TDS Compliance Guide for Employers and Small Businesses: Rates, Due Dates, 24Q/26Q and Form 16

Monthly deposit

7th

30 April for March deductions

Late filing fee

₹200/day

Section 234E, capped at TDS amount

Interest on late deposit

1.5% p.m.

1% p.m. for late deduction

Form 16 due

15 June

Form 16A within 15 days of return due date

Start with a TAN

Every person who deducts tax needs a Tax Deduction and Collection Account Number. Apply in Form 49B through Protean (NSDL) for a fee under ₹100 and the TAN arrives in about a week. Quote it on every challan, statement and certificate. Section 272BB prescribes a penalty of ₹10,000 for failing to obtain a TAN or quoting a wrong one.

Individuals and HUFs are required to deduct TDS on business payments only if their turnover exceeded ₹1 crore (business) or receipts exceeded ₹50 lakh (profession) in the previous year. Two exceptions need no TAN at all: 1% on property purchases above ₹50 lakh under 194-IA (Form 26QB) and 2% on rent above ₹50,000 a month under 194-IB (Form 26QC), both filed using PAN.

Common TDS sections, rates and thresholds for FY 2025-26

Budget 2025 raised several thresholds from 1 April 2025. The table below reflects the rates and limits in force for FY 2025-26. Rates apply to the whole amount once the threshold is crossed, not just the excess.

TDS on salary under section 192

Salary TDS is computed on the estimated annual income of each employee and deducted in equal monthly instalments. The new regime is the default. An employee who wants the old regime must tell you at the start of the year, and you collect proofs for HRA, 80C and home loan interest in Form 12BB before the year ends. Employees can also declare TDS and TCS suffered elsewhere in Form 12BAA so that you deduct less.

An employee with taxable salary up to ₹12 lakh after the ₹75,000 standard deduction pays nil tax under the new regime because of the ₹60,000 rebate under 87A, so no TDS is required. Recompute whenever salary changes mid-year, and adjust the final months so the total matches the annual liability.

Deposit and filing calendar

TDS deducted in a month must be deposited through challan ITNS 281 by the 7th of the next month. The only exception is March, where the due date is 30 April. Quarterly statements are then filed for each TAN: 24Q for salary, 26Q for other resident payments and 27Q for payments to non-residents.

Each quarterly statement is prepared in the RPU utility or compliant software, validated with the File Validation Utility (FVU) and uploaded on the income tax e-filing portal or through a TIN facilitation centre. Registering the TAN on TRACES is needed to download Form 16, Form 16A and the justification report for defaults.

Interest, late fees and penalties

Section 201(1A) charges interest at 1% per month from the date tax was deductible to the date it was actually deducted, and 1.5% per month from the date of deduction to the date of deposit. Any part of a month counts as a full month, which makes even a few days of delay expensive.

Deductees without PAN, and lower deduction certificates

Section 206AA requires TDS at 20%, or the rate in the section if higher, whenever the payee does not furnish a valid PAN. A PAN that is inoperative because it is not linked to Aadhaar is treated the same way. Validate PANs on TRACES before filing, since an invalid PAN in a statement triggers a short deduction demand for the difference up to 20%.

• A payee whose total tax is lower than the TDS can apply to the assessing officer in Form 13 for a certificate under section 197 allowing nil or lower deduction. You deduct at the certificate rate and quote the certificate number in the statement.
• Individuals receiving interest can give Form 15G (below 60 years) or Form 15H (60 and above) under 197A if their tax liability is nil. Report these in the statement even though no tax is deducted.
• TDS is not required on payments to certain exempt bodies such as the government, RBI and mutual funds, and on GST charged separately on an invoice where the GST component is shown distinctly.
• Payments to non-residents fall under section 195 and Form 27Q, with treaty rates available only against a tax residency certificate and Form 10F.

Form 16 and Form 16A: your obligations as deductor

Form 16 is the annual salary certificate. Part A, downloaded from TRACES, shows quarterly deductions and deposits; Part B, generated by you, shows the salary breakup, deductions and tax computed. It must be issued by 15 June following the financial year, so Form 16 for FY 2025-26 was due by 15 June 2026. Form 16A for non-salary deductions is due within 15 days of the quarterly statement due date, and Form 16B for property TDS within 15 days of filing Form 26QB.

• Form 16 can only be generated after the Q4 24Q statement is processed on TRACES, so a late Q4 filing delays every employee return.
• Issue Form 16 to every employee from whom tax was deducted. Employees below the taxable limit can be given a salary certificate instead.
• Late issue of Form 16 or 16A attracts a penalty of ₹100 per day under section 272A(2)(g), capped at the TDS amount.
• Digitally sign the PDFs and password-protect them with the employee PAN as a courtesy; both are expected practice.

Correcting mistakes on TRACES

After a statement is processed, TRACES issues an intimation for any default: short deduction, short payment, late payment interest, late filing fee or PAN errors. Download the justification report to see each default line by line. Most are fixed by a correction statement.

Online corrections require a Digital Signature Certificate for most types, or an Aadhaar-based e-verification for some. Demands that remain unpaid are adjusted against refunds and can lead to recovery, so clear the TRACES default summary every quarter.

A monthly TDS routine for a small business

1. Before paying any vendor or salary: check the section, threshold and PAN validity. Deduct at the right rate, or 20% if no PAN.
2. By the 5th of the next month: total the TDS by section, generate ITNS 281 and pay through net banking. Save the challan with BSR code and serial number.
3. Maintain a TDS register with deductee PAN, date, amount, section, TDS and challan reference. This becomes the quarterly statement.
4. Within the month after each quarter: prepare, validate and file 24Q or 26Q. Download Form 16A and send it to deductees.
5. After every filing: check the TRACES default summary and clear it before it becomes a demand.
6. By 15 June: issue Form 16 to all employees after the Q4 statement is processed.

What to do next

If you have started paying salaries, contractors or professionals, apply for a TAN now and set a recurring reminder for the 7th of every month. Reconcile your vendor payments for FY 2026-27 so far against the rate chart, deduct and deposit any shortfall with interest before the next statement, and register on TRACES. An expert-assisted quarterly plan handles the deposit computation, statements, Form 16 and corrections so the 30% disallowance and daily late fees never arise.