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Understanding the Fundamentals of Tax Deducted at Source

So, you are about to join the workforce and start your career. Now is the perfect time to get some basic ideas about income taxes – starting with TDS. You must have seen this term being mentioned on your salary documents. However, you might not have a clear idea about what TDS is and how it is deducted from your account. So, keeping your predicament in mind, here’s offering you some basic details about TDS.

What exactly is TDS?

Tax Deducted at Source (TDS) refers to the income tax that is deducted from the money that is paid when making particular payments like interest, salary, professional fees, commission, rent, and so on. Let’s simplify this further for easier understanding.

So, as a person receiving the income, you are liable to pay income tax as per the income tax slab. However, the government has made provisions whereby a part of the income tax gets deducted in advance from your income. Your employer deducts this tax and you get the net amount after the TDS deductions.

When and how is the TDS deducted?

Anyone who makes payments that are outlined in the Income Tax Act must deduct TDS during making the payment. However, you do not have the TDS liability if your books are not mandatorily audited as an individual or a Hindu Undivided Family. On the other hand, 5% TDS will still be deducted if you pay a monthly rent of over INR 50,000 even if your books are not liable for audits.

As mentioned before, your employer deducts TDS as per the income tax slab that you come under. Banks have a provision of deducting 10% TDS (or 20% if your PAN card details are not available with the bank).

What exactly is a TDS certificate?

There are four TDS certificates – Form 16, Form 16A, Form 16B, and Form 16C. These certificates are issued by the one deducting the TDS to the one from whom the TDS was deducted during making payments. Here is a detailed idea of TDS deductions and related certificates for different transactions.

  • Form 16: Salary payments (deducted yearly)
  • Form 16A: Non-salary payment (Quarterly)
  • Form 16B: Property Sales (Each transaction)
  • Form 16C: Rent (Each transaction)

The importance of Form 26AS

Keep in mind that TDS is always linked to the PAN card for both you and the one deducting the amount. You can go through Form 26AS to know more about the TDS deducted from your income. This form offers a complete tax statement for all the PAN holders.

In Form 26AS, you will find the information on each deduction made by every deductor on your income for any kind of payment you have made. You will also find information about the tax that you have paid directly, i.e., the self-assessment taxes.

Hopefully, the details of TDS and how it is deducted is clearer to you now. If you want to know more about tax slabs or tax saving schemes, it would be a good idea to talk to your finance manager or bank about it.

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