It is a Tax Deducted at Source. It is one of the modes for collecting taxes from the people in the country. a certain amount is deducted at the time of payment of various kinds like salary, commission, rent, dividends etc. and is forwarded to the account of the Government. the amount withheld is adjusted against the tax dues. The person/organization deducting the tax is called as Deductor while the person from whom the tax is deducted is called Deductee. It can also be termed as deductor as Employer and Deductee as Employee in situations where payments are salaries. Such cases are governed under Income Tax Act of 1961 under the Central Board of Direct Taxes i.e. CBDT which is the part of Department of Revenue managed by Indian Revenue Services (IRS), Ministry of Finance, Govt. of India.
The reason of TDS is that the concept of TDS follows the principle of pay as you earn. The amount of tax is deducted from the employees account at the time of payment in form of cash or cheque or credit.
1) TDS is based on the principle of pay as and when you earn.
2) TDS is a win-win scenario for both the taxpayers and the government.
3) The tax is deducted when making payments through cash, credit or cheque, which is then deposited with the central agencies.
4) The responsibility sharing for deductor and tax collection agencies.
5) It prevents tax evasion.
6) It widens the tax collection base.
7) It is a steady source of revenue for the government.
8) It is easier for a deductee as tax gets automatically collected and deposited to the credit of the central government.