What is Income Tax TDS?

Income tax is paid by an individual during an assessment year, on the income earned during the previous year. As a result, tax collection is delayed until the conclusion of the previous year. TDS (Tax Deduction at Source) is a method of collecting income tax from salaried individuals, wherein the applicable tax amount is deducted at the time of computing the income itself. An individual who has authorized TDS receives his/her salary after deduction of the tax. The tax deducted from the assessee’s (tax-payer) salary account is deposited with the Government treasury within a specified time, helping in faster collections.

Rationale behind Tax Deducted at Source

The benefit of TDS is two-fold. From the tax- payer’s perspective, TDS helps to lower the burden of accumulated tax payment at the end of the assessment year. By authorizing marginal monthly TDS transactions, an assessee is freed from the burden of arranging for a bulk tax payment, which may be as high as an entire month’s salary. From the government’s perspective, TDS helps to eliminate the risk of tax evasion. 

Incomes qualified for TDS

Besides salary, incomes gained from several sources are recognized under the tax deduction at source scheme. This includes:

• Rental fee
• Interest on securities
• Dividends from shares and Mutual Funds
• Insurance commission
• Prize money from horse races, lotteries etc.
• Income from an offshore fund

How to apply for TDS?

TDS facility can not be availed by all assessee’s. To setup the TDS service, a tax-payer is required to apply for a Tax Deduction Account Number (TAN). TAN is a 10-digit alpha numeric number, which is to be compulsorily quoted in the TDS return form. A TAN allotment application can be requested with the Form 49B, which is to be duly filled and submitted at an authorized TIN Facilitation Centre. A list of authorized TIN centers can be found at www.incometaxindia.gov.in and http://tin.nsdl.com.