The full form of tds is tax deducted at the store. When you read the income tax act, you may find that any person who makes the payment, the tax will be deducted from the payment. The tax which is deducted from the account of the person is known as deductor. The deducted amount is transferred to the account is known as deductee. It is a deductor responsibility to deduct the TDS of the deductee while making payment.
Now that you have understood what is TDS. But, you may be wondering why it is necessary to deduct the tax from the deductee amount and how will be deducted get utilized. So, understand the answers to these questions with this example.
Let’s understand about tds with this example-
Mr A makes a payment for office Rs, 80,000 as a rent.
The TDS is required to be deducted, which is 10% that is 8,000 rupees and pay the balance
72,000 to the owner of the property.
After the deduction, the property of the net owner’s income after deduction is Rs.
72,000. He will add a gross amount i.e Rs. 80,000 to his income and can take credit of
the amount already deducted i.e Rs. 8,000 by A.
TDS is deducted on the following types of payment:
Interest payment banks.
We hope you have completely understood the tds. Now we are moving towards its importance. So, let’s get started.
- Paying a huge amount of tax at one time is not good for the deductee. That’s why tds come into the picture. A company deducts the tax from the employee salary every month, not from its whole CTC. If it does, then it is very difficult for the employee to survive with the salary. It is one of the most significant importance of tds.
- TDS is used by the government as a tool to maximize tax evasion. It states the continuous flow of revenue for the government.
- It has significant importance at the time of tax audits.
As you now have understood what is tds and its importance. Now, we are going to tell you about the tds certificate and return that will give you more clarity regarding tds.
A TDS certificate is a certificate that is issued by the deductor that specifies tds has been deducted and submitted to the bank. The importance of this document generates when you need to adjust the tds tax against the tax payable.
A deductee tds has to be submitted by the deductor to the government. TDS return form which is filled by the deductee to get back the amount that has been deducted in the form of tax.
This comprehensive guide on the TDS will help you a lot. We hope now you completely understand about TDS and its importance.