Tax Deducted at Source (TDS) is a mechanism introduced by the Income Tax Department of India. Its purpose is to collect tax at the very source of income. As per this concept, a person (deductor) who is liable to make payment of a specified nature to any other person (deductee) shall deduct tax at the source and remit the same into the account of the Central Government.
How Does TDS Work?
Let's say a company pays a professional fee of ₹50,000 to a consultant. The company is required to deduct TDS (e.g., at 10% under Section 194J) before making the payment.
- TDS to be deducted: 10% of ₹50,000 = ₹5,000.
- Amount paid to the consultant: ₹45,000.
- Amount deposited to the government by the company: ₹5,000.
The deductee (the consultant) will receive credit for this ₹5,000 when they file their income tax return.
Common Payments Subject to TDS
TDS is applicable on a variety of payments, including:
- Section 192: Salary payments.
- Section 194A: Interest on fixed deposits.
- Section 194C: Payments to contractors.
- Section 194H: Commission or brokerage.
- Section 194I: Rent payments.
- Section 194J: Fees for professional or technical services.
What is Form 26AS?
Form 26AS is an annual consolidated tax statement that can be accessed from the income-tax website by any taxpayer. It provides details of all the TDS deducted and deposited against your PAN. Before filing your ITR, you should always cross-check the TDS amounts in your Form 26AS with the TDS certificates (like Form 16 or 16A) you have received.
Claiming TDS Credit
The TDS deducted is not a final tax. It is an advance tax paid on your behalf. When you file your ITR, you must report your total income and calculate your final tax liability. The TDS already paid is adjusted against this final liability. If the TDS paid is more than your actual liability, you will receive a refund.