What is TDS or Tax deducted at source as per Income Tax Act?

TDS stands for Tax Deducted at Source. It is also commonly known as withholding  tax in many countries across the world. It is one of the modes of collection of taxes, by which a certain specified percentage of amounts are deducted by a person at the time of  making/crediting certain specific payments to other persons. The amount so deducted is deposited with the Government within stipulated period as mentioned in Income Tax Act, 1961.

Various rates of TDS have been specified in Sections 192 to 194J of the Income Tax Act 1961. Following persons are liable to deduct TDS:

1. Principal officer of a company for TDS purpose including employee in case of private employment or employee making payment on behalf of the employer.
2. DDO (Drawing  or Disbursement officer) in case of Government company.

Such person is called Deductor and while the person from whom tax has been deducted is called Deductee. TDS must be deducted at the time of making payment or crediting the deductee whichever is earlier.

TDS if not deducted and paid within due date is liable to penalty and interest.