Difference between TDS and Exemptions

Difference between TDS and Exemptions

 

        TDS (Tax Deducted at Source)

Aspect	Description
Definition	TDS is a mechanism where tax is deducted at the time of payment (by the payer) and deposited to the government on behalf of the payee.
Who deducts it?	The payer (like employer, bank, buyer of property) deducts TDS before making a payment.
Purpose	Ensures steady revenue collection for the government and reduces chances of tax evasion.
Example	If your salary is ₹50,000/month, your employer may deduct ₹5,000 as TDS and pay you ₹45,000, depositing ₹5,000 with the government under your PAN.
Applicable On	Salaries, interest income, rent, contract payments, sale of property, dividends, etc.
Is it final tax?	No. It’s an advance tax. You calculate your actual tax liability at year-end and adjust against TDS paid.

 

        Exemptions

Aspect	Description
Definition	Exemptions are provisions in the tax law that exclude certain income from being taxed.
Who gets it?	The taxpayer (you) claims exemptions while filing income tax returns.
Purpose	To reduce taxable income and provide relief for specific types of income or expenses.
Example	If you receive House Rent Allowance (HRA), part of it may be exempt under Section 10(13A) depending on rent paid.
Applicable On	HRA, agricultural income, life insurance maturity, long-term capital gains (under certain conditions), etc.
Is it final tax?	Yes. If an income is exempt, it’s not taxed at all.

 

Key Differences: TDS vs Exemption

Feature	TDS	Exemption
Stage	Tax is deducted upfront on payment	Income is excluded at the time of tax filing
By Whom?	Deducted by payer (employer, bank, etc.)	Claimed by you, the taxpayer
Purpose	Ensures timely tax collection	Reduces your taxable income
Example	Bank deducts TDS @10% on FD interest	Interest from PPF is fully exempt
Adjustable?	Yes, against final tax liability	Not taxable in the first place
Is refund possible?	Yes, if TDS > actual tax liability	No tax paid = no refund

 Conclusion:

·         TDS (Tax Deducted at Source) is a method of collecting tax in advance at the time income is paid to you. It ensures regular tax flow to the government and is adjusted against your final tax liability.

·         Exemptions, on the other hand, are specific provisions in tax laws that allow certain types of income to be completely or partially excluded from tax. They help reduce your taxable income and, ultimately, your tax liability.

 

B.DARNISH

D.KAVIN

I B.Com