Deduction at Source (TDS)

Deduction at Source (TDS) – Deduction at Source (TDS) is a system under the Income Tax Act where tax is collected at the time of income generation rather than at the time of payment or filing of returns. The person making certain payments such as salary, rent, commission, or professional fees must deduct tax at the prescribed rate before making the payment and deposit it with the government. TDS ensures a continuous flow of revenue to the government and minimizes the chances of tax evasion. The deducted amount is reflected in the recipient’s Form 26AS, and they can claim credit for it while filing their Income Tax Return (ITR).

Example: If an employer pays ₹50,000 monthly salary to an employee and deducts ₹2,000 as TDS, the remaining ₹48,000 is paid to the employee. The deducted ₹2,000 is deposited with the government and adjusted in the employee’s tax computation for AY 2023–24