What is TDS?
It is Tax Deduction at Source. TDS is income tax reduced from the money paid at the time of making specified payments such as rent, commission, professional fees, salary, interest etc. by the persons making such payments.
Usually, the person receiving income is liable to pay income tax. But the government with the help of Tax Deducted at Source provisions makes sure that income tax is deducted in advance from the payments being made.
The recipient of income receives the net amount (after reducing TDS). The recipient will add the gross amount to his income and the amount of TDS is adjusted against final tax liability. The recipient takes credit of the amount already deducted and paid on his behalf.
E.g.: ABC Ltd. to pay Professional Fees to Mr. X for Rs. 50000. Here, the Company will deduct tax at prescribed rate (in this case @10%). Tax so deducted will be deposited by Company to the Central Government on behalf of Mr. X. In future, when Mr. X will assess his tax liability, he will deduct Rs. 5000 (TDS) from his total Tax due and pay the Balance to the CG.