What TDS is and who must deduct it
Tax Deducted at Source makes the payer collect income tax on behalf of the recipient. When you pay rent, professional fees, contractor bills, commission or interest above the threshold for that section, you deduct tax at the prescribed rate, deposit it with the government and report it in a quarterly TDS return; the recipient gets credit in Form 26AS and adjusts it against their own tax.
Companies, firms, LLPs and all businesses with a TAN must deduct TDS on the payments covered below. Individuals and HUFs deduct only if they were liable to tax audit in the previous year, with three exceptions that apply to everyone: rent above ₹50,000 a month (section 194-IB), purchase of property of ₹50 lakh or more (194-IA) and payments to contractors or professionals for personal purposes above ₹50 lakh a year (194M). These three use the PAN-based forms 26QC, 26QB and 26QD and need no TAN.
TDS rate chart for FY 2025-26
Budget 2025 raised several thresholds from 1 April 2025. The most common sections are:
- No surcharge or cess is added to TDS on payments to residents; for non-residents under section 195, surcharge and cess apply.
- Rates double to 20% (or the section rate if higher) when the deductee has no PAN or an inoperative PAN (section 206AA); for 194Q the no-PAN rate is 5%.
- Form 15G/15H lets eligible individuals receive interest without TDS; a section 197 certificate allows lower or nil deduction on any payment.
| Section | Nature of payment | Rate | Threshold |
|---|---|---|---|
| 192 | Salary | Slab rate on estimated income | Basic exemption limit |
| 194A | Interest from banks, post office, co-operatives | 10% | ₹50,000 (₹1,00,000 for senior citizens); ₹10,000 for other payers |
| 194C | Contractor and sub-contractor payments | 1% individual/HUF, 2% others | ₹30,000 per bill or ₹1,00,000 in the year |
| 194H | Commission and brokerage | 2% | ₹20,000 |
| 194I | Rent (businesses) | 2% plant and machinery, 10% land, building, furniture | ₹6,00,000 a year |
| 194-IB | Rent paid by individuals/HUF not under audit | 2% | ₹50,000 a month |
| 194J | Professional fees / technical services | 10% professional, 2% technical | ₹50,000 a year each |
| 194-IA | Purchase of immovable property | 1% | ₹50,00,000 consideration or stamp duty value |
| 194Q | Purchase of goods (buyer turnover above ₹10 crore) | 0.1% on the excess | ₹50,00,000 per seller |
| 194S | Transfer of crypto / virtual digital assets | 1% | ₹50,000 (specified persons) / ₹10,000 |
| 194 | Dividend | 10% | ₹10,000 |
Worked examples
Professional fees: you pay a designer ₹60,000 in the year. This exceeds the ₹50,000 threshold under section 194J, so deduct 10% = ₹6,000 and pay ₹54,000. Had the designer not shared a PAN, the deduction would be 20% = ₹12,000.
Contractor: a single bill of ₹40,000 from a proprietorship contractor exceeds the ₹30,000 per-bill limit under 194C, so deduct 1% = ₹400 (2% or ₹800 if the contractor were a company). Once the yearly total crosses ₹1,00,000, every bill is liable, including earlier small ones.
Rent above ₹50,000 a month: a salaried tenant paying ₹60,000 a month deducts 2% of the year's rent (₹7,20,000 × 2% = ₹14,400) in March or the last month of tenancy, files Form 26QC within 30 days and gives the landlord Form 16C.
Property purchase: on a flat costing ₹75,00,000 the buyer deducts 1% = ₹75,000 on each payment made to the seller, deposits it through Form 26QB within 30 days of the end of that month, and issues Form 16B. If the seller is an NRI, section 195 applies instead at the capital gains rate on the whole amount.
When TDS must be deposited and reported
- Deposit by the 7th of the month after deduction; TDS for March is due by 30 April. Use challan ITNS 281 (or the PAN-based 26QB/26QC/26QD forms).
- Quarterly returns: Form 24Q for salary and 26Q for other resident payments, due 31 July, 31 October, 31 January and 31 May for the four quarters; 27Q for non-residents.
- Issue Form 16 (salary) by 15 June and Form 16A (others) within 15 days of the return due date so recipients can claim credit.
- Interest for late deduction is 1% per month from the date the tax was deductible to the date it is deducted; for late deposit it is 1.5% per month from the date of deduction to the date of payment, counting part months as full.
- Late-filing fee under section 234E is ₹200 per day up to the TDS amount, plus a penalty of ₹10,000 to ₹1,00,000 under section 271H if the return is more than a year late.
- Expenses on which TDS was not deducted or deposited are disallowed to the extent of 30% under section 40(a)(ia) when computing business income.
TDS on salary: how section 192 differs
Salary TDS is not a flat rate. The employer estimates your annual income, applies the regime you chose (new by default), subtracts standard deduction and declared investments, and spreads the resulting tax evenly across the remaining months. That is why the deduction jumps in January to March if your investment proofs fall short of the declaration. Use the income tax calculator to estimate the annual figure; divide by 12 for an approximate monthly TDS. From FY 2024-25 employers must also give credit for TCS and other TDS if you declare them in Form 12BB.
How to check and claim TDS credit
Every deduction appears in your Form 26AS and AIS on the income-tax portal within a few weeks of the deductor filing its return. Match the figures with your Form 16/16A before filing the ITR; if a deductor has not filed, the credit will not show and you should follow up rather than claim it blindly, as a mismatch delays the refund. Excess TDS, common for freelancers and fixed-deposit investors whose income is below the taxable limit, is refunded after the return is processed, with 0.5% per month interest under section 244A.