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What is the Difference Between Income Tax and TDS?

If you run a company, knowing about different taxes and TDS is important. But what’s the difference between them? Read this guide to know the entire difference between income tax and TDS.

The annual income of an individual or company is used to calculate income tax. Income tax is not calculated on an annual income basis. However, tax is deducted from the source over the accounting year in which income tax is due. The employer is responsible for deducting income tax from a salary paid to employees. 

A percentage of winnings in the lottery or gambling is deducted from the amount as a tax. Numerous other people have incomes that are subject to tax at source.

It is important to know the difference between them!

What is TDS?

TDS stands to deduct tax at source. TDS helps to collect tax at the source, from the point of income generation. The government uses TDS to collect taxes to reduce tax evasion. It taxes income at the source rather than calculating and deducting it later.

TDS is applicable to various incomes, such as interest, commissions, dividends, salaries, etc.

TDS does not apply to all incomes or persons for all transactions. The Income-tax Act (1961) has established different TDS rates for different payments and different recipients. TDS does not apply to redemption proceeds from debt mutual funds to residents, but it is for non-resident Indians.

File your TDS Return Online

What is Income Tax?

Income taxes are the taxes that are levied on the earnings of individuals and companies. Income taxes implementation can be from your earnings from many sources. These include dividends and interest, winnings from gambling, product sales, wages, and salaries.

Income tax return are generally referred to as individual income taxes. Income-earning employees and other income-generating individuals pay these taxes. Companies, estates, trusts, and several other entities pay income taxes on income or revenue.

LLP ITR filing is necessary to comply with the law, avoid penalties, and report the LLP’s income, profits, and losses to the government. 

What is the Difference Between Income Tax and TDS?

  1. TDS and income tax would be two different ways of collecting taxes.
  2. The income tax filing is on the basis of the yearly income, which is how the calculations of the taxes proceed for the fiscal year.
  3. TDS would be deducted at the source for the duration of a specific year.
  4. The government would file the income tax. TDS, which is an indirect method to relieve a person of their tax liabilities, would be filed with the government. Tax deductors make it easier for the government to recover its tax debts.
  5. The income tax is imposed on all income earned by the taxpayer during a fiscal year.
  6. TDS return is a requirement of income tax laws that tax at source be deducted only from the individual who made the payments.
  7. All salaried individuals or entities would be subject to an income tax on the income above the tax they sold for the specified duration after the end of the fiscal year.
  8. The TDS would require the taxpayer to file taxes regardless of whether or not they have received the income.

Getting Deeper

Sometimes, a person might not need to pay income tax at year’s end. If an individual earns income from salary and house property, this is a due tax. 

If his salary is less than the taxable limit, there won’t be any deduction on the tax. Also, if his income, which includes income from property, exceeds the exemption limits, he will need to pay tax in one lump sum at year’s end on the annual taxable income. A person may have no taxable income but still have to pay TDS. 

Income from dividends and income from bank interest income is one example. This income from dividends or interest is subject to tax at the source. He may not have any taxable income every year. 

After submitting an annual return, he can claim a refund of the TDS amount.

There Are Reasons to File an Income Tax Return

These are five reasons you shouldn’t miss filing your income tax returns.

  • This makes loan processing much easier

Let’s say you are applying for a loan to buy a house or applying for some other type of loan (education, car, etc.). A lender will usually ask for proof of income before approving a loan. This will require you to submit your income tax returns from the past two or three years.

  • Paying income tax allows you to claim losses

If you have suffered losses under the headings “Capital Gains” or Profits and Gains From Business or Profession and wish to carry these losses forward to the next financial year, the only way to do that is by filing income tax.

  • You can claim TDS reimbursements

You can file your income tax return for the current year, regardless of whether your employee has deducted tax at source. The income tax department will calculate your net tax liability in such cases after accounting for the TDS paid. You can file your ITR to claim a refund if you don’t have to pay tax. Check your income tax return status to track your refund.

  • It is a key contributor to nation-building

Every dollar you pay in tax goes towards building your country. It is a major contributor to the government’s cash flow. The direct taxes collected by the government for FY19 were 9.45 lakh crores. The government can use the money for infrastructure construction or other developmental activities.

  • It can help you apply for credit cards or visas

A visa or credit card issuer will require income proof if you apply for one. Most cases require you to provide income tax returns from the past three years. This will allow the other party to determine if you are eligible to apply for a visa and/or a credit card. During the verification process, you must submit your ITRs if you plan to travel to countries such as Canada, the USA, or any other part of Europe.


Income tax is a tax on an individual’s total annual earnings or the profit of a business entity. TDS refers to a fraction of the expected tax that will be deducted periodically or, sometimes, from an individual’s earnings. It can be regular or irregular in nature. While it may not be necessary to pay tax at the source, one may need to pay income tax at year’s end.

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