TDS – Tax Deducted at Source
Tax Deducted at Source (TDS) is a mechanism mandated by the Indian government for the collection of taxes directly from the source of income. The payer withholds a specified percentage of tax when disbursing payments to the recipient, and subsequently, this deducted amount is forwarded to the government. TDS is applicable across diverse income categories, encompassing salaries, interest on fixed deposits, rent, commissions, and more. Its primary purpose is to curb tax evasion, making a comprehensive understanding of TDS essential for both payers and recipients of income in India.
The rates at which TDS is to be deducted are stipulated by the tax department. The entity or individual responsible for making the payment, deducting TDS, is termed the deductor, while the entity or individual receiving the payment is referred to as the deductee.
TDS is deducted on the following types of payments:
- Interest payments by banks
- Commission payments
- Rent payments
- Consultation fees
- Professional fees