ITR 2024: Income Tax vs TDS: Understanding the Key Differences
Income tax and Tax Deducted at Source (TDS) are two terms that many Indian taxpayers encounter frequently. While they may seem similar, there are significant differences between them. Income Tax is deducted from the total profit or annual earnings of the payer, whereas TDS is deducted from specific sources of income based on expected tax liability. Additionally, the collection processes for these taxes differ.
Income Tax, governed by the Income Tax Act of 1961, is levied on the annual income of individuals or companies. It encompasses various income sources such as salaries, property income, business profits, and capital gains. Individuals earning above a certain threshold must pay income tax, with evasion being punishable under the law.
On the other hand, TDS is deducted directly from the payer's income sources and remitted to the government. It applies to payments like salaries, interest, rent, professional fees, and other specified payments. TDS plays a vital role in preventing tax evasion and streamlining tax collection.
Here's a simplified breakdown:
Income Tax Return (ITR):
- Individuals earning above specified thresholds must file income tax returns.
- Thresholds vary based on age, with higher thresholds for senior citizens.
Tax Deducted at Source (TDS):
- Deducted from various income sources throughout the year.
- Applicable to salaries, investment earnings, rent, winnings, commissions, payments to contractors, and more.
Key differences between TDS and Income Tax:
- Timing: TDS is deducted periodically throughout the year, while Income Tax is paid at the end of the financial year by the taxpayer.
- Collection: TDS is deducted by the payer and remitted to the government, while Income Tax is directly paid by the taxpayer.
- Tax Rate: TDS rates are specified by the government based on payment nature, whereas Income Tax rates depend on income slabs.
- Applicability: TDS applies to specific payments, while Income Tax applies to total annual income.
Understanding these distinctions is crucial for taxpayers to fulfill their obligations accurately and efficiently.
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