Assessee pays tax in the assessment year on income earned in previous year. Due to this rule the tax collection is delayed till the completion of the previous year. Even sometimes people conceal their income and the tax is not paid at all. In order to overcome these problems, government started to deduct some amount of tax from the amount which is receivable by the assessee. The amount of tax so deducted is called as "Tax Deducted At Source" or TDS in India.
In some cases, the assessee is required to make a payment of advance tax. Such taxes paid in advance are called prepaid taxes.
Tax deduction is mainly done to reduce ones taxable income. In a way tax deductions can reduce the taxable income and thus provide tax relief.
Tax deducted in this manner needs to be deposited in the Government treasury and assigned to the Central Government, within a stipulated time period. Indian Government is adhering to the policy of TDS to broaden its tax bracket in the country. Income gained through several sources falls under the tax deduction at source or TDS scheme. Some of such income that is subjected to ‘Tax Deduction at Source’ is as follows: