TDS stands for Tax Deducted at Source, and it is a tax collection mechanism introduced by the Indian government to collect tax from the very source of income. According to this concept, a person (deductor) who is liable to make payment of specified nature to any other person (deductee) shall deduct tax at source and remit the same into the account of the Central Government. The deductee from whose income tax has been deducted at source would be entitled to get credit of the amount so deducted on the basis of Form 26AS or TDS certificate issued by the deductor.

TDS is deducted by the payer while making a payment or crediting the account, whichever is earlier. The most common forms of payments include salary, incentive, rent, mortgage, professional fees, etc. . TDS is charged at a rate of 0.1% of the transaction value for items worth more than ₹50 lakhs, and this rate could be as high as 5% if the deductee fails to furnish their PAN to the deductor.

TDS is deducted when the purchase reflects in the sellers accounts. For example, banks deduct TDS when crediting interest on a fixed deposit to ones account, and 10% TDS is deducted only when the amount of interest is above Rs. 40,000 for individuals other than senior citizens. For senior citizens, 10% TDS is deducted only when the interest exceeds Rs. 50,000.

In summary, TDS is a tax collection mechanism introduced by the Indian government to collect tax from the very source of income. It is deducted by the payer while making a payment or crediting the account, whichever is earlier, and the most common forms of payments include salary, incentive, rent, mortgage, professional fees, etc. The deductee from whose income tax has been deducted at source would be entitled to get credit of the amount so deducted on the basis of Form 26AS or TDS certificate issued by the deductor.