While almost all of us know about income tax, some may not be familiar with the term TDS or the tax deducted at the source. Interestingly, many people use these terms interchangeably without realising the difference. Though it is easy to get confused, it is essential to know the difference between the two to manage your income and payable taxes better. The knowledge will come in handy while filing your income tax returns.
This is the tax levied on the personal income of an individual; the rate and final amount of which depend on the income. There are several slabs, each with a different rate of tax. The tax money is deducted from the gross income of the individual. Every taxpayer is eligible for certain exemptions and deductions based on financial commitments such as premiums on health and life insurance, children’s education, donations to certain charitable causes and the interest paid on loan against property. The taxable income is arrived at after making these deductions and the tax is levied at the end of the financial year.
TDS is tax deducted at source—that is, a certain amount is deducted from the monthly salary at the source (by the employer) on the assumption that the employee has a taxable income. TDS is also deducted by banks and financial institutions on interest earned periodically. This helps the government to collect taxes swiftly and efficiently. This amount can also be included in the deductions while calculating the final taxable income.
It is mandatory for everyone earning an income to file their returns, even if their income is not taxable or if their tax gets deducted at the source. There is a connection between TDS and income tax return. In the case of tax deduction at source when the total annual income of the individual is not taxable; or, the tax deducted is more than what the individual owes as tax, then you can file for an income tax refund.
Although income tax and TDS are both connected to an individual’s income, they are calculated and settled differently. TDS represents only a part of the income tax an individual is liable to pay to the government at the end of the financial year. So, the next time someone mentions income tax and TDS interchangeably, the onus is on you to correct them.
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