Difference Between Income Tax Return & TDS

You must file income tax if you want to carry forward losses that fall under the categories of "Capital Gains" or "Profits & Gains From Business or Profession" to the upcoming fiscal year. The annual income of an individual or business is used to compute income tax. As a result, income tax is not computed annually. However, taxation is deducted from the source during the fiscal year for which income tax is due. The task of withholding income tax from employee salaries is on the employer.

A portion of lottery or gaming profits are deducted as a tax. There are numerous more people that earn money that is taxed right away.

What Is TDS?

Tax deducted at source is referred to as TDS. TDS aids in tax collection at the source of income generation. TDS is a tool used by the government to collect taxes and prevent tax evasion. It taxes money before it is calculated and subtracted rather than after.

A range of revenues, including interest, commissions, dividends, and wages, are subject to TDS. TDS does not apply to all income or to all individuals or circumstances. Different TDS rates were imposed by the Income-tax Act of 1961 for specific payments and recipients. TDS is applicable to non-resident Indians but not to resident debt mutual fund redemption proceeds.

What is Income Tax?

Both people and corporations must pay income taxes on their earnings. On earnings from a variety of sources, income taxes may be applied. Examples of these include dividends, interest, winnings from gaming, sales of items, wages, and salaries.

The general phrase for income tax returns is individual income taxes. These taxes are paid by workers and other people who generate revenue. Companies, estates, trusts, and a number of other entities also have to pay income taxes on their profits or income.

Difference Between IT & TDS

• Income tax and TDS are two different ways to collect taxes.
• The fiscal year's tax computations are based on the yearly income for the purpose of filing income taxes.
• TDS would be taken out for a specific fiscal year at the source.
• The income tax would be filed by the government. TDS would be reported to the government as a way to defer paying taxes directly. Tax deductors help the government collect unpaid taxes.
• All earnings made by the taxpayer during the fiscal year are subject to income tax.
• According to income tax legislation, TDS filings must only include tax at source deductions from the payer.
• All salaried individuals or enterprises would be subject to income tax on earnings over the tax they sold for the predetermined amount of time after the fiscal year ended.
• Whether or whether they received the income, the TDS would require the taxpayer to file taxes.

A Deeper Knowledge

A person might not owe income tax at the end of the year. However, if a person receives money through earnings or residential property, they must pay this tax.

If his salary is below the taxable threshold, there will be no tax deduction. Additionally, if his or her income—which includes income from property—exceeds the exemption thresholds, he or she must pay tax on the yearly taxable income in a single lump sum at the end of the year. TDS must be paid even if a person has no taxable income.

Profits from dividends and interest on bank savings are one instance. At the time of receipt, this dividend or interest income is subject to tax. He might not have any taxable income each year.

Reasons for Filing Income Tax Returns

This greatly simplifies loan processing

Let's say you're searching for a loan to purchase a home or another type of loan (education, car, etc.). Normally, a lender would want income documentation before making a loan. The preceding two or three years' income tax returns must be submitted in order to complete this.

You can claim losses if you pay income tax

You must file income tax if you want to carry forward losses that fall under the categories of "Capital Gains" or "Profits & Gains From Business or Profession" to the upcoming fiscal year.

TDS refunds are available

Whether or not your employee withheld tax from wages at source, you can still complete your income tax return for the current year. The income tax authorities would calculate your net tax liability in such cases after subtracting TDS. You can file an ITR online to get a refund if you don't have to pay taxes. Check the status of the income tax return to find out where your refund is.

It is an essential contributor to nation-building

Every tax dollar you pay supports national development. It makes a sizable cash flow contribution to the government. In FY19, the government received direct tax revenue totaling 9.45 lakh crores. The government may use the money to improve infrastructure or for other development projects.

It might assist you in applying for credit cards or visas

You will be required to submit proof of your income when applying for a credit card or visa. The last three years' worth of income tax returns must typically be presented. This will make it possible for the other party to determine whether you are eligible for a credit card or a visa.

When TDS should be deducted and by whom?

Any person making a specific payment under the Income Tax Act is required to deduct TDS at the time of the payment. However, if the payer is a different person or HUF whose records do not need to be audited, no TDS must be taken out.

Even if they are not the subject of a tax audit, individuals and HUFs must deduct TDS at a rate of 5% on rent payments that exceed Rs. 50 per month. Individuals and HUFs who must deduct TDS at 5% are exempt from applying for TAN. TDS is taken off by your employer at the appropriate income tax rate slabs.

The Income Tax Act specifies TDS rates for the majority of payments, and TDS is lowered by the payer based on these rates. If you provide your employer with investment documentation in order to request deductions and your total taxable income is less than the tax threshold, you are not required to pay any tax. No TDS should be deducted from your pay as a result.

Similar to this, you can send the bank Forms 15G and 15H to prevent TDS from being applied to interest income if the total income is below the taxable threshold.

Conclusion

A tax called income tax is levied on the annual gross income of an individual or the profit of a business organization. TDS is a portion of the anticipated tax that will be withheld from paychecks or, in certain cases, regular deductions. It might be predictable or unpredictable. Although paying tax at the source might not always be necessary, paying income tax at the end of the year might be.