Deduction at Source

Tax Glossary Definition

Deduction at Source

Tax Deducted at Source (TDS) is a system under which tax is collected at the time income is earned or paid, rather than at the close of the financial year. In this process, the person making the payment deducts a fixed portion of tax from the amount due to the recipient and remits it directly to the government on the recipient’s behalf.

Example: Employers apply TDS by deducting income tax from employees’ salaries before disbursing the remaining amount. Similarly, when interest on fixed deposits exceeds a prescribed limit, banks are required to deduct TDS before crediting the interest to the depositor’s account.

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