Income tax is calculated using an individual's or company's annual income. Therefore, income tax is not calculated on a per-year basis. Taxation is, however, taken from the source over the fiscal year in which income tax is payable. The employer is responsible for deducting income tax from employee salaries.

As a tax, a proportion of lottery or gaming profits is taken from the total. Many other persons have income that is taxed at the source.

What is TDS?

TDS stands for tax deducted at source. TDS assists in the collection of tax at the point of revenue creation. The government uses TDS to collect taxes and combat tax evasion. It taxes money at the source rather than after it has been calculated and deducted.

TDS is levied on a number of revenues, containing interest, commissions, dividends, and wages. TDS does not apply to all earnings or people in all situations. The Income-tax Act of 1961 set varied TDS rates for certain payments and beneficiaries. TDS does not apply to debt mutual fund redemption proceeds for residents, but it applies to non-resident Indians.

What is Income Tax?

Income taxes are charged on the incomes of individuals and corporations. Income taxes can be levied on earnings from a variety of sources. Dividends and interest, gaming wins, goods sales, wages, & salaries are examples of these.

Individual income taxes are the broad term for income tax returns. Employees and other income-generating persons pay these taxes. In addition, companies, estates, trusts, and a variety of other entities pay income taxes on their earnings or revenue.

Differences Between TDS & Income Tax

• TDS & Income tax is two distinct methods of tax collection.
• The income tax filing is based on the yearly income, which is how the tax computations for the fiscal year go.
• TDS would be deducted at the source for a certain fiscal year.
• The government would file the income tax. TDS would be lodged with the government as an indirect means of reducing a person's tax payments. Tax deductors assist the government in recovering its tax bills.
• The income tax is levied on all earnings made by the taxpayer throughout the fiscal year.
• Income tax regulations require TDS returns to deduct tax at source solely from the individual who made the payments.
• After the conclusion of the fiscal year, all salaried persons or businesses would be liable to an income tax on income beyond the tax they sold for the defined period of time.
• The TDS would compel the taxpayer to file taxes whether or not they got the income.

A Deeper Knowledge

At the end of the year, a person may not have to pay income tax. However, this is a payable tax if an individual obtains money from wages and residential property.

There will be no tax deduction if his salary is less than the taxable limit. Also, if his/her income, which includes property income, exceeds the exemption limitations, he must pay tax on the yearly taxable income in one lump payment at the end of the year. Even if a person has no taxable income, TDS must be paid.

One example is revenue from dividends and interest on bank deposits. This income from dividends or interest is taxed at the point of receipt. Every year, he may not have any taxable income.

Reasons for Filing Income Tax Returns

This greatly simplifies loan processing

Assume you are looking for a loan to buy a house or another form of loan (education, car, etc.). Before issuing a loan, a lender would normally want proof of income. This will necessitate the submission of the income tax returns for the previous two or three years.

You can claim losses if you pay income tax

If you have losses under the titles "Capital Gains" or "Profits & Gains From Business or Profession" and want to carry these losses forward to the following fiscal year, you must file income tax.

TDS refunds are available

You can file the income tax return for the current year whether or not your employee deducted tax at source. In such circumstances, the income tax authorities would determine your net tax due after deducting TDS. If you don't have to pay taxes, you can do an ITR filing online to get a refund. To trace your refund, check the status of the income tax return.

It is an essential contributor to nation-building

Every tax dollar you pay helps to grow your country. It contributes significantly to the government's cash flow. The government collected 9.45 lakh crores in direct taxes in FY19. The funds might be used for infrastructure building or other development initiatives by the government.

It might assist you in applying for credit cards or visas

If you apply for a visa or credit card, you will be asked to provide documentation of your income. In most circumstances, you must present income tax returns from the previous three years. This will enable the other party to evaluate if you qualify for a visa and/or a credit card.

When TDS should be deducted and by whom?

Any individual making certain payments under the Income Tax Act is obligated to deduct TDS when the payment is made. However, no TDS must be removed if the payer is a separate person or HUF whose records are not needed to be audited.

Individuals and HUFs are needed to deduct TDS at 5% on rent payments over rupees fifty per month, even if the person or HUF is not subject to a tax audit. Individuals & HUFs who are needed to deduct TDS at 5% do not need to apply for TAN. Your employer deducts TDS at the relevant income tax slab rates.

TDS rates for most payments are prescribed in the Income Tax Act, & TDS is reduced by the payer based on these rates. You don't have to pay any tax if you submit investment evidence (for seeking deductions) to the employer & the total taxable income is less than the taxable limit. As a result, no TDS should be taken from your earnings.

Similarly, if the total income is less than the taxable boundary, you can send Forms 15G and 15H to the bank so that they do not take TDS on the interest income.

Conclusion

Income tax is a tax imposed on an individual's total yearly income or a business entity's profit. TDS is a percentage of the projected tax that will be deducted on a regular basis or, in some cases, from an individual's wages. It might be either regular or erratic. While it may not be essential to pay tax at the source, it may be necessary to pay income tax at the end of the year.