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There are taxpayers, who believe that the Tax Deducted at Source (TDS) is not part of their taxable income, and this can lead to confusion. In reality, the tax deducted at source is very much a part of your income calculation, but not in the way you might think. Let us understand how it works.

What is TDS?

TDS stands for Tax Deducted at Source. It is the tax that is deducted from your income by the person or organization that is paying you (like your employer, a bank, or a company) before you even receive the money in accordance with the provisions of the Income-tax Act. For example, when you earn a salary, your employer deducts a certain amount as tax before paying you the remaining amount. This deducted amount is paid directly to the government as your tax payment.

TDS is Your Income:

The tax deducted at source (TDS), is part of your total income. For example, if your salary is ₹50,000 and ₹5,000 is deducted as TDS, you will only receive ₹45,000 in your bank account but ₹50,000 will be considered as your salary income.

How TDS Works in Simple Terms:

To put it simply, the income you receive is after the tax has been deducted. If your employer deducts ₹5,000 TDS from your ₹50,000 salary, your taxable income remains ₹50,000; it's just that the ₹5,000 has been pre-paid to the government on your behalf.

This means that when you file your tax return, the ₹5,000 of TDS will be subtracted from the total tax you owe. If the TDS exceeds the tax payable, you will get a refund. If the TDS is less than the tax payable, you will have to pay the difference.

TDS is a Prepaid Tax:

The amount of TDS deducted from your income is like a prepaid tax. This means, when you file your income tax return, the amount of TDS that was deducted will be subtracted from the tax you owe.

For example, if your total tax liability for the year is ₹30,000, but ₹60,000 was already deducted as TDS, you would have already paid more tax than you owe. In this case, the government ₹30,000/- becpmes refundable.

Why Is TDS Important?

TDS ensures that taxes are collected regularly, as income is being earned. This helps the government to collect taxes more efficiently and in monitoring tax compliance.

What Happens When You File Your Return?

When you file your tax return, you will show your total income, which is the salary or other income you earned. You will also claim credit of TDS made. The government will then compare the total tax you owe with the tax already paid through TDS.

• If the TDS is more than the tax you owe, you will get a refund.
• If the TDS is less than the tax you owe, you will need to pay the remaining tax.

Conclusion:

In simple terms, TDS is a way of paying your taxes in advance. It is is deducted from your income and is treated as tax already paid on your behalf. When you file your tax return, the TDS amount will be credited to you, either reducing your tax liability or resulting in a refund.

So, the next time someone tells you that TDS is not part of your income, you can confidently explain how it works and how it helps in paying taxes in a simpler way!

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Disclaimer:

This article is based on my personal understanding of the relevant provisions of the Income-tax Act and should not be construed as professional advice. Please consult a tax professional for specific guidance.