Tax is a compulsory contribution to state revenue, levied by the government on workers income and business profits, or added to the cost of some goods, services, and transactions. Technically it is a strain and burden on the people. In India Income Tax Department a government agency supervise tax collection by government of India. This is under department of Revenue of Ministry of Finance. The bottom line is that taxation should foster equal distribution of resources.
TDS is a provision under the Income Tax Act, it is a tax subtracted from the money paid at the time making specified payments such as rent, commission, professional fees, salary interest etc. by the person making such payment.
For example, TDS rate is specified 10% on professional fee, ABC Ltd makes a payment of Rs 1,00,000/- towards professional fees to Mr. XYZ, then ABC Ltd shall deduct a tax of Rs 10,000/- and make a payment of Rs 90,000/- to Mr.XYZ. The amount deducted by ABC Ltd will be directly deposited to the credit of the government.
- It is a form of advance tax.
- This concept was first introduced in 2004.
- The principle applied was ‘Pay as you earn’.
- Onus of compliance is on payer (person making expenditure) instead of actual tax payer.
- Payer deducts tax from payment.
- Payer deposit tax to government.
- Payer files return to TDS.
- Payer issue TDS certificate to payee.
- Payee claims refund to TDS in his ITR.
TDS V. INCOME TAX
Income tax is imposed on individuals or on corporate for income earned above the tax border for particular period where as TDS is deducted merely presuming the taxable income.
Income tax is paid on the annual income where as TDS is deducted periodic basis in a specific year.
- A taxpayer will have to pay income tax on his total annual income where TDS is only his incomplete donation to his annual income.
- In TDS, the tax is removed by the payer and is remitted to the government by he the payer on behalf of the payee. Income tax should be paid by the payer.
- If a taxpayer’s income is below the taxable limit and TDS is deducted then he can claim for the same in his tax returns. TDS is deducted in cases such as salary income, fixed deposits etc.
BENEFIT OF TDS
It helps the people who earn salary every month to pay tax as they earn salary and in installments to avoid burden of a heavy sum payment.
To collect the tax at the time of payment of income to various assesses such as contractors, professionals etc.
- Government will also have funds throughout the year. Hence advance tax and tax deduction helps government to function smoothly annually.