Tax Deducted at Source (TDS) is a method of tax collection implemented by the government to ensure timely payment of taxes and reduce the chances of tax evasion. Under this system, a certain percentage of the payment made to an individual or entity is deducted at the source by the payer and remitted directly to the government. The payer acts as the deductor, while the recipient is the deductee. TDS is applicable on various payments such as salaries, interest, rent, and professional fees.
For example, when an employer pays a salary to an employee, a portion of the salary is deducted as TDS and deposited with the government. The employee receives the net salary after deduction. The deducted amount is reflected in the employee’s Form 26AS, and it can be claimed while filing income tax returns. TDS ensures that the government receives taxes in advance and helps streamline the tax collection process.
