What is TDS?

TDS stands for Tax Deducted at Source

It is the tax deducted on certain incomes as specified under sections 192 to 194N of the Income Tax Act,1961 by the person who is responsible to pay such income.

For example, an employer is liable to deduct the TDS on the salary paid to the employee subject to the provisions of the Income Tax Act, 1961.

TDS is deducted either,

• at the time of payment

OR

• At time of credit to the account of the payee or at the time of payment; whichever is earlier

We know that Income tax liability is calculated after the income for a year is earned. In the next year, which is called the Assessment Year, income tax payable is calculated on the income earned in the Previous Year

For example:

Year 2021-2022 – This year (Previous Year) – Income is earned here.

Year 2021-2022 – Next Year (Assessment Year) – Income tax is assessed here.

But, the government collects the income tax from the income of the assessee in the Previous Year itself by the following ways:

1. TDS – Tax Deducted at Source
2. TCS – Tax Collected at Source
3. Advance Tax

Some of the most common sections are given below:

1. Section 192 – Salary
2. Section 194A – Interest other on securities deposits with the bank, post office etc) –  @10%
3. Section 194B and 194BB – Winning from lotteries, crossword puzzle – @30%
4. Section 194 – DA – Payment in respect of Life Insurance Policy – @5%.

So, according to sections 192 to 194N, some amount of income tax is deducted from the income of the assessee in the Previous Year itself.

In the Assessment Year, the assessee also gets a tax credit for the TDS i.e. the Income Tax liability gets reduced by the amount of Tax Deducted at Source in the Previous Year.