Income Tax and TDS (Tax Deducted at Source) are two words which are often heard and also confuse many people. There is a lot of difference between the two.
Income tax is a tax levied on the annual earnings of a person or company in any financial year. This income can come from many sources, like salary, rental of a property, business. A person earning above Rs 2.5 lakh under the old tax system and Rs 3 lakh under the new tax system has to pay income tax.
The limit is Rs 3 lakh for a person aged between 60 to 80 years and Rs 5 lakh for senior citizens above 80 years. Income tax rates are determined by the income slabs specified in the tax law. Income tax is levied on total annual income which includes salaries, capital gains and other sources of income.
If we talk about tax deducted at source i.e. TDS, it works to prevent tax evasion. In TDS, while paying salary, interest, rent, professional fees, any person or organization is forced to deduct a prescribed tax percentage before payment. The amount of deduction is immediately sent to the government. TDS simplifies the tax collection system and acts as a shield against possible evasion.
TDS is deducted on various sources of income throughout the year, it can be salary, rent, winning amount, lottery, investment, prize money etc. The payer deducts TDS and immediately sends it to the government. TDS tax rates are predetermined by the government and there is no interference from the payer.
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