Tax Deducted at
Tax Deducted at source is one way
of collecting the taxes by the Indian income tax department. Other ways are:
Payment of tax under
Tax Collection at source.
Demand by department on
Tax Deducted at Source was
introduced in India to facilitate the payment of tax while receiving the income and it follows the concept of
“Pay as you earn”. However, the purposes of tax deducted at source is changing slowly. Now, the objectives of
tax deducted at source are:
Ø To enable the salaried people to pay the tax as they earn every
month. This helps the salaried persons in paying the tax in easy instalments and avoids the burden of a lump sum
Ø To collect the tax at the time of payment of income to various
assessees such as contractors, professionals etc.
Ø Government requires funds throughout the year. Hence, advance
tax and tax deducted at source help the government to get funds throughout the year and run the government
Ø It helps to spread the tax net wide enough to include persons
who might otherwise have evaded taxes. The minimum thresholds are raised and the rates are reasonable and
comparable with the rates prevailing in other countries. Hence, it is very vital to make all the persons earning
the taxable income pay the tax. But, the best way to make them pay is to deduct tax at source.
Note: As per section
206AA, with effect from 1.4.2010, every person who receives income subject to TDS under chapter
XVIIB (covers all TDS cases) shall furnish to the deductor, his PAN. If PAN is not so
furnished, the rate of TDS will be at the rates specified in the Act or at the rates currently
in force or at 20% whichever is higher. Please note that this applies to non-residents also.
In case of payments by an
e-commerce operator to an e-commerce participant w.e.f. 01.10.2020, the rate of TDS in case of
non-furnishing of PAN is 5% only and not 20%.
Tax Deducted at Source now covers
payments covering around 21 different categories.
At present, TDS plays a very
important role in the collection of the Indian Income Tax. This is a very easy method to collect from the Indian
Income Tax Department point of view.
Every person who has to deduct
tax at source has to obtain Tax Deducted at source Number (TAN) and it has to be quoted in all TDS challans,
Returns and Certificates.
Each unit or branch of the
organisation which is liable to deduct tax can choose to obtain a separate TAN.
Tax Deducted at Source has to be
deposited with the Central Government within the prescribed time limit by using the appropriate
TDS has to be remitted within one
week from the last day of the month in which the deduction is made. For example, if the deduction is made on
February 12th, you have time until and inclusive of 7th March to remit. However, if the amount is credited or paid in the month of
March, then the tax deducted can be deposited within 30th April.
TDS remittance is normally made
in specified branches of banks.