How Tax is Deducted at Source?
Let’s understand this with an example If A pays ₹20,000 to XYZ Ltd. as consultancy charges, then ₹2,000 (10% of ₹20,000) needs to be deducted by A at the time of payment, and only pay ₹18,000 to XYZ Ltd. The amount received by XYZ Ltd. will be ₹18,000 as a bank receipt and ₹2,000 as TDS credit with the government. XYZ Ltd. can adjust the TDS credit when filing the income return with the tax payable by them. For example, at the end of the year, if XYZ Ltd. has a tax payable of ₹15,000, B can adjust ₹2,000 of TDS credit and remit the balance of ₹13,000 to the government.
TDS Full Form
The full form of TDS is Tax Deducted at Source. TDS can be defined as the collection of income tax at the source of its generation. Its implementation was intended to deduct taxes immediately from the source of income. In TDS, tax is deducted at the time of payment by the person who is making the payment and remits the collected amount to the government on behalf of the receiver. TDS is one of the forms of direct tax. Based on factors such as interest, consulting fees, rent, etc. the government set rates of TDS.