TDS stands for Tax Deducted at Source. The Income Tax Act states that when making payments, individuals must pay taxes. Therefore, taxes are taken off at the source at already established rates. This implies that instead of deducting the taxes from income afterward, the government chooses to subtract the taxes upfront from the source itself. An authorized deductor takes away the tax and deposits it to the IT department.
The deduction rate of TDS lies between 10% to 30%, which is incumbent on the tax category in which the income of a person lies. Under the Indian tax System, TDS stands as a critical term in the domain of taxation which bears significant influence on the taxpayers. It is a way of amassing income tax by the government and provides convenience to the payee as it is automatically deducted.
It is a direct taxation system that was adopted to gather taxes at the time of payout or straight from the source of income. TDS facilitates backtracking tax evasion. Moreover, in the TDS system, the taxpayer does not have to reimburse a lump sum amount as an annual tax at the end of the fiscal year.