New Delhi: When it comes to taxes, terms like Income Tax and TDS often come up but many people still aren’t sure how they differ. While both are related to your earnings, they serve different purposes and are applied in different ways. In this article, we’ll help you understand what each one means and how they impact your finances.

What is Income Tax?

Income Tax is the amount you pay to the government on the money you earn in a year. This includes income from your salary, house property, business or profession, and even profits from selling assets.

It’s regulated by the Income Tax Act of 1961, which sets the rules for how tax is calculated and collected. If your annual income is above Rs 2.5 lakh under the old tax regime or Rs 3 lakh under the new one, you are required to pay income tax. Not doing so is considered tax evasion and is legally punishable.

What is TDS?

TDS, or Tax Deducted at Source, is a system designed to collect tax at the very point where income is generated. It helps prevent tax evasion by making sure a certain percentage of tax is deducted before making payments like salary, rent, interest, or professional fees. This deducted amount is then directly deposited with the government.

TDS is applied on various types of income throughout the year—such as salary, winnings, lottery, rent, investments, and prize money. The person or organisation making the payment deducts the tax and deposits it on your behalf. The government decides the applicable TDS rates, and the payer is required to follow them strictly.