Difference Between Income Tax Return and TDS. Why You need to file income tax return (ITR) even if TDS is paid
Income tax and Tax deducted at source often confuse each and every new taxpayer. Before filing tax, one should know and understand the differences between these two types of taxes.
This article will give you an overall understanding of what the two Taxes are about and how they are different in function. We will also discuss the need to file for Tax returns if TDS is paid.
What is ITR [Income Tax Returns]?
income tax is imposed upon an individual or a firm by the state when the income exceeds the limit set by the income tax law of one country. Income tax is taken by the state government and used primarily for the development programs, salaries of government employees and various other programs.
It is based on the annual income of one individual or business entity. There are various rules and regulations prevailing in the country regarding income tax. Since it is an annual calculation, you are required to file for Tax return once every year (if your salary is above the permitted minimum). It can be easily filled through the government portal.
Income tax is applicable to individuals who are earning an annual salary of 2.5 Lakhs or above. For senior citizens, the limit is set to 3 lakhs if you are aged between 60-80 and 5 lakhs if you are aged above 80.
What is Tax Deducted at Source?
Tax deducted at source as it is better known is s system introduced by the income tax department wherein the person or entity responsible for giving salary, commission or any other professional fees is liable to deduct a percentage as the tax before giving the amount to the employee/the receiver of the payment.
This is usually done monthly or over a period of time.
Do you need to file for ITR if TDS is paid?
Regardless of TDS being paid or not, you will have to file for income tax returns if you fit certain criteria. This is mainly because TDS is calculated based upon an anticipated amount and income tax is an accurate amount.
Let us use an example to better understand the situation. Suppose an employer is deducting TDS from an employee’s salary on a monthly basis, this would mean that, TDS will more or less be equal to income tax payable. Now suppose if the employee has land and is earning from it. Here the final income tax amount you will be getting would be more than the sum of TDS deducted.
If you exceed the minimum limit which is set (2.5 Lakhs) it is mandatory for you to file income tax returns. You will have to file a return if your salary is below the permitted limit also in some cases.
Failure to do so will result in a letter from the AO informing you about the failure to file returns. And if this is ignored you will end up with a penalty or sometimes even legal action if the taxable amount is high. This can also lead to imprisonment of up to 2 years depending upon the scale of the offense.
It is always best to file for returns at the correct time as penalties can often lead to headaches in the future.
What are the differences between Income Tax Return [ITR] and Tax Deducted at Source?
- The first difference would be in the calculation of the two taxes, while income tax is calculated annually, TDS is deducted periodically based upon an estimation of the annual income. The total of the TDS deducted during the year would be more or less equal to annual income tax which you are incurred to pay.
- Income tax is calculated based on a definite amount while TDS is calculated based upon an anticipation of the annual earing. That is why you should file for ITR.
- Income tax represents an individual’s annual tax liability. This is not the case with TDS as it just displays a fraction or percentage of an individual’s annual tax liability
- There are instances where you will not be inclined to TDS deductions within a month but you should file for income tax. This is when an individual’s income from primary employment is low but he may be getting money from secondary sources which makes his annual salary rise above the limit.
- Now another difference is that TDS is deducted and paid to the government by the payer/ the employer. It does not have anything to do with the receiver. On the contrary income tax should be paid directly by the taxpayer.
Conclusion.
Let’s summarize what we have discussed in the above topics;
- Income tax is calculated based on the annual earnings of the individuals or a business enterprise. Tax deducted at source is based upon an anticipated tax which is usually deducted monthly. TDS can be regular or irregular in nature.
- Even if the tax is deducted in the form of TDS every month, you will still have to file for income tax returns as it is mandatory.
- When you are filing for returns you can make sure all TDS is considered and you can also apply for a refund if found eligible.
- Another valuable piece of information would be the tax credit statement which will be given by the employer or your bank, if not given it can be filed through section 26AS which will give accurate credit information.
- Individuals may face strict penalties or actions if they ignore the existing laws and fail to file for income tax.
Filing for income tax can be especially difficult for remote workers or freelances whose wages cannot be calculated properly over a period of time. The can consult the help of accounts experts or agencies to do the same on their behalf. This is also the case if you happen to have a business entity and have to file taxes.
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