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Section 4 Income Tax Basics 2

Section IV: Income Tax Basics

3. Your employer deducts tax from your salary and pays it to the I-T Department on your behalf.

It’s called TDS. TDS is tax deducted at source. Your employer cuts a portion of your salary every month and pays it to the Income Tax Department on your behalf.

Based on your total salary for the whole year and your investments in tax-saving products, your employer determines how much TDS has to be cut from your salary each month.

For a salaried employee, TDS forms a major portion of an employee’s income tax payment. Your employer will provide you with a TDS certificate called Form 16 typically around June or July showing you how much tax was deducted each month.

Your bank may also deduct tax at source when you earn interest from a fixed deposit. The bank deducts TDS at 10% on FDs usually. A 20% TDS is deducted when the bank does not have your PAN information.

4. What is Form 16?

Form 16 is a TDS certificate. Your employer is required by the I-T Department to deduct TDS on your salary and deposit it with the government.

The Form 16 certificate contains details about the salary you have earned during the year and the TDS amount deducted.

It has two parts — Part A with details about employer and employee name, address, PAN and TAN details and TDS deductions.

Part B includes details of salary paid, other incomes, deductions allowed, tax payable.

Section IV: Income Tax Basics

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