Understanding Tax Deduction at Source (TDS)

Tax Deduction at Source, commonly known as TDS, is an efficient tax collection method implemented by the Indian government. This mechanism is applicable to a variety of financial transactions, including salaries, interest payments, rent, and professional fees, among others.
In this system, the entity responsible for the payment deducts a specified percentage as tax prior to disbursing the amount to the payee. The deducted sum is subsequently remitted to the government.

A challan is essentially an official document or voucher that serves as confirmation of a transaction, infraction, or payment. Within the realm of taxation, a challan is the prescribed form for depositing taxes or other dues to the government. This includes self-assessment tax, advance tax, TDS, TCS, late fees, penalties, and other payments.
Challan 281 is the designated form for depositing TDS and TCS with the government. It includes detailed information such as the nature of the deduction and the Tax Deduction and Collection Account Number (TAN) of the deductor.

Previously, Challan 281 was a physical document that taxpayers filled out and submitted to the bank along with the payment. With the advent of electronic payments, Challan 281 has transitioned to ITNS 281, which stands for Income Tax New Series, facilitating online TDS and TCS payments.

TAN, or Tax Deduction and Collection Account Number, is a unique identifier assigned to those who deduct or collect tax on the government’s behalf. It functions similarly to a PAN (Permanent Account Number) but is specifically for TDS or TCS transactions.

A TDS Return is a periodic statement submitted by deductors, detailing the tax they have withheld. It serves to inform the tax authorities about the deductions made on various payments and includes comprehensive details such as the PAN of the deductor and deductees, the nature of the payments, the amounts paid or credited, the tax deducted, and the Challan Identification Number (CIN)/Basic Statistical Return (BSR) number associated with the TDS deposit.