Income Tax Query

Tax Deducted at Source  

Tax Deducted at source is one way of collecting the taxes by the Indian income tax department. Other ways are: 

1.     Advance Tax 

2.     Payment of tax under self-assessment. 

3.     Tax Collection at source. 

4.     Demand by department on assessment. 


Objectives of TDS 


Tax Deducted at Source was introduced in India to facilitate the payment of tax while receiving the income and it follows the concept of “Pay as you earn”. However, the purposes of tax deducted at source is changing slowly. Now, the objectives of tax deducted at source are: 


Ø  To enable the salaried people to pay the tax as they earn every month. This helps the salaried persons in paying the tax in easy instalments and avoids the burden of a lump sum payment. 

Ø  To collect the tax at the time of payment of income to various assessees such as contractors, professionals etc. 

Ø  Government requires funds throughout the year. Hence, advance tax and tax deducted at source help the government to get funds throughout the year and run the government smoothly. 

Ø  It helps to spread the tax net wide enough to include persons who might otherwise have evaded taxes. The minimum thresholds are raised and the rates are reasonable and comparable with the rates prevailing in other countries. Hence, it is very vital to make all the persons earning the taxable income pay the tax. But, the best way to make them pay is to deduct tax at source. 

Important Note: As per section 206AA, with effect from 1.4.2010, every person who receives income subject to TDS under chapter XVIIB (covers all TDS cases) shall furnish to the deductor, his PAN. If PAN is not so furnished, the rate of TDS will be at the rates specified in the Act or at the rates currently in force or at 20% whichever is higher. Please note that this applies to non-residents also.  


Note-2: In case of payments by an e-commerce operator to an e-commerce participant w.e.f. 01.10.2020, the rate of TDS in case of non-furnishing of PAN is 5% only and not 20%. 











Tax Deducted at Source now covers payments covering around 21 different categories. 


At present, TDS plays a very important role in the collection of the Indian Income Tax. This is a very easy method to collect from the Indian Income Tax Department point of view. 


Every person who has to deduct tax at source has to obtain Tax Deducted at source Number (TAN) and it has to be quoted in all TDS challans, Returns and Certificates. 


Each unit or branch of the organisation which is liable to deduct tax can choose to obtain a separate TAN. 


Tax Deducted at Source has to be deposited with the Central Government within the prescribed time limit by using the appropriate challan. 


TDS has to be remitted within one week from the last day of the month in which the deduction is made. For example, if the deduction is made on February 12th, you have time until and inclusive of 7th March to remit. However, if the amount is credited or paid in the month of March, then the tax deducted can be deposited within 30th April. 


TDS remittance is normally made in specified branches of banks.