What is the difference between TDS and Income tax?

By | November 21, 2021

The income tax and the TDS (Tax Deducted at source) are 2 different things and these both terms are completely different from one another and because of this many tax payers can get confused between these terms. So one should have complete knowledge about these terms so that they can know what these terms can actually stand for and how both the terms differ from each other. The TDS and the income tax both are unique in their own way and because of which it is very important to know the difference between the two, for proper understanding and deleting the confusion from their minds.

Differences between TDS and Income tax

There are various differences between the TDS and the income tax and we will discuss those differences as below:-

  1. The TDS is said to be deducted at the source level and that also on the periodic basis in a particular year. While the income tax is said to be paid on the annual income of the person. This is one of the major differences between the income tax and the TDS. 
  2. When it comes to TDS then it means that it is just a partial contribution on the total annual income of a person. But the income tax is the tax that is paid by the taxpayer on his total annual income. So this means that the income tax is quite different from the TDS though it sounds the same.
  3. As the matter of fact in TDS the tax is deducted by the payer and the government remits it on behalf of the payer. While on the other hand income tax is purely paid by the tax payer and there is no direct role of government in that.
  4. When the income is low that is below the taxable limit and still the TDS is deducted then it can be claimed by the payer in the tax returns but in the case of income tax it is only paid if the payment of the person falls in the tax paying category.
  5. The TDS is deducted at the source level and is deducted at the source of income and in this it is assumed that the person is having a taxable income. While in the case of the income tax it is only levied on the people who have an income above the tax limit and that also for a particular period.
  6. The TDS is an indirect payment and the TDS payment is made to the third party and not directly to the government and this 3rd party can be an employer or even a financial institution and then it reaches to the government. But in the case of the income tax it is directly paid by the tax payer to the government depending up on the annual liability that they own.
  7. The TDS is also seen levied on the transactions of payments that are made on the contractors over one lakh rupees, prize winnings above rupees 10000, rent paid on the property both movable and immovable above 2.4 lakhs and in these cases the TDS varies from 1% to 30%. While this is not the case in the income tax.
  8. The TDS is paid by the every individual regardless of the fact that whether their income falls under the taxable category or not but still they will pay TDS. While on the other hand the income tax is only paid by the individuals whose income falls under the category of taxable income and this is one of the major difference between the two.

These are the major differences between the income tax and the TDS and one should know these differences properly so that they do not get confused while they are paying their taxes. The only similarity between the two is that these both terms are sued in context to the tax, rest the meaning are completely different. As one is a tax payer so it is their duty to know everything about the tax and also about the terms related to it so that they are aware of the fact what they are doing and what exactly they are paying the tax for and how the tax processing actually works.

These differences between the two actually tells us what exactly bot the terms means and there is no need to understand both of them individually because we get a fair idea of both the terms. Also it is very important to know about the TDS and the income tax because when we will file an ITR there is always a relation between the TDS and the income tax returns and by having the knowledge of both the things it helps in clearing the picture in the mind of the tax payer.

Final thoughts:-

In today times the financial literacy is very important and as one should know that it is very important to know how the whole tax process takes palace and what exactly a tax payer pays for and how the money is deducted. All these things are very important to know for a tax payer so they can easily file for their tax return and that is only possible if they are aware of all the tax related terms and conditions and they can become an aware tax payer who will not feel cheated when they will pay their taxes to the government because of the knowledge that they will have.