Whether your employer has deducted tax at source (TDS) on your salary or you have paid tax on your own, you are still required to file income tax return (ITR). This is because TDS and income tax are calculated and settled differently.

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TDS represents only a part of the income tax that you are liable to pay when your income is more than the exemption limit. Once TDS returns are submitted, the details come up on Form 26 AS. On the other hand, income tax is the tax liability that accumulates on your total income.

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This makes it mandatory for you to file their returns, even if your tax gets deducted at the source.

According to Ruchika Bhagat, MD at Neeraj Bhagat & Co, TDS is a compliance mechanism that can help in checking the tax evasion by taxpayers.

“It is deducted at a specified rate, say for 2 percent, 10 percent etc. as per applicable provisions, but the actual tax liability may differ at the end of the year due to several reasons like loss, excess income or non deduction of TDS due to limit restricted under Chapter XVII-B. For this reason, you are required to pay differential tax, or can claim refund from the taxes paid by filing ITR,” Bhagat said while talking exclusively to CNBC-TV18 digital.

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Let’s understand what Bhagat said through an example:

Mr A earned professional receipts of Rs 1,00,000 on which TDS u/s 194J was deducted at 10 percent for Rs 1,0,000. Now, at the end of the year as per the provisions of the Income Tax Act, 1961; after giving allowance for expenditures, tax liability of Mr A comes to Rs 22,000. In this case, he is required to file ITR and pay the differential tax amount of Rs 12,000.

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To conclude, we can say that paying TDS as well as filing ITR both are equally important.

Individuals who delay their TDS return filing may have to pay a fine of Rs 200 per day and a certain penalty that can go up to Rs 1 lakh. There are possibilities that taxpayers could end up losing all the claiming amount in the TDS due to late filing fees.

Also, people who do not file ITR within the deadline are liable to pay a penalty along with certain interest.