IT Act requires that some percentage of total payment of dues is kept as Tax Deducted at Source or TDS. The TDS is not only applicable for freelance services or consultancy, but employers also cut it for salaried individuals. However, you need to know that having TDS cut by your employer does not mean that your taxes have been filed with the government. Though TDS is a significant step at being a responsible tax paying individual, it is not same as filing your tax returns.
Filing your tax returns can prove beneficial to you in many ways, one of the most important benefits is establishing your financial identity. Apart from this, filing your tax returns can benefit you directly in the form of tax refunds. It also benefits you indirectly by making you document your proof of income which is usually required for other transactions. These transactions may include an application for a loan or application for a Visa to a country like the US or investment in a high-value insurance policy.
As specified by the IT Act, TDS is deducted even when your income does not fall into the taxable bracket. The only way to claim the refund of your TDS is to file your tax returns. It also works for employees whose employer has calculated their yearly income while missing on their tax saving investments. In this case, you will be eligible for a refund on the TDS cut.
File your tax returns to avoid getting a notice from the IT-department. This is something no one relishes as you may also have to pay a penalty of up to 5000 under section 234, in case you haven’t filed your tax return. In some cases, an interest of 1% per month may also be levied for delay in filing tax returns.
Source : Money Control