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In India, the tax agency imposes a tax at the time of purchase from the seller rather than when the commodity is sold.

Tax deducted at source (TDS) is a system in India wherein the tax department charges a tax at the time of purchase from the seller rather than waiting until the product is sold.

This article provides all you need to know about TDS, including how it works, who is liable for paying it and some critical considerations.

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What is the TDS complete form?

Tax Deducted at Source (TDS) is a tax mechanism in India whereby tax is deducted from the salary or other income paid to an individual by an employer. It is also known as net pay.

The main aim of TDS is to check evasion of taxes through improper payments of salary or other income. The amount of TDS that should be deducted from an employee’s salary depends on their income and tax bracket. The following table shows the number of TDS that should be deducted from different salaries.

Income Type  Tax BracketTDS Amount (Rs.) 
Paid leave30%50%

TDS: Main benefits

Tax deduction at source is a mechanism through which the taxpayer can claim tax relief on the amount paid. This relief is given as a refund or a reduction of the tax liability.

The main benefits of claiming TDS are:

1) The taxpayer can get his money back quickly, within a few weeks or even days.

2) The amount received as tax relief is usually higher than the amount that would have been paid if the payment was not made as tax.

3) The taxpayer retains full ownership and control over the funds received as a relief.

4) There is no need to provide documentary proof of the tax payment.

Just who is responsible for making the TDS deductions?

Tax deducted at source (TDS) is a tax that is deducted from the salary of an employee by the employer. The employee pays this tax and is charged on the salary earned. The primary purpose of TDS is to ensure that the employees who are paid in cash, such as manual labourers and traders, have to pay their income taxes.

Who pays TDS?

The employer pays TDS on behalf of the employee. The amount of TDS payable by the employer depends on various factors, such as the type of contract between the employer and employee and whether or not the employee is an individual or a company.

How do I know if I am liable for TDS?

Your employer should deduct TDS from your monthly salary if you are an employee. If you are self-employed, you should deduct TDS from your gross income. Alternatively, you can calculate TDS yourself using the below:

Tds = Taxable Income – Total Deductions

Which payments are subject to the withholding of TDS?

When you make a payment, the money is taken off your account as soon as it’s transferred. This includes payments made with debit cards, credit cards, or any other form of payment.

There are a few exceptions to this rule, however. If you’re making a payment with a cheque or money order, the payment isn’t taken off your account until the cheque or money order is cashed. And if you’re making a payment through an automatic withdrawal from your bank account, the payment won’t be taken off your account until the bank sends you a statement confirming that the withdrawal has been processed.

There are also some exceptional cases where payments are deducted but don’t immediately appear on your bank statement. For example, if you’re paying rent or buying groceries using your credit card, those payments will generally be deducted over time and appear on your statement. But if you’re making a payment through an online service like PayPal, those payments will be deducted immediately and won’t appear on your bank statement for several days.

So if you’re unsure whether a payment has been deducted yet, just check to see if it’s showing up on your bank.

The threshold for the deduction of TDS

If you are an Indian employee and your employer withholds income tax at source from your pay, you can claim a deduction for the income tax paid. The amount of the deduction depends on your income and filing status.

Types of TDS forms?

Tax deducted at source (TDS) is a system by which an employer deducts tax from the employee’s wages and pays it to the government.

There are three TDS forms: Form 1099-MISC, Form W-2, and Form 1042-S. Each form reports different information about the employee’s wages and taxes withheld.

Form 1099-MISC reports miscellaneous income, such as salary, tips, commissions, rental income, and prize winnings. This form is sent to the employee each month and includes information about the total wages, social security and Medicare taxes paid, state taxes paid, and federal taxes paid.

Form W-2 reports wage information for employees who have earned income during the calendar year. This form includes the employee’s name, Social Security number, wages (including tips and commissions), bonuses, overtime pay, profit sharing payments, taxable interest income, taxable retirement plan contributions, taxable scholarships or fellowships received, net earnings from self-employment (if applicable), and any applicable federal income tax withheld. The form also shows the total amount of income tax paid.

Form 1042-S is when foreign citizens make money, they must file a TDS Form 1042-S to report the income. This form can be used to report various types of income, including wages, royalties, scholarships, and other forms of compensation.

Is TAN a must for TDS deduction?

Tax deducted at source (TDS) is a tax deduction you can claim on your taxable income. Taxpayers can deduct TDS paid to an authorised retailer on purchases of goods and services. However, there is a condition the taxpayer must meet to claim this deduction- the taxpayer must be an individual who is not a tax-exempt entity (such as a corporation).

There are a few things to remember when determining if you are an individual or tax-exempt entity for TDS.

  • First, you must be an individual who is either a resident of India or has income from within India.
  • Second, you must not be a foreign company earning business income outside India.
  • Finally, you must not be excluded from income under section 9A or 9C of the Indian Income-tax Act, 1944.

If any of these conditions do not apply to you, then you may be considered a tax-exempt entity for TDS and may be unable to claim this deduction.

Paying TDS online

The amount of tax deducted at source (TDS) varies depending on the type of account and the taxpayer’s taxable income. Typically, TDS is paid through online banking or e-payments. The taxman can also deduct TDS directly from your bank account.

TDS certificate

Tax deducted at source (TDS) is a system in India whereby income taxes are deducted from the salaries or other payments made to employees. The employer is required to issue a TDS

certificate to the employee specifying the amount of tax deducted. The employee must then submit this certificate along with their salary or other payment to the Tax Department.

TDS credit in Form 26AS

Tax Deducted at Source (TDS) is a tax system in India that allows businesses to deduct taxes from their payments to employees. This system differs from the Income Tax system in India, which collects taxes from individuals and businesses.

Under the TDS system, businesses pay their employees in cash. The employees then take the cash to the local tax office and declare their income. The tax office then deducts the appropriate amount of tax from the payment and sends the rest of the money to the employee.

The benefits of using the TDS system include:

  • It is simpler than the Income Tax system.
  • There is no need to file a tax return.
  • It is faster and easier to process payments than Income Tax.

The TDS credit on Form AS allows businesses to claim a credit against their income tax liability for all taxable wages paid during the year. This credit can reduce your income tax bill or even eliminate it.

What to do if the TDS credit is not reflected on Form 26AS?

If you have received a TDS credit in your Form AS, but the credit is not reflected in your Form 12C or Form 16, don’t worry! You can do several things to get the credit reflected on your tax return.

  • Make sure you file your Form AS and all required Forms 12C and 16 on or before the due date. If you file late, the IRS may be unable to correct any errors on your return.
  • If you file after the due date, the IRS may only be able to correct errors attributable to technical failures on our part. In other words, if you filed electronically and there were errors in your filing, the IRS may not be able to correct those errors.


This blog discussed all you need to know about tax deducted at source (TDS). This is a tax system in India wherein companies deduct tax from their employees’ salaries.

The advantages of having TDS include increased transparency, collection efficiency, and reduced compliance costs. Additionally, it leads to a simplified salary structure and improved cash flow management.