Money Guru: Know what is TDS and why it is deducted from your salary

Tax Deductible at Source or commonly known as TDS is a kind of tax levied on payments. Whenever there is a discussion on tax, TDS hold an important place among various other taxes. So what is TDS and why TDS is deducted from your salary? Tax Expert, Manish Gupta, told Zee Business TV, "TDS is an advance tax deducted by the government as most of the people find it difficult to pay tax at the end of the year. However, TDS is deducted by employers and they transfer the deduction to employees. Sometimes TDS helps you save on interest on late tax payments. It acts as a powerful tool to curb tax evasion also."

As per the Income Tax department website, the concept of TDS was introduced with an aim to collect tax from the very source of income. An individual or a company (deductor), liable to make payment of specified nature to any other person (deductee) shall deduct tax at source and deposit the same into the account of the Central Government. The deductee from whose income tax has been deducted at source would be entitled to get a credit of the amount so deducted on the basis of Form 26AS or TDS certificate issued by the deductor.

TDS is deducted and paid to the government on the following types of payments: 

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1. Salaries

2. Interest payments by banks

3. Commission payments

4. Rent payments

5. Consultation fee

Watch this Zee Business TV video to know more about TDS:

6. Professional fees

7. Contest or lottery prizes

How TDS works?

Individual or entity making a payment (which is subject to TDS) deducts a certain percentage of the amount paid as tax and pays the balance to the recipient. The recipient also gets a certificate from the deductor, consisting of the amount of TDS deducted. However, the deductee can claim his/her TDS amount as tax paid by him (i.e. the deductee) for the financial year in which it is deducted. 

How to avoid TDS 

If a person expects that his total income in a financial year will be below the exemption limit, he can ask the payer not to deduct TDS by submitting Form 15G/15H. While receiving payment which is subject to TDS, deductee is required to provide his PAN details to avoid tax deduction at the higher rates.