Let's delve a little deeper into TDS or Tax Deducted at Source. The concept is quite simple - it's a way for the government to ensure tax collection by reducing it from the source of income itself. You can think of it like the government taking their share before the income reaches you.
How TDS Works
When a person (deductor) is liable to make payment to another person (deductee) under certain heads, the deductor is required to deduct a certain percentage of that amount as tax. This is then paid to the government on behalf of the deductee. The deductee is then credited with the amount of tax deducted.
For example, if you're an employee, your employer, who is the deductor, will deduct tax from your salary and pay it to the government. This amount is then credited to your account and reflected in your Form 26AS.
Types of TDS
There are several types of TDS, each associated with different types of income. Here are a few common ones:
- Salary: If your income from salary is more than the basic exemption limit, your employer will deduct TDS on your salary.
- Interest from Bank: Banks are required to deduct TDS on interest if the interest income from fixed deposits or recurring deposits exceeds a certain limit in a financial year.
- Rent: TDS is deducted on rent payments as well, if the amount of rent exceeds a certain limit in a financial year.
- Professional Fees: If you're a professional, such as a lawyer or a doctor, TDS will be deducted from your professional fees if your income exceeds a certain limit.
TDS and Income Tax Return
At the end of the financial year, when you file your income tax return, the amount of TDS deducted is adjusted against your total tax payable. If the TDS deducted is more than your total tax liability, you'll be eligible for a tax refund.