What is TDS?
Tax Deducted at source
(TDS) is a system introduced by Income Tax Department, where person responsible
for making specified payments such as salary, commission, professional fees,
interest, rent, etc. is liable to deduct a certain percentage of tax before
making payment in full to the receiver of the payment. As the name suggests,
the concept of TDS is to deduct tax at its source. Let us take an example of
TDS assuming the nature of payment is professional fees on which specified rate
is 10%.
XYZ Ltd makes a payment
of Rs 50,000/- towards professional fees to Mr. ABC, then XYZ Ltd shall deduct
a tax of Rs 5,000/- and make a net payment of Rs 45,000/- (50,000/- deducted by
Rs 5,000/-) to Mr. ABC. The amount of 5,000/- deducted by XYZ Ltd will be
directly deposited by XYZ Ltd to the credit of the government.
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