Tds
This query is : Resolved
Kritika. Kataria
(Querist)
02 November 2014
what is the actual meaning and effect of tax deducted at sourcse?
02 November 2014
Overview of TDS:
TDS is one of the modes of collection of taxes, by which a certain percentage of amounts are deducted by a person at the time of making/crediting certain specific nature of payment to the other person and deducted amount is remitted to the Government account. It is similar to "pay as you earn" scheme also known as Withholding Tax in many other countries, one of the countries is USA. The concept of TDS envisages the principle of "pay as you earn". It facilitates sharing of responsibility of tax collection between the deductor and the tax administration. It ensures regular inflow of cash resources to the Government. It acts as a powerful instrument to prevent tax evasion as well as expands the tax net.
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:
• 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.
• To collect the tax at the time of payment of income to various assessees such as contractors, professionals etc.
• 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.
• 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.
TDS is one of the modes of collection of taxes, by which a certain percentage of amounts are deducted by a person at the time of making/crediting certain specific nature of payment to the other person and deducted amount is remitted to the Government account. It is similar to "pay as you earn" scheme also known as Withholding Tax in many other countries, one of the countries is USA. The concept of TDS envisages the principle of "pay as you earn". It facilitates sharing of responsibility of tax collection between the deductor and the tax administration. It ensures regular inflow of cash resources to the Government. It acts as a powerful instrument to prevent tax evasion as well as expands the tax net.
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:
• 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.
• To collect the tax at the time of payment of income to various assessees such as contractors, professionals etc.
• 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.
• 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.
Nikhil Kaushik
(Expert)
02 November 2014
TDS refers to tax deduction by the the payer while making payment to payee on certain payments depending upon the nature of the transaction.
For eg: for payments made to chartered accountants, the payer deducts tax at 10% under section 194J.
the effect of tax deduction is:
1. govt gets regular tax revenue (instead of year end tax payment by the asseseee)
2. the tax deducted is added to tax credit available to the payee. So when the payee will file his tax return, he shall claim the credit of the tax deducted by the payer.
For eg: for payments made to chartered accountants, the payer deducts tax at 10% under section 194J.
the effect of tax deduction is:
1. govt gets regular tax revenue (instead of year end tax payment by the asseseee)
2. the tax deducted is added to tax credit available to the payee. So when the payee will file his tax return, he shall claim the credit of the tax deducted by the payer.
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