While computing your taxes, understanding what is TDS is crucial. TDS, meaning tax deducted at source, refers to the income tax that is collected on your behalf right at source. Generally, you will receive rent, salary, interest, commission, or other income after the paying entity deducts the applicable tax. If you are the one who is making the payment, then you will have to deduct TDS. The TDS deducted from your income gets adjusted against your tax liability when you file your income tax return. As such, it helps reduce your overall tax liability.

See the calculation through this TDS example: You stand to receive ₹80,000 as rent, but as per the Income Tax rules, the payee will deduct ₹10% TDS, which is ₹8,000. This means you will get ₹72,000. However, you can add ₹8,000 to your gross income and claim credit for ₹8,000 from the final tax liability.

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