TDS stands for ‘Tax Deducted at Source’. It was introduced to collect tax at the source from where an individual’s income is generated. The government uses TDS as a tool to collect tax in order to minimise tax evasion by taxing the income (partially or wholly) at the time it is generated rather than at a later.
TDS is applicable on the various incomes such as salaries, interest received, commission received etc.
All corporate and non-corporate tax deduction entities making payments specified under the Income Tax Act, to third parties are required to deduct tax at source (Tax Deducted at Source -TDS) from these payments and deposit them with any designated bank branches authorized with the collection of taxes on behalf of the Government of India. They are also required to furnish TDS returns with third parties’ details and challan details on the tax deposit to the IT Department.
The Electronic Filing of Returns of Tax Deducted at Source Scheme, 2003 is applicable to all entities deducting tax, who furnish their TDS return in electronic form. As per this scheme:
- From June 1, 2003, it is mandatory for corporate entities deducting tax, to furnish their TDS returns in electronic form (e-TDS return).
- From the F.Y. 2004-2005, it is mandatory for Government entities deducting tax, to furnish TDS returns in electronic form.
- Entities other than the Government and corporates may file TDS returns in electronic or physical form.
Once an individual deposits the TDS with the Income Tax Department, according to the Section 203, the deductor need to allot a TDS Certificate to the concerned individual on behalf of the person for whom the tax payment was done.
Ideally, the TDS Certificate or Form 16/ Form 16A (as applicable) ought to be issued to the individuals on an annual or quarterly basis.
Now, with the ease of making online payment for TDS or e-filing TDS, which is hassle-free, fast and convenient, the process for payment has also been simplified online.