Tax deducted at source (TDS), as the
very name implies aims at collection of revenue at the very source of income.
It is essentially an indirect method of collecting tax which combines the
concepts of “pay as you earn” and “collect as it is being earned.” Its
significance to the government lies in the fact that it prepones the collection
of tax, ensures a regular source of revenue, provides for a greater reach and
wider base for tax. At the same time, to the tax payer, it distributes the
incidence of tax and provides for a simple and convenient mode of payment.
The
concept of TDS requires that the person on whom responsibility has been cast,
is to deduct tax at the appropriate rates, from payments of specific nature
which are being made to a specified recipient. The deducted sum is required to
be deposited to the credit of the Central Government. The recipient from whose
income tax has been deducted at source, gets the credit of the amount deducted
in his personal assessment on the basis of the certificate issued by the
deductor.
The statute requires deduction of tax
at source from the income under the head salary. As such the existence of
“employer-employee” relationship is the “sine-qua-non” for taxing a particular
receipt under the head salaries. Such a relationship is said to exist when the
employee not only works under the direct control and supervision of his
employer but also is subject to the right of the employer to control the manner
in which he carries out the instructions. Thus the law essentially requires the
deduction of tax when;
(a)
Payment is made by the employer to the employee.
(b)
The payment is in the nature of salary and
(c)
The income under the head salaries is above the maximum amount not chargeable
to tax.
