TDS (Tax Deducted at Source)
Tax that the payer deducts upfront from specified payments like salary, rent, or professional fees, and deposits directly with the government on the recipient's behalf.
In short
- Applies once a payment crosses its own specific threshold; the rate and threshold differ by what's being paid, salary, rent, professional fees, and interest each have their own section.
- TDS deducted isn't a final tax, it's a credit against your actual liability, reflected in Form 26AS and adjusted when you file.
- A single taxpayer can have TDS deducted under several different sections in one year: 192 on salary, 194A on interest, 194J on professional fees, among others.
TDS shifts part of the tax collection job onto the person making a payment rather than waiting for the recipient to pay tax later. Whenever a payment covered by the TDS rules, salary, rent above a threshold, professional fees, contractor payments, interest, and many others, crosses the specified limit, the payer deducts tax at a prescribed rate and deposits it with the government, paying the recipient only the net amount.
The recipient isn't taxed twice: the TDS deducted shows up as a credit in their Form 26AS and AIS, and gets adjusted against their final tax liability when they file their return. If more was deducted than actually owed, the excess is refunded after filing. Each payment type has its own section, threshold, and rate, which is why a single individual might see TDS deducted under several different sections in a single year: 192 on salary, 194A on interest, 194J on professional fees, and so on.
Also referred to as: TDS, tax deducted at source.
Frequently asked questions
Is TDS a separate tax on top of income tax?
No. It's a mechanism for collecting income tax upfront, not an additional tax. The amount deducted is credited against your actual tax liability when you file your return.
What happens if too much TDS was deducted?
The excess is refunded once you file your return and the department processes it, provided the deduction is correctly reflected in your Form 26AS.
Does every payment attract TDS?
No, only payments specifically covered under the TDS provisions, and only once the amount crosses that payment type's own threshold. A payment below its threshold has no TDS deducted at all.
Disclaimer
This glossary entry is for general informational purposes only and does not constitute professional tax, legal, or financial advice. Rules and rates change, so consult a qualified Chartered Accountant for advice specific to your situation.