Is it TDS or Tedious?

Last Updated at: Oct 30, 2020
Is it TDS or tedious?

When we ponder our mind for a solution to control tax evasion the first thing that comes to our mind will be why don’t we deduct the tax right from the source? TDS an acronym for “Tax Deducted at Source” is an initiative taken by the government to make people pay their taxes regularly. This method of collecting tax from the source helps the smooth functioning of our government since they get the amount beforehand which lets them have cash throughout the year.

As per the IT Act of 1961 filing TDS return is mandatory as well as it fetches some benefits to person or company. People tend to have a wrong perspective about this idea that it attracts only salaried persons but the truth is that even the non-salaried people cannot escape the clutches of this measure.

What is TDS

TDS is basically a tool for collecting income tax where the tax for certain things as specified in the Income Tax Act, 1961 are collected when they are issued or when a process is completed. Thus, instead of filing as tax in the end which is the normal scenario, through TDS taxes are collected at the time of transaction itself. Thus, when we have a closer look in the pattern we could derive that the final amount in any specified transaction is only the remains of the taxed amount.

For example, when a buyer buys a land from the seller above the value of 50 lakhs the 1% tax is deducted from the amount which the buyer transfers to the seller in any form. When they are doing the annual filing they can produce the accounts for these TDS and any extras will be refunded as it is done in normal income tax filing.

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As mentioned earlier TDS collection is based on the Income Tax Act, 1961. Since TDS is basically the collection of income tax, by default it falls under the Direct Taxes and hence the collection of these is governed by Central Board Of Direct Tax which falls under the governance of IRS (Indian Revenue Service). In private institutions, TDS is usually collected by the company itself at the time of crediting their employees’ salaries and by default, the said company will be fined according to the provisions given under Sec.201(1A). Thus, TDS has one way reduced the burden of taxpayers by making them pay in small amounts every month rather than paying a large sum at the end of their annum.

How TDS works

TDS works on the basis of two persons – A deductor whose role is to deduct taxes based on the rules that were prescribed in the Income Tax Act, 1961 before making the payment to the deductee. Thus, after the deduction of taxes, the deductor has to pay the deducted amount to the government, which will be reflected in the Form 26AS that shows the amount deducted and deposited in the deductee’s name or the PAN number that he is possessing.

The deductee has all the rights to ask for the certificate, which is to be given by the deductor that such amount has been deducted as TDS from his principle salary. This is the deductee’s right, and the person making the payment must make sure that this certificate is provided with his authorisation. Sec.192 of the Income Tax Act,1961 specifies the TDS for Salaries that the deductee receives from the deductor.


While purchasing a land, 1% TDS will automatically be deducted from the amount that the buyer makes to the seller prescribed under Sec.194IA of Income Tax Act,1961 and only the rest will reach the seller.

The same applies when a tenant pays the rent to the landlord, exceeding Rs.50,000, 1% will be deducted as prescribed by Sec.194IB of Income Tax Act,1961. Right from dividend exceeding Rs.2,500 to the commissions on insurance companies and the profit acquired from games, nothing is spared from TDS.

Even an individual or an HUF who is having a turnover of more than 1 Crore must deduct TDS according to this Act.

Exemption from TDS

Only people with income below than 2,50,000 would be made to pay taxes and persons with the income level below that mark are exempted. If a person feels that his income level is below that mark then in that case he can request for non-deduction of TDS by filing Form 15G/H. TDS can be refunded in case it is deducted for a person whose salary is below the slab. Thus, it is a great measure to make sure people pay their income taxes on time.

Read more to find out why you need to file TDS if you are a business owner.