Tax Deducted at Source (TDS) is a mechanism introduced by the government to collect tax directly from the source of income. It ensures timely collection of tax and minimizes the chances of tax evasion. Under the TDS system, a specified percentage of tax is deducted by the payer (employer, bank, or any entity making payment) before making the payment to the receiver, who is then responsible for reporting this deduction while filing their income tax return.

For instance, when you earn interest on your fixed deposits or receive professional fees, the payer may deduct a certain percentage as TDS before crediting the remaining amount to your account. The deducted amount is deposited with the government on your behalf, and the details of this deduction are reflected in Form 26AS or your Annual Information Statement (AIS).

TDS is governed by the provisions of the Income Tax Act, 1961. The rate of deduction varies depending on the nature of payment, such as salary, rent, interest, commission, or dividends. For example, TDS on salary is deducted based on the employee’s applicable income tax slab, while for bank interest, it is typically 10% if your PAN is furnished. Non-furnishing of PAN can attract a higher deduction rate of 20%.

It is important to verify TDS entries regularly and ensure that the deducted amount has been deposited correctly. Individuals can claim a TDS refund if the total tax deducted exceeds their actual tax liability. Filing an accurate income tax return ensures transparency and helps maintain compliance with tax regulations.

Understanding TDS is essential for every taxpayer as it forms a vital part of India’s tax ecosystem, promoting accountability and smoother tax collection processes.