Tax deducted at source (TDS) is the process of charging and collecting tax at the source of income. Each source of income—from salary, interest, commission, rent, brokerage, professional fees, royalty, and others—attracts TDS.
It is deducted at the prescribed rate by the tax department if the permanent account number (PAN) is provided by the recipient of income or at the rate of 20% or at the maximum marginal rate of 35.88% in the absence of PAN. The deductor is liable to remit the collected tax into the account of the central government within the stipulated time. The recipient of income can make a declaration to avoid paying unnecessary TDS. For instance, in case of interest income on bank deposits, as per the provisions of section 197A of the Income-tax Act, 1961, if the depositor estimates her income to remain below the basic threshold limit, a self declaration in Form 15G or Form 15H can be furnished by her if she is below 60 years of age or above 60 years, respectively. This is to avoid the trouble of obtaining a refund of unnecessary deducted tax.