TDS (Tax Deducted at Source) and Income Tax are both important parts of the Indian tax system. Both are about getting money from taxes, but there are some differences between the two.
TDS is a way to receive tax at the source of income, as the name suggests. Under this method, the person making the payment (called the “deductor”) takes out a certain percentage of the amount being paid when making certain payments, such as salaries, interest, rent, commissions, etc. The amount that was taken out is then sent to the government on behalf of the person being paid, who is called the “deductee.” The goal of TDS is to collect taxes at the source of income, so that the government has a steady flow of money.
On the other hand, income tax is a straight tax on a person’s or business’s income, profits, or gains. It applies to all income, no matter where it comes from, made or received during a financial year. The assessable income includes salaries, business income, capital gains, rental income, interest income, and a number of other groups. Paying income tax is the responsibility of the taxpayer, who must file their tax returns and pay the tax due by the due times.
In short, the main difference between TDS and income tax is how they are both received. TDS is a way to collect tax in advance at the source of income. Income tax, on the other hand, is the amount of tax a person or business has to pay at the end of the year based on their total income for that year.
Another important difference is who is responsible for taking out and paying the tax. In the case of TDS, the person making the payment (the deductor) is responsible for taking out the tax and sending it to the government. With income tax, on the other hand, it is up to the taxpayer to figure out how much tax they owe based on their income, deductions, and tax liability, file their tax forms, and pay their taxes.
Also, TDS only applies to certain types of payments that fall under the Income Tax Act. The government decides the rates of TDS, which can be different based on the type of payment and the status of the recipient. On the other hand, income tax rates are set by the Finance Minister’s yearly budget, and they apply to a person’s or business’s total income based on the income tax slab rates.
It’s important to remember that TDS is a way to make sure that taxes are collected regularly and that tax evasion is kept to a minimum. Income tax, on the other hand, brings in money for the government and lets them pay for things like public aid and development projects.
In conclusion, TDS and income tax serve different goals within the tax system. TDS is a way to collect tax at the source of income. Income tax, on the other hand, is the final amount of tax a person or business has to pay based on their total income. Both taxpayers and deductors need to understand these changes in order to follow tax rules properly.