amount of Tax Deducted at Source depends on the amount you earn. TDS often start getting deducted after you start earning your income. Both the Tax-payers and the government gets benefits from TDS. When you make payments through cheque, credit card, or cash, a certain amount of tax is collected, which gets deposited to the central agencies. The TDS deducted is directly credited to the account of the Central Government and the percentage of deducting TDS is prescribed by the IT Department. The major benefits of TDS are as follows:
- It is possible to minimize the chances of tax evasion by individuals, as TDS is collected at the source
- Tax Deducted at Source (TDS) is considered as one of the steadiest sources of revenue for the government
- The base of tax Collection is widened since almost every individual has to pay TDS in one form or other
- Paying tax becomes convenient for the individuals as TDS gets deducted from one’s income automatically and periodically
- The burden of responsibility of the Deductor and the Tax Collection Agencies are lessened
If the tax paid by an individual via TDS is greater than the actual amount of tax payable for the financial year, A TDS refund may arise. Moreover, an individual has the opportunity to claim TDS return and declare his investments by submitting the proofs since TDS is collected at source.
For the individuals, whose TDS has been deducted, filing TDS return is mandatory. TDS return should be submitted quarterly along with details like Permanent Account Number (PAN) of the employee, Tax Deduction and Collection Account Number (TAN) of the employer, the amount of TDS deducted, type of payment, etc. Forms 24Q, 26Q, 26QB and 26QC need to be filled for filing TDS return, depending on the purpose of deduction of TDS.