Tax Deducted at Source (TDS) is a system where tax is collected at the point of income itself. Instead of waiting for the recipient to pay tax later, the payer deducts a certain percentage and deposits it directly with the government.
TDS applies to various payments like salaries, interest, rent, professional fees, and contractor payments. The deducted amount is then reflected in the recipient’s tax records and can be claimed as credit while filing the income tax return.
In simple terms, TDS ensures a steady collection of tax for the government and reduces the chances of tax evasion, while spreading the tax burden across the year.