Bigsun Udaan › Finance reference guides › TDS lesson 1
TDS & Tax · TDS lesson 1 of 7
Tax basics: PAN, tax year and who pays
Before TDS, we need a few simple ideas about how income tax works in India.
Two kinds of tax
- Direct tax is paid by the person who earns the income, for example income tax.
- Indirect tax is collected from you when you buy something, for example GST. The shop passes it to the government.
TDS belongs to direct tax. It is a method of collecting someone's income tax in advance.
Who pays income tax?
Individuals, Hindu Undivided Families (HUFs), companies, partnership firms and other entities. Each is a separate “person” for tax purposes.
Two important numbers
| Number | What it is | Who has it |
|---|---|---|
| PAN — Permanent Account Number | A 10-character ID issued by the Income Tax Department. It follows the person for life. | Anyone who earns, pays tax or does large transactions |
| TAN — Tax Deduction and Collection Account Number | A 10-character ID for people who deduct TDS. It goes on every TDS return and certificate. | The payer who deducts tax |
The tax year
India's tax year runs from 1 April to 31 March. From 1 April 2026 a new law, the Income-tax Act, 2025, replaces the Income-tax Act, 1961. It uses the simpler term “Tax Year” instead of the older pair “Previous Year” and “Assessment Year”. For example, income earned in Tax Year 2026-27 is reported in a return filed after that year ends.
Why this matters for you: many websites, books and software still show the older section numbers (like 194C). In these lessons we show the older number you will still hear, and note that the new Act groups TDS under new section numbers.
Heads of income
- Salary
- Income from house property (for example rent)
- Profits from business or profession
- Capital gains (for example, selling shares or property)
- Income from other sources (for example, interest)
Three ways tax is paid during the year
| Method | Who pays it | When |
|---|---|---|
| TDS | The payer deducts it from the payment and deposits it for you | At the time of payment or credit |
| Advance tax | You, if your tax bill for the year is large | In instalments during the year |
| Self-assessment tax | You, for any balance when you file your return | Before filing |
At the end of the year, the taxpayer adds up the tax already paid (including TDS) and pays only the balance — or gets a refund if too much was paid.
Tax rates change
Income tax slab rates and the choice between tax regimes are set by each year's Budget. We do not list them here because they change. Check the Income Tax Department portal for the current slabs.
Check yourself
1. Which number does the person who deducts TDS need on every return?
The deductor needs a TAN. The receiver's PAN is also reported, but the TAN identifies the deductor.
2. The Indian tax year runs from…
The tax (financial) year is 1 April to 31 March.
3. TDS is best described as…
TDS collects income tax in advance, when certain payments are made.
Learning material for beginners, checked in October 2026. It is not tax or legal advice. Tax rules, rates and due dates change, and different websites sometimes show different details. Always confirm on the Income Tax Department portal (incometax.gov.in) or with a Chartered Accountant before applying anything in real work. All names and amounts in the examples are made up.