If you are a taxpayer, there are different terms you need to understand before filing your tax returns. Two of the most important terms in the Income Tax Department are Tax Deducted at Source (TDS) and Income Tax Return (ITR).
What is TDS?
TDS is an amount, which is deducted by an individual or company making a payment beyond certain limits. There are specific rates prescribed by the tax department for the deduction of tax. The person who makes the payment after the deduction of TDS is known as the deductor and the person or company that receives the payment is known as deductee. In order to understand what TDS is, it is important to identify the parties to a transaction. It is the responsibility of the deductor to deduct the amount of TDS before making the payment and the same should be deposited with the government. Irrespective of the method of payment, TDS will be deducted as it is linked to the Permanent Account Number (PAN) of the parties.
Now that you have an idea about what tax deducted at source is, it is important to identify the payment for which TDS is deducted. It is deducted on salary, commission payment, interest paid by a bank, consultation fees, rent payment, and on professional fees. There will be no TDS for the payment of fees to doctors and lawyers. It is basically an advance tax which is to be deposited with the government from time to time and the responsibility of doing the same will lie with the deductor. For the deductee, the amount deducted as TDS will be claimed as a tax refund once the ITR is filed.
What is ITR?
ITR is a form, which is used to comply with the requirement of the Income Tax Department to furnish the details of income earned in a particular financial year. The ITR requires you to provide complete details about the income earned, the expenses incurred, investments made, and taxes paid in the year. This form is to be uploaded with the Income Tax Department as your income tax return. You need to learn how to file ITR by choosing the right ITR for your income. There are seven types of ITRs available and you need to pick one that is suitable for you as an assessee. As an individual, you can choose between ITR 1 and ITR 4.
ITR 1 is for Hindu Undivided Family (HUF) and individuals with salary income, income from one house property, agricultural income, and income from other sources. ITR 2 is for individuals and HUF for income from salary, income from more than one house property, lottery income, capital gains, income from other sources, and exempt income. ITR 3 is for individuals, HUF or a partner in a firm having income from business in addition to the ones listed in ITR 2. ITR 4 is for presumptive business income and not for capital gain or lottery income. ITR 5 is for partnership firm, ITR 6 is for a company, and ITR 7 is for a trust.
You need to identify the purview of your income and then choose an ITR that is suitable for you. Filing your ITR online is a quick and convenient process. You can use an income tax calculator to estimate the amount of tax payable.