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Income Tax VS TDS: Do you know what is the difference between Income Tax Return and TDS (Tax Deducted at Source)? Many people remain confused about this. Therefore today we will tell you about these two. Actually Income Tax and TDS are two important factors of taxation system which play an important role in revenue collection and compliance. But both work under different systems.
To understand the tax system better, it is important to understand the difference between income tax and TDS. Here we are going to tell you in detail about the difference between these two.
Income Tax: Personal Taxation
Income tax is a very common term in personal finance, and it is a direct tax that the government imposes on an individual's income. This tax is levied on various sources of income, including salaries, business profits, capital gains and other means of earning. It is the sole responsibility of the taxpayer to calculate his income (Income Tax Calculator) and pay tax accordingly, who has to follow the tax slabs and rules made by the government.
TDS: Tax deducted at source
In contrast, Tax Deducted at Source (TDS) is a method by which the government collects taxes directly from the income source. It is a form of tax deduction in which a certain amount is deducted as tax before paying salary, interest, rent or consultancy fees to an individual or organization and it is immediately remitted to the government. TDS simplifies the process of collecting taxes for the government and also helps in preventing tax evasion.
Who has to file income tax return?
Filing Income Tax Return (ITR) is mandatory for individuals whose annual income is more than Rs 2.5 lakh under the old tax regime or Rs 3 lakh under the new tax regime. For senior citizens aged between 60 to 80 years, the limit is Rs 3 lakh, while for people aged 80 years and above, the limit is Rs 5 lakh.
When is TDS deducted on income?
TDS, on the other hand, is a process in which a portion of your income is deducted at source. This includes income from salary (TDS on salary), income from investments and rent, income from winning competitions, lotteries, gambling, prize money and many other similar incomes. TDS is applicable on commission received from insurance, payments made to contractors, brokerage, commission for professional services and fees. Apart from this, TDS is also levied on payments made from National Savings Scheme and many other types of income sources.
Understanding these limits while filing income tax returns and the sources of income on which TDS is applicable is important to comply with tax rules and avoid penalties.