The concept of TDS was introduced with an aim to collect tax from the very source of income. As per this concept, a person (deductor) who is liable to make payment of specified nature to any other person (deductee) shall deduct tax at source and remit the same into the account of the Central Government. The deductee from whose income tax has been deducted at source would be entitled to get credit of the amount so deducted on the basis of Form 26AS or TDS certificate issued by the deductor.

Other indirect taxes such as service tax, TDS are also collected prior release of a payment. The TDS rates and collection is regulated by CBTD (Central Board for Direct Taxes).

TDS is a spot tax, deducted from the actual source of income. The same is described in the indirect tax section of Income tax Act 1961. It is implied on receiving income from various financial products. TDS is charged on various incomes generated in the form of incentives, commissions, payment & dividends earned for a variety of sale, services, rent or purchase of a property, interest earned on term deposits, etc.

The rates at which TDS is applied may vary as per the nature of income which could be between 1% – 30%. The onus to collect TDS and deposit the same lies on the service provider or the seller.