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Financial Term Dictionary

What is TDS?

Published on July 05, 2026 • Last updated July 05, 2026

Formula Included

Definition

Tax Deducted at Source (TDS) is a system introduced by the tax department where the person responsible for making specified payments deducts tax before releasing the payment.

Detailed Explanation

TDS is a mechanism to collect tax directly at the source of income. It is applied to salaries, interest on bank deposits, professional fees, commission, and rent. The deductor is legally obligated to file quarterly TDS returns and issue a TDS certificate (Form 16/16A) showing the tax deducted, which is credited to the recipient's Form 26AS.

Mathematical Formula

$$TDS\ Amount = Gross\ Payment \times \frac{TDS\ Rate\%}{100}$$

Calculation Examples

If a bank owes you $10,000 in interest on a fixed deposit, and the applicable TDS rate is 10%: - Gross interest owed = $10,000 - TDS rate = 10% - TDS Amount deducted = $10,000 * 0.10 = $1,000 - Net interest credited to your account = $9,000 - Tax credit in Form 26AS = $1,000

Frequently Asked Questions

If your total taxable income is below the taxable slab limit, you can claim a refund of the deducted TDS by filing your annual Income Tax Return (ITR).

These are self-declaration forms submitted to banks to prevent TDS deduction on interest income if your total annual income is below the taxable limit (15G for individuals, 15H for senior citizens).

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