Income Tax and Tax Deducted at Source (TDS) are the two most common terms Indian taxpayers often come across. Both may sound similar, but there is a vast difference between them. The main difference between Income Tax and TDS is that the Income Tax is deducted from the payer’s overall profit or annual return, on the other hand, TDS refers to the tax deducted from the payer’s sources of income based on the expected tax liability. Also, both taxes have a different mechanism when it comes to the collection process.
Income Tax is a tax on the annual income earned by the individual or company during the fiscal year. It is governed by the Income Tax Act of 1961, which outlines the norms for tax calculation, assessment, and collection. It applies to income sources like salary, income from house property, profits from profession or business, and capital gains etc. Any individual earning above Rs. 2.5 lakhs (old tax regime)/ ₹3 lakhs (new tax regime) have to pay the income tax; avoiding it will be considered as tax evasion, punishable under the law.
Tax Deducted at Source (TDS) is tax deducted from the payer’s very source of income and is directly remitted to the government. Under TDS, individuals or organizations making specified payments like salary, interest, rent, or professional fees, must deduct a certain tax percentage before making the payment. It is crucial in preventing tax evasion and also simplifies the tax collection process.
Here’s a more comprehensive breakdown of the Income Tax and TDS components:
Catch all the Instant Personal Loan, Business Loan, Business News, Money news, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.