The Definition of TDS
TDS or Tax Deducted at Source is an advanced tax deduction system specially designed and presented by the Income Tax Department of India. The methodology behind this system is to deduct a certain percentage of tax at the source of payment.
As per the Income Tax Act, any individual or registered firm making the payment must deduct a certain percentage of the amount as tax at the source, provided that amount is more than the pre-fixed threshold limits. TDS can only be deducted according to the relevant rates issued by the Income Tax Department. The first party(Individual or firm making the deduction after payment) is the deductor and the second party( The Individual or firm receiving the amount post the deduction) is the deductee. TDS will be deducted regardless of the mode of payment.
Please refer to the sample scenario for a better understanding:
- Type of payment – Professional Fee
- Rate of TDS deduction – 10%
- Deductor – M/S ABCD Ltd. Company
- Deductee – Ms QWERTY
M/S ABCD Ltd. Company is liable to pay Rs. 50,000/- to Ms Qwerty as her professional fee. In this scenario, the deductor must deduct Rs. 5,000/- (10% of Rs. 50,000/-) and pay the deductee Rs. 45,000. And the amount deducted, i.e. Rs. 5,000/- will be credited to the Government account by the deductor…….Read More>>