The deductors and deductees need to understand Tax Deducted at Source (TDS) because it impacts their financial operations. The Income Tax Department created TDS as a method to collect taxes directly from payment sources, which enables the government to collect revenue while stopping taxpayers from avoiding their tax obligations.
The guide explains all popular TDS sections together with their respective tax rates, which apply to FY 2025-26 and presents real-world scenarios for your tax compliance needs.
What is TDS?
The Tax Deducted at Source system requires payment makers to deduct taxes from their payments, which they must send to the recipient. The deducted tax amount gets paid to the Central Government.
- The Deductor: Represents the entity that handles payment processing while executing tax deductions.
- The Deductee: Represents the entity that receives the payment.
- Form 26AS/AIS: Serves as a comprehensive document that enables deductees to access their complete TDS credits associated with their PAN.
Key TDS Sections, Rates, and Threshold Limits (FY 2025-26)
| Section | Nature of Payment | Threshold Limit | TDS Rate |
|---|---|---|---|
| 192 | Salary | Basic Exemption Limit | Slab Rates |
| 194A | Interest (other than on securities) | INR 40,000 (INR 50k for Seniors) | 10% |
| 194C | Payment to Contractors | INR 30,000 (Single) / INR 1L (Agg.) | 1% (Ind/HUF), 2% (Others) |
| 194I | Rent (Land/Building) | INR 6,00,000 per annum | 10% |
| 194J | Professional/Technical Fees | INR 50,000 | 2% (Technical) / 10% (Prof.) |
| 194H | Commission or Brokerage | INR 20,000 | 2% (Revised) |
| 194Q | Purchase of Goods | Above INR 50 Lakhs | 0.10% |
Detailed Breakdown with Practical Examples
Here is a breakdown of the TDS sections with practical examples. Here we begin.
1. Section 192: TDS on Salary
The most common section of tax law requires employers to calculate employee tax deductions according to their projected annual income, which they use to determine applicable tax rates.
2. Section 194A: Interest other than Interest on Securities
The rule applies to all interest payments that banks make on their customers' fixed deposits and recurring deposits.
- Threshold: General users must meet a threshold of INR 40,000, while senior citizens must meet a threshold of INR 50,000.
- Rate: The tax rate remains at 10% until a person fails to provide their PAN, which results in the tax rate increasing to 20%.
3. Section 194C: Payment to Contractors
The section describes payments which cover all work activities needed to complete advertising and broadcasting, catering and goods transportation services.
4. Section 194I: TDS on Rent
The rule becomes active when total rent payments for land, building and furniture reach above INR 2,40,000 in one year.
5. Section 194J: Fees for Professional or Technical Services
Includes payments to doctors, lawyers, certified public accountants, and technical consultants.
New and Evolving TDS Sections
Section 194Q: Purchase of Goods
The new regulation requires all buyers who have annual revenues exceeding INR 10 Cr to deduct TDS at 0.10% when they buy goods worth more than INR 50 Lakhs from a single supplier within a twelve-month period.
Section 194S: Virtual Digital Assets (Crypto)
A 1% TDS applies to Crypto and NFT transactions which exceed INR 10,000 for general individuals and INR 50,000 for designated users.
Compliance: Due Dates and Penalties
Managing TDS isn't just about deduction; it’s about timely filing.
TDS Deposit Due Dates:
- Monthly: By the 7th of the next month.
- March: By April 30th.
Quarterly Return Filing (Forms 24Q, 26Q, 27Q):
| Quarter | Period | Due Date |
|---|---|---|
| Q1 | April – June | July 31 |
| Q2 | July – Sept | Oct 31 |
| Q3 | Oct – Dec | Jan 31 |
| Q4 | Jan – March | May 31 |
Consequences of Non-Compliance:
- Late Deduction: Interest @ 1% per month.
- Late Payment: Interest @ 1.5% per month.
- Late Filing Fee (Sec 234E): INR 200 per day.
How to Claim a TDS Refund?
The refund process begins when TDS deductions exceed your actual tax liability.
- Verify the TDS in Form 26AS.
- Complete your Income Tax Return (ITR) submission before the deadline.
- The Income Tax Department will process your refund to the confirmed bank account.
Conclusion
TDS is an integral part of the Indian tax system. For businesses, staying compliant avoids heavy penalties and interest. For individuals, monitoring TDS ensures you don't overpay taxes and can claim refunds on time.
Frequently Asked Questions (FAQs)
If you fail to provide your PAN, the deductor is required to deduct TDS at a higher rate, usually 20% (under Section 206AA), even if the normal rate is 1% or 10%.
Technically, yes, if the specific payment exceeds the threshold. However, you can prevent this by submitting Form 15G (for individuals < 60 years) or Form 15H (for senior citizens) to the deductor.
194I: Applies to businesses/individuals subject to tax audit.
194IB: Applies to individuals/HUFs not subject to audit, who pay rent exceeding INR 50,000 per month. The TDS rate is 2% (reduced in recent budgets).
Yes. You can view all your TDS deductions by logging into the Income Tax E-filing portal and checking your Form 26AS or the Annual Information Statement (AIS).
Section 194N applies to cash withdrawals from banks. If you withdraw more than INR 1 Crore in a year, a 2% TDS applies. For non-filers of ITR, the threshold is lower at INR 20 Lakhs.
