Income Tax VS TDS: Do you know what is the difference between Income Tax Return and TDS (Tax Deducted at Source)? Many people are confused about this. So today we will tell you about both of them. Income Tax and TDS are two important factors of the 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 of personal finance, and it is a direct tax that the government levies on a person's income. This tax is levied on various sources of income, including salary, business profit, capital gain, and other means of earning. It is the sole responsibility of the taxpayer to calculate his income (Income Tax Calculator) and pay tax accordingly, and he has to follow the tax slabs and rules made by the government.
TDS: Tax Deduction at Source
In contrast, Tax Deducted at Source (TDS) is a method by which the government collects tax directly from the income source. It is a form of withholding tax in which a fixed amount is deducted as tax before paying the salary, interest, rent, or consultancy fees received by an individual or organization and it is immediately sent to the government. TDS simplifies the process of collecting tax for the government and also helps in preventing tax evasion.
Who has to file an income tax return?
Filing an 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 60 to 80 years, this limit is Rs 3 lakh, while for those aged 80 years and above, this limit is Rs 5 lakh.
When is TDS deducted from income?
On the other hand, TDS is a process in which a part of your income is deducted from the source itself. This includes income from salary (TDS on Salary), income from investment and rent, income from winning contests, lottery, gambling, prize money, and many other similar incomes. TDS applies to commissions received from insurance, payments made to contractors, brokerage, commission, and fees for professional services. Apart from this, TDS is also levied on payments made from the National Savings Scheme and many other types of income sources.
Understanding these limits and the income sources for which TDS is applicable is important for filing income tax returns to comply with tax rules and avoid penalties.
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