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Tax Deducted at Source or TDS is a type of advance tax which is deducted from the earnings of an individual or an organization before the money is actually credited into that entity’s account, according to the Indian Taxation Code. The government is able to generate revenues by implementing the provisions of TDS on the earnings of individuals as well as businesses. Rules and regulations regarding TDS are controlled and governed under the Income Tax Act, 1961 by the Central Board of Direct Taxes (CBDT).

As the name suggests, “Tax Deducted at Source” implies that the payee or the employer deducts the tax before making a payment to the receiver. Tax Deducted at Source is applicable on income earned regularly and also on the income earned occasionally or irregularly. Thus, TDS is applicable on various incomes, including, but not limited to Salary, Commission, Rent, Professional Fees and Interest.

  • Salaries
  • Interest payments by banks
  • Amount under LIC
  • Brokerage or Commission
  • Compensation on acquiring immovable property
  • Contractor payments
  • Deemed Dividend
  • Insurance Commission
  • Interest apart from interest on securities
  • Interest on securities
  • Rent payments
  • Consultation fees
  • Professional fees
  • Remuneration paid to the director of a company, etc
  • Transfer of immovable property

TDS is payable on the earnings so it is important to note that the liability to pay TDS is applicable only in the event of earnings actually taking place. TDS is deducted before making payments. Deductions are to be made on payments that are made in cash, cheque or credit. The amount deducted under TDS is further deposited with various government agencies. Payment of TDS has various advantages which are as follows :
  • Deducting TDS at source prevents tax evasion.
  • Tax collection is done duly and in a timely manner.
  • A large number of people come under the tax net.
  • Collection of TDS is a steady source of revenue for the government.
Following is the list of deductors liable to deduct TDS:

  1. Individuals
  2. Hindu Undivided Family
  3. Limited Companies
  4. Partnership Firms
  5. Body of Individuals
  6. Association of Individuals
  7. Local Authorities

Payments such as salaries, commission, professional fees, interest earned, rent etc. are subject to TDS deduction. Based on the type of income and amount of income earned, TDS is paid at various rates. Thus, different kinds of income has different TDS rates and the tax is paid on the extra amount earned after a certain maximum threshold limit is attained. The rate at which TDS is paid varies from 1 per cent to 30 per cent, depending on the income taxed.

As commonly known, TDS is deducted on the payments made to the receiver. It means that the payments are done to the receiver after deduction of appropriate tax for the income in question. The amount of TDS that the receiver is liable to pay is deducted from the payment the receiver is liable to receive and the remainder is paid out. It is important to note that the liability to deduct TDS is of the deductor. For instance, in case of employer paying salary to employee, the employer is the deductor and the employee is the TDS deductee.

A deductor has to deposit the deducted TDS to the government and the details of the same have to be filed in the form of a TDS return.

A TDS return has to be filed quarterly. Different types of TDS deductions have to be filed using different TDS return forms.

Preparing TDS returns can be done easily using the CVBAY Account Services. Reach out to us if you need any help with your TDS returns.

TDS stands for Tax Deducted (or withheld) at Source. As per Section 194Q, the income tax department mandates any company or individual to deduct tax at the source if the payment exceeds Rs. 50 lakhs for the purchase of goods and services, like rent, consulting, legal fees, royalty, technical services, etc.

In any TDS transaction, the company or individual deducting TDS from the payment is called a deductor, and the company or person receiving the said payment is called the deductee.

Tax Collected at Source, or TCS, is a tax imposed on goods by the seller, who collects it from the buyer at the time of sale. Section 206C of the Income Tax Act, 1961 specifies the goods and services on which TCS is applicable. The threshold for TCS on the sale of goods is Rs. 50 lakhs.

Two indirect taxes frequently confused with one another are TDS and TCS. Let us find out what they are.
  • TDS is the tax which is deducted on a payment made by a company to an individual, in case the amount exceeds a certain limit. TCS is the tax which is collected by sellers while selling something to buyers.
  • TDS deduction is applicable on payments such as salaries, rent, professional fee, brokerage, commission, etc. TCS deduction is applicable on sales of goods like timber, scrap, mineral wood, and so on.
  • TDS is applicable only on payments that exceed a certain amount. TCS is applicable on sales of specific goods which don’t include production or manufacturing material.

In case where an individual fails to collect or deposit tax, then such person will face legal consequences. Such consequences include a penalty equal to the tax that has not been collected or deducted. Moreover, the individual can also face imprisonment along with payment of a fine as prescribed.

Interest can also be charged in case of failure to deposit TCS or TDS. The interest should be paid on monthly tax amount, which will be eligible for deductions. For each month from the date, tax shall be eligible for deductions, interest would be calculated until the date it is deducted finally or paid off.

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