What does deducted at source mean?

Answer 1

The term Deducted At Source is usually used while talking about Income Tax. Employers and other institutions that provide an income to the citizens of a country have to deduct a portion of the money that is paid out to the people as Tax and remit it to the government. This is commonly referred to as Tax Deducted at Source or TDS. Say for e.g., you work for XYZ private limited and are being paid $10000 per month as salary. As per your country's tax laws 20% of your income needs to be paid as tax, then it is the duty of XYZ private limited to ensure that $2000 is deducted every month from your income and remitted to the government. Similarly, say you have a deposit of $100,000 in a bank for which they pay you an interest of $10,000 every year. If say your tax liability on this interest income is 10% then the bank is supposed to deduct $1000 from the interest being paid to you and credit only the remaining $9000 in your account.