When it comes to taxes, words like income tax and TDS often come out, but many people are still not certain about how they are different. While both belong to your income, they fulfill different purposes and apply in different ways. In this article, we will help you understand what each of them means and how they affect your finance.

What is income tax?

Income tax is the amount that you give to the government on your earnings in a year. This includes your salary, house property, income from business or profession and even the benefits of selling property.

It is regulated by the Income Tax Act of 1961, which determines the rules for calculation and collection of tax. If your annual income is more than Rs 2.5 lakh under the old tax system or more than Rs 3 lakh under the new system, then you have to pay income tax. Doing so is considered tax evasion and is legally punishable.

What is TDS?
Tax deduction at TDS or source is a system designed to collect tax at the source of income itself. It helps prevent tax evasion by cutting a certain percentage of tax before paying salary, rent, interest or professional fee. This deducted amount is then submitted directly to the government.

TDS is levied on a variety of income throughout the year – such as salary, victory, lottery, rent, investment and prize money. The payment person or organization deducts tax and deposits it on your behalf. The government determines the implemented TDS rates, and the payer is required to strictly follow them.