Income Tax and TDS..are they same?

In spite of clear guidelines and clarifications there still prevails some confusion in the minds of some taxpayers about both these terms. Income tax is the direct tax imposed on individuals or companies /establishments on the salary, wages or income earned by them. This tax collected by the Government is used to fund public utilities, services, and spent for the good of the citizens of the country including those who are not taxpayers. Income tax is a direct tax as it is levied on the income of the earner and is paid by the person or firm directly. On the other hand a tax levied on the goods and services which we consume and not on income or profits is called an Indirect Tax.

Income tax is paid mostly in March and where the tax liability is substantial the tax payer is expected to make periodical advance tax payments avoiding bulk payment at the end of the financial year. This way the income to the Government is evenly distributed and can be spent usefully. To further streamline the tax inflow the Government introduced the concept of deduction of tax at source which is called TDS. Any person who makes payments that come under the tax specified nature is required to deduct an amount as per the rates notified by the Government from the payment he makes and pay the balance amount to the service provider or deductee. The person deducting the TDS has to remit the tax so deducted to the Government within the stipulated time under proper tax head. The employer or the deductor of such TDS will thereafter give F16 or F 16A to the deductee. Form 16 is given for TDS deduction from salary income and F 16A for deductions from non salary income. The individual or the entity from whom TDS has been deducted shall arrive at the total tax liability at the close of the financial year and pay the tax dues after adjusting for the amount of tax already deducted at Source. This process reduces the leakage of income to a great extent. There are penal provisions in the Income tax act for non deduction of TDS and also non filing of applicable tax returns.

For all payments the TDS rates are clearly defined in the guidlines issued by the tax department. The payer has to understand these guidelines properly and deduct tax accordingly. Employees have to submit proof of investments made in specified avenues to the employer and if the taxable income as a result of investments made by the employee falls below the threshold limit for income tax then no TDS will be deducted. For bank deposits the customer has to submit forms 15G or 15H(seniors).to the bank if their income is below the taxable limit. Thereafter no tax will be deducted at source. In some cases where tax has been deducted before submission of 15G/H the depositor can file his tax returns and claim refund of the tax so deducted. The taxpayers have to verify the individual form 26As to see all tax deducted at source before filing their individual tax returns.

There is also the tax collected by sellers of some specified goods like motor cars above 10 lacs wherein the dealers collect an extra amount as tax on the purchases from the buyers. This is called tax collection at source (TCS). The TCS can be claimed back at the time of filing returns by the individual.

LET us see more details in the next post.

pichai

05052023