TDS stands for Tax Deducted at Source. It is a mechanism of collecting tax at the source of income. In simple terms, TDS is a tax deduction made by the payer of the income to the government on behalf of the payee. The deductor (payer) deducts a certain percentage of tax from the payment made to the deductee (payee) and deposits it with the government.
TDS is applicable to various types of payments such as salary, interest, commission, rent, etc. as per the rates specified by the Income Tax Department. TDS is deducted at the time of making the payment and the balance amount is paid to the payee.
TDS is a means to ensure regular collection of tax by the government and to prevent tax evasion. It also helps in the timely collection of tax and reduces the burden of tax payment for taxpayers by allowing them to pay tax in installments.
TDS is applicable to both individuals and companies, and the rates vary depending on the nature of the payment and the status of the payee. A TDS certificate is issued by the deductor to the deductee as proof of tax deduction, which can be used while filing income tax returns.