TDS is the acronym for Tax deducted at source. The article is incomplete without the mention of TDS software which is a handy tool to track the TDS payments into the Government treasury and any lacunae in deducting the TDS. It is also easy for individuals to get their salary certificates and TDS certificates at the click of a mouse.
In India, the income from unorganized sector is more as compared to that from the organized sector. The monies generated from the unorganized sector like unregistered associations, illiterate individuals and the like escapes the Tax purview as there are many escapades for them to avoid tax due to their size and huge burden on the department to scrutinize each and every file. This is paving way for the total tax burden being taken up by the organized sector. With a view to streamline this lacunae, the Ministry of Finance introduced the concept of TDS wherein the tax liability is spread across the sectors in economy. The monies generated from the unorganized sector, when comes into the hands of individuals becomes taxable. The TDS, instead of making individuals pay taxes, has fixed the onus to pay taxes by the source of income directly.
Earlier, the people working in unorganized sector never used to file tax returns and it was difficult for the department to track the errant public due to the heavy volume of filings done during April till September. The volume is a mind boggling number when there are revised returns, rectified returns, NIL returns and belated returns being filed by millions of Indian across the country. Now, as TDS is made compulsory, the employees get the salary as net of Taxes and the Government simply tracks the taxes deposited by the employer (both in organized and unorganized sector). Whether or not the individual files the Tax returns, the Government is sure that the taxes are received into its treasury to run the administrative expenses.
Further, in India where the illiteracy rates are comparatively high, people seldom make errors in filling the accurate data in their Income Tax returns. Though not intentionally, the error is pictured as an illegal act of the individual. In such cases, when TDS is deducted, the Assessing Officer can be sure, at least to some extent that the taxes are paid to the Government from the source of income directly.
As the onus of remitting the tax deducted to the Government treasury lies on the person deducting the tax, and that too within the prescribed period of time, the tracking of defaults become pretty easier for the Income Tax department too.
The advantages of TDS software can be clearly explained by using the following example: if Mr A is a businessman, he receives money from client X and has to pay salary to Mr Y. the TDS software keeps track of the taxes deducted by client X and also the taxes deducted from Y. This facilitates the synchronization of data and issue of salary certificate to the employees. And also facilitates the follow up of the TDS certificates from the client.
