TDS stands for Tax deducted at Source. The TDS software enables the generation of data fed into the software into information in prescribed format to file the e-TDS returns.
TDS is one of the various methods adopted by the Government to collect taxes from the Citizens. In this mode of collection, a prescribed percentage of tax is deducted at the time of making or crediting the payment (nature of payment also should be of prescribed category) to the person. The amount so deducted should be remitted to the Government account by paying into the designated branches of the Banks. It is also called as “pay tax as you earn”. This scheme is also called as Withholding tax in USA and some other countries. The concept encourages the payment of tax as soon as one earns the monies without any delay. The administrator of taxes, being the Government, decides the percentage of taxes to be deducted at source and the services/ products on which taxes are to be levied.
- · The TDS facilitates the sharing of onus of tax collection by and between the tax collector (government) and the tax deductor (corporate and non-corporate entities).
- · The TDS ensures that the administrator of taxes has constant inflow of monies into its treasury by way of tax payments/ remittances
- · It is a powerful tool to restrict tax evasion and also expands the tax brackets
- · Earlier the concept of TDS was based on the premise “pay as you earn” now the concept is widely encompassing
- · The tax burden for salaried people reduces, as TDS enables payment of taxes in a phase wise manner. The TDS on salaries are deducted every month as the employee earns every month on installment basis. So the tax burden is not pushed to the end of the year, disturbing the cash flows of the employee.
- · Enables collection of taxes from professionals, contractors and other unorganized sectors of the economy.
- · Advance tax and TDS ensure that the Government does not have a cash crunch during the year. The funds flow on monthly basis ensures that the Government has sufficient liquid funds throughout the year to run the administration smoothly.
- · It restricts the options to evade tax. The TDS, being pay tax as you earn, withholds the taxes before it passes on to the receiver of income, thus forcing him to pay tax, who would otherwise think of evading the tax.
- · The thresholds for TDS deduction is wide encompassing to cover every sector of the economy, individuals, corporate, firms and associations and is fixed on par with the prevailing rates of taxes in similar economies across the globe.
To run the Government smoothly, every person should pay taxes. But, it is even easier for administrative purposes, if taxes are collected in advance by way of TDS and remitted to the Government at regular intervals (on periodical basis). The TDS software ensures that the taxes so deducted and remitted are matching with each other and there is no gap in the tax calculations.
