TDS: Tax Deducted at Source

How India collects tax at the moment income is paid, why this helps the government, and how taxpayers can check and claim refunds.

In India, tax on many kinds of income is collected before the income even reaches you. This is called Tax Deducted at Source, or TDS. Many other countries have similar withholding taxes, such as income tax taken from wages before payment.

How TDS works

The person or organisation making a payment deducts tax and pays it to the government on behalf of the recipient. Examples include:

Salaries: employers deduct tax from monthly pay.
Interest: banks deduct TDS on fixed deposit interest above certain limits.
Rent: some tenants paying high rent must deduct TDS.
Professional fees and contract payments.
Property purchases above a certain value.

Why it exists

Steady revenue: the government receives tax throughout the year.
Reduces evasion: tax is collected before income can be hidden.
Creates a record: every deduction is reported, helping the tax department track income.

Checking your TDS

All TDS deducted on your behalf appears in Form 26AS and the Annual Information Statement, which you can view online through the income tax portal. Checking these ensures deducted tax has been correctly deposited and credited to you.

Refunds

If more TDS was deducted than your actual tax liability, for example because your total income is low, you can claim a refund by filing an income tax return. People with low incomes can also submit Form 15G, or Form 15H for senior citizens, to banks to avoid TDS on interest when their total income is below the taxable limit.

A retired person's fixed deposit

A retired woman earns interest on fixed deposits, but her total income is below the taxable limit. Her bank deducts TDS on the interest. She submits Form 15H to the bank at the start of the year to prevent further deductions, and files a tax return to claim a refund of tax already deducted. Without knowing these steps, she might lose money she is owed.

Thinking TDS is an extra tax

TDS is not an additional tax; it is advance payment of your income tax. If too much is deducted, you can claim it back when you file your return.

Key takeaways

TDS collects tax at the moment income is paid, on salaries, interest, rent and more.
It provides steady revenue, reduces evasion and creates records.
Form 26AS and the Annual Information Statement show TDS credited to you.
Excess TDS can be refunded through a tax return, and Forms 15G and 15H can prevent unnecessary deductions.