Another, distressing fact of life, but true, is that we rarely get a glimpse of our "total" income / other earnings... a portion of the same is invariably deducted before payment. This deduction goes by the name TDS (i.e. Tax Deducted at Source).
For example, subject to certain conditions
- our employer pays our salary after deducting TDS
- our banker pays interest after deducting TDS
- when we sell a property, the buyer deducts TDS before paying us the sale consideration
- depending on who the tenant is, even the rent on our property attracts TDS
- if we win any lottery or a game, our prize money is paid after deducting TDS
Beware: Many people presume that that once the TDS is deducted, there is no further tax liability. This is a totally incorrect and erroneous presumption.
As we all know, our tax liability depends on our income, earnings from various sources, eligible exemptions, deductions etc., which are all unique for each one of us. Accordingly, every person pays a different amount of tax.
TDS, on the other hand, is a uniform percentage deducted for all persons irrespective of the "actual" tax payable by them (except in case of salary, where the TDS is deducted according to the person's estimated income for the year). This percentage varies from 1% to 30%, depending on the type of payment (interest, winnings, rent, property sale, commission, etc.)
Logically, therefore, (except a few instances) in most cases your "tax deducted" will NOT be the same as your "tax liability".
Hence,
a) If the tax payable exceeds the TDS amount deducted, you must pay the difference
b) If the tax payable is less than the TDS deducted, you can claim a refund in your IT Return
In other words, TDS is merely an advance payment of tax. As the name implies, Govt. is collecting its due, at the very source of income itself; rather than waiting for the income to first come to you and then you paying the tax due on the same.
Important: You have to furnish your PAN No. to the deductor, if you wish that the lower TDS percentage specified is applied. Else a flat 20% would be deducted (except in cases where it is already 20% or winnings from lottery / game / horse racing where the specified percentage is anyway higher at 30%).
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