Tax Deducted at Source is the government's way of collecting tax at the moment money changes hands — your employer, your client, your bank, or your tenant withholds a slice before paying you, and deposits it against your PAN. For a business, TDS is a constant compliance duty with hard deadlines and real penalties for slipping. Budget 2025 raised many thresholds (so smaller payments now escape deduction), and the new Income-tax Act, 2025 reorganised the sections without changing the underlying rates. Here's a practical, current map of who deducts what, when it's due, and what it costs to get wrong.
Quick answer: A deductor must withhold TDS at the prescribed rate when a payment crosses its threshold, deposit it with the government by the 7th of the next month (April for March deductions), and file a quarterly TDS return. Budget 2025 raised key thresholds — professional fees (194J) and rent (194I) now trigger at ₹50,000, bank interest (194A) at ₹50,000 (₹1,00,000 for seniors). No PAN means TDS at 20% (Section 206AA). Late deduction or deposit attracts interest of 1%/1.5% per month plus a ₹200/day late-filing fee.
What is TDS and who must deduct it?
TDS shifts tax collection to the point of payment. The payer (deductor) withholds tax before paying the payee (deductee), deposits it to the government against the payee's PAN, and reports it. The payee then claims that amount as already-paid tax when filing their return. Businesses, employers, and certain individuals must deduct TDS and need a TAN (Tax Deduction Account Number) to do so. The payee sees the deduction reflected in their Form 26AS / Annual Information Statement.
Key TDS rates and thresholds (FY 2025-26 / 2026-27)
| Section | Nature of payment | Rate | Threshold |
|---|---|---|---|
| 192 | Salary | Slab rate | As per slab |
| 194A | Interest (other than securities) | 10% | ₹50,000 (₹1,00,000 seniors); ₹10,000 non-bank |
| 194 | Dividend | 10% | ₹10,000 |
| 194C | Contractor/sub-contractor | 1% (ind/HUF), 2% (others) | ₹30,000 single / ₹1,00,000 yearly |
| 194H | Commission/brokerage | 2% | ₹20,000 |
| 194I | Rent — land/building | 10% | ₹50,000 per month |
| 194I | Rent — plant/machinery | 2% | ₹50,000 per month |
| 194-IB | Rent by individual/HUF (non-audit) | 2% | ₹50,000 per month |
| 194J | Professional fees | 10% | ₹50,000 |
| 194J | Technical services | 2% | ₹50,000 |
| 194Q | Purchase of goods | 0.1% | over ₹50 lakh |
| 194O | E-commerce | 0.1% | as applicable |
| 194T | Payments to partners (firm/LLP) | 10% | ₹20,000 |
Budget 2025 raised many of these thresholds (notably 194J and 194I to ₹50,000), removing a lot of small invoices from deduction. The earlier Section 206AB (higher TDS for non-filers) has been removed, easing one compliance check.
Due dates: deposit and returns
- Depositing TDS: by the 7th of the following month in which tax was deducted. The exception is March, where the deposit deadline is 30 April.
- Filing TDS returns (quarterly):
- Q1 (Apr–Jun): 31 July
- Q2 (Jul–Sep): 31 October
- Q3 (Oct–Dec): 31 January
- Q4 (Jan–Mar): 31 May
- Salary TDS is reported in Form 24Q; non-salary in Form 26Q (and 27Q for non-residents).
TDS certificates: Form 16 and 16A
After filing returns, the deductor issues certificates so the payee can claim credit:
- Form 16 — annual certificate for salary TDS (issued by employers, typically by mid-June).
- Form 16A — quarterly certificate for non-salary TDS (professional fees, rent, interest).
These match the deductee's Form 26AS and are the proof of tax already paid on their behalf.
No PAN means higher TDS
If the payee doesn't furnish a valid PAN, Section 206AA forces TDS at 20% (or the applicable rate, whichever is higher) — far above the normal rate. So a designer charging professional fees without a PAN would suffer 20% instead of 10%. Always collect and verify the payee's PAN before deducting.
Penalties for non-compliance
The costs stack up quickly:
- Interest on late deduction: 1% per month from when tax was deductible to when it's deducted.
- Interest on late deposit: 1.5% per month from deduction to deposit.
- Late-filing fee (Section 234E): ₹200 per day until the return is filed (capped at the TDS amount).
- Penalty (Section 271H): for not filing or filing incorrect returns, in addition to the fee.
- Disallowance: failing to deduct TDS can lead to 30% of the expense being disallowed in your own income computation — often the biggest hit of all.
Worked example
A company pays a freelance consultant ₹3,00,000 in professional fees. Since it crosses the ₹50,000 threshold under 194J, the company deducts 10% = ₹30,000 before paying ₹2,70,000, deposits the ₹30,000 by the 7th of next month, files the quarterly return, and issues Form 16A. The consultant claims the ₹30,000 as already-paid tax when filing their ITR. Had the consultant not given a PAN, the deduction would have jumped to 20% = ₹60,000 under Section 206AA.
Common mistakes
- Missing a raised threshold and over- or under-deducting after Budget 2025 changes.
- Late deposit. 1.5% per month interest adds up fast.
- Not collecting PAN. Triggers 20% TDS and reconciliation headaches.
- Forgetting Form 16/16A. The payee can't easily claim credit without it.
- Ignoring disallowance risk. Non-deduction can cost you 30% of the expense.
Checklist
- Obtain a TAN and map each payment to the right section/rate.
- Check the current threshold before deciding to deduct.
- Collect and verify every payee's PAN.
- Deposit TDS by the 7th (30 April for March).
- File quarterly returns (24Q/26Q) on time.
- Issue Form 16/16A so payees can claim credit.
Frequently asked questions
What is the TDS rate on professional fees in 2026? 10% under Section 194J, applicable once payments cross ₹50,000 in the year (technical services are 2%).
By when must TDS be deposited? By the 7th of the month after deduction; for tax deducted in March, by 30 April.
What happens if the payee has no PAN? TDS is deducted at 20% under Section 206AA, instead of the normal rate.
What are the TDS return due dates? 31 July, 31 October, 31 January, and 31 May for the four quarters respectively.
What is the penalty for late TDS filing? A late fee of ₹200 per day under Section 234E (capped at the TDS amount), plus possible penalty and interest.
This article is for legal awareness and education only and is not tax or legal advice. TDS rates, thresholds, and section numbers change with each Budget and the new Income-tax Act, 2025; confirm current figures or consult a qualified professional.