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Tax Deducted at Source (TDS) is a system where the Government of India collects tax right when a transaction happens. This means the tax is deducted either when the payment is made or when the amount is credited to the payee’s account—whichever is earlier.
For example:
When paying salaries
When paying for a life insurance policy
In such cases, the person or business making the payment (called the deductor) deducts a certain percentage (usually around 10%) as tax and deposits it directly with the Income Tax Department. This ensures that part of the tax is collected in advance.
TAN (Tax Deduction and Collection Account Number) is a 10-digit alphanumeric number that anyone responsible for deducting or collecting tax on behalf of the government must have.
Who needs TAN? Businesses, proprietorships, and entities that deduct tax on payments like salaries, contractor fees, or rent exceeding ₹2,40,000 per year.
Who doesn’t need TAN? Salaried individuals who don’t deduct tax at source.
TDS returns must be filed by organizations or employers that have a valid Tax Deduction and Collection Account Number (TAN).
Anyone making certain types of payments (as listed under the Income Tax Act) is required to:
Deduct tax at the time of payment, and
Deposit it with the Income Tax Department within the due date.
These payments include:
Salaries paid to employees
Income from securities
Winnings from lotteries, puzzles, or similar games
Winnings from horse races
Insurance commissions
Payments under National Savings Scheme (NSS)
And other specified payments
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