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What is Tax Deducted at Source (TDS)?

What is Tax Deducted at Source (TDS)?
The concept of Tax Deducted at Source (TDS) envisages the principle of "pay as you earn". It facilitates sharing of responsibility of tax collection between the deductor and the tax administration. It also brings in regular cash flow to the Government. It acts as a powerful instrument to prevent tax evasion as well as expands the tax net.

Types of TDS certificates

Salaries - Form 16: In case of Salaries, the certificate should be issued in FORM 16 containing the Tax computation details and the Tax deducted & Paid details.

Non-salaries - Form 16A: In case of Non-Salaries, the certificate should be issued in FORM 16A containing the Tax deducted & Paid details. Separate certificates should be prepared for each Section.

TDS Rates


The income from salary would be estimated for the year and then tax payable by an employee would be calculated for that year and tax would be deducted at an average rate. For instance, if the tax payable is 24,000 for the year, a TDS of 2,000 would be deducted every month.

Interest on Securities/Dividends/Interest:

In the case of interest paid by a banking company, Co-operative society engaged in the business of banking and a public company engaged in the financing or construction of residential houses in India, the exemption limit is Rs. 10,000/-. TDS would be @ 10%.

Winnings from lotteries, puzzles, horse races:

TDS of 30% would be levied on winnings from lotteries, puzzles and horse races. However, basic exemption limit for deducting TDS is INR 5000 for lotteries and puzzles but only INR 2500 for horse races.

Deduction of TDS does not mean that excess of tax paid would not be refunded. Refund can be claimed in cases where TDS is higher than the actual tax to be paid. In case, the detection of such excess amount is made beyond the financial year concerned, such claim can be made to the Assessing Officer (TDS) concerned.

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