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Income tax and TDS (Tax Deducted at Source) are two frequently heard terms that confuse many people. There is a lot of difference between the two.
Income tax is a tax levied on the annual earnings of an individual or company in a financial year. This income can come from many sources, such as salary, property rent, business. A person with income above Rs 2.5 lakh under the old tax system and above Rs 3 lakh under the new tax system has to pay income tax.
The limit is Rs 3 lakh for a person aged between 60 to 80 years and Rs 5 lakh for senior citizens above 80 years of age. Income tax rates are determined by income slabs specified in tax law. Income tax is levied on total annual income which includes salary, capital gains and other sources of income.
If we talk about tax deducted at source i.e. TDS, then it works to prevent tax evasion. While paying salary, interest, rent, professional fees in TDS any person or institution is forced to deduct a specified tax percentage before payment. The amount of deduction is immediately sent to the government. TDS simplifies the tax collection system and acts as a shield against possible evasion.
TDS is deducted on various sources of income throughout the year, it could be salary, rent, winning amount, lottery, investment, prize money etc. The payer deducts TDS and immediately remits it to the government. TDS tax rates are predetermined by the government and there is no intervention of the payer.