Tax Deducted at Source (TDS) is one of the most important compliance requirements for businesses in India. Every employer, company, and individual making specified payments must deduct TDS at the prescribed rates and deposit it with the government. Non-compliance attracts heavy penalties and interest. This guide covers everything businesses need to know about TDS for FY 2025-26.
What is TDS?
TDS is a mechanism of collecting tax at the source of income. The person making the payment (deductor) is required to deduct tax at specified rates before making the payment to the recipient (deductee). The deducted amount is then deposited with the government.
Key TDS Rates for FY 2025-26
Refer to the Section-Wise TDS Rate Chart below for detailed rates, thresholds, and applicability.
Salary — Section 192
TDS on salary is deducted at the applicable slab rates based on the employee's estimated annual income. The employer must consider the employee's declarations regarding deductions and regime choice.
Interest Other Than Securities — Section 194A
Contractor Payments — Section 194C
Commission/Brokerage — Section 194H
Rent — Section 194I
Professional/Technical Fees — Section 194J
Purchase of Goods — Section 194Q
TDS Payment Due Dates
| Deductor Type | Due Date |
|---|---|
| Government deductors | Same day as deduction |
| Other deductors | 7th of the following month |
| March deductions | 30th April of the following year |
Note: Late deposit attracts interest at 1.5% per month from the date of deduction to the date of deposit.
TDS Return Filing Schedule
| Quarter | Period | Due Date |
|---|---|---|
| Q1 | April-June | 31st July |
| Q2 | July-September | 31st October |
| Q3 | October-December | 31st January |
| Q4 | January-March | 31st May |
Forms for TDS Returns
| Form | Purpose |
|---|---|
| Form 24Q | TDS on salary |
| Form 26Q | TDS on all payments other than salary to residents |
| Form 27Q | TDS on payments to non-residents |
| Form 27EQ | TCS (Tax Collected at Source) returns |
TDS Certificates
| Certificate | Form | Issuance Timeline |
|---|---|---|
| TDS on salary | Form 16 | Issued annually by 15th June |
| TDS on non-salary payments | Form 16A | Issued quarterly within 15 days of return filing |
| TDS on property sale | Form 16B | As applicable |
| TDS on rent by individuals/HUFs | Form 16C | As applicable |
Penalties for Non-Compliance
Interest for Late Deduction
| Default Type | Interest Rate |
|---|---|
| Non-deduction | 1% per month from the date when TDS should have been deducted |
| Late deposit | 1.5% per month from the date of deduction to the date of deposit |
Late Filing Penalty
- Section 234E — Rs. 200 per day until the return is filed, capped at the total TDS amount
- Section 271H — Penalty of Rs. 10,000 to Rs. 1,00,000 for failure to file TDS return within one year of the due date
Penalty for Incorrect Information
- Section 271H — Rs. 10,000 to Rs. 1,00,000 for furnishing incorrect statements
Disallowance of Expenses
- Section 40(a)(ia) — 30% of the expense is disallowed if TDS is not deducted or not deposited before the due date of filing the income tax return
Best Practices for TDS Compliance
- Maintain a TDS calendar — Set reminders for monthly deposits and quarterly return filing
- Collect PAN from all payees — Higher TDS rate of 20% applies if PAN is not provided
- Verify lower deduction certificates — Ensure Form 13 certificates from payees are valid and verified on TRACES
- Reconcile with Form 26AS — Regularly match your deductions with the deductee's Form 26AS to avoid disputes
- Automate TDS computation — Use accounting software with built-in TDS modules to avoid manual errors
- File corrections promptly — If errors are found in filed returns, file correction returns immediately
Section-Wise TDS Rate Chart for FY 2025-26
The following table summarizes the key TDS rates applicable for FY 2025-26. These rates apply when the deductee has furnished a valid PAN or Aadhaar. In the absence of PAN, TDS is deducted at 20% or the applicable rate, whichever is higher.
| Section | Nature of Payment | Threshold (Rs.) | TDS Rate | Deductee |
|---|---|---|---|---|
| 192 | Salary | Slab-based | Slab rates | Employee |
| 194A | Interest (other than securities) | 40,000 (50,000 for senior citizens) | 10% | Resident |
| 194C | Contractor payments | 30,000 single / 1,00,000 aggregate | 1% (Individual/HUF), 2% (Others) | Resident |
| 194H | Commission / Brokerage | 15,000 | 5% | Resident |
| 194I(a) | Rent — Plant & Machinery | 2,40,000 | 2% | Resident |
| 194I(b) | Rent — Land, Building, Furniture | 2,40,000 | 10% | Resident |
| 194J(a) | Technical Services / Royalty | 30,000 | 2% | Resident |
| 194J(b) | Professional Fees | 30,000 | 10% | Resident |
| 194Q | Purchase of Goods | 50,00,000 | 0.1% | Resident (buyer turnover > 10 Cr) |
| 194R | Perquisites/Benefits (business) | 20,000 | 10% | Resident |
| 194S | Transfer of Virtual Digital Assets | 50,000 (specified) / 10,000 (others) | 1% | Resident |
Note: For Section 194Q, the buyer (not the seller) is responsible for deducting TDS. Section 194R covers perquisites and benefits arising from business or profession and was introduced to bring non-cash benefits under the TDS net.
TDS on Non-Residents (Section 195)
Any person making a payment to a non-resident that is chargeable to tax in India is required to deduct TDS under Section 195. This is one of the most critical and complex TDS provisions, as it involves the interplay of the Income Tax Act and Double Taxation Avoidance Agreements (DTAAs).
Key TDS Rates for Non-Residents
| Nature of Income | TDS Rate |
|---|---|
| Interest income | 20% (plus applicable surcharge and cess) |
| Royalty | 10% under most DTAAs; 20% without DTAA benefit |
| Fees for Technical Services (FTS) | 10% under most DTAAs; 20% without DTAA benefit |
| Long-term capital gains (listed shares with STT) | 12.5% |
| Short-term capital gains (listed shares with STT) | 20% |
| Other income | 30% (or rates specified under the applicable DTAA, whichever is more beneficial) |
Important Compliance Requirements
- Tax Residency Certificate (TRC): The non-resident must provide a TRC from their home country to claim DTAA benefits. Without a valid TRC, the higher domestic rate applies.
- Form 10F: The non-resident must submit Form 10F along with the TRC to avail treaty benefits.
- Lower deduction certificate: If the non-resident believes the payment is not taxable or taxable at a lower rate, they can apply for a certificate under Section 197 or obtain an order under Section 195(2)/(3).
- Form 15CA/15CB: Before making the remittance, the deductor must file Form 15CA (online declaration) on the income tax portal. For payments exceeding Rs. 5 lakhs, a CA certificate in Form 15CB is mandatory.
- Reporting in quarterly return: TDS on non-resident payments is reported in Form 27Q (not Form 26Q which is for residents).
Conclusion
TDS compliance is non-negotiable for businesses. The penalties for non-compliance are severe, and the expense disallowance under Section 40(a)(ia) can significantly increase your tax liability. Maintaining a systematic approach — with proper calendars, automation, and regular reconciliation — is the key to hassle-free TDS compliance. Our team manages end-to-end TDS compliance for hundreds of businesses, ensuring timely deductions, deposits, and return filing.
Frequently Asked Questions
Q1. Which TDS return form should I use?
Use Form 24Q for TDS on salary, Form 26Q for TDS on all non-salary payments to residents, Form 27Q for payments to non-residents, and Form 27EQ for Tax Collected at Source (TCS). Each form must be filed quarterly by the prescribed due dates.
Q2. Is PAN mandatory for TDS deduction, or can Aadhaar be used?
From FY 2023-24 onwards, Aadhaar can be quoted interchangeably with PAN for TDS purposes where the deductee has linked their Aadhaar with PAN. However, if neither PAN nor Aadhaar is furnished, TDS must be deducted at 20% or the prescribed rate, whichever is higher, under Section 206AA.
Q3. How do I obtain a lower or nil TDS deduction certificate?
The deductee must apply to the Assessing Officer in Form 13 for a certificate under Section 197 for lower or nil deduction. The application is filed online on the TRACES portal. Once approved, the certificate is valid for the specified period and must be furnished to the deductor before the payment.
Q4. Can I correct errors in a TDS return that has already been filed?
Yes. Correction returns can be filed on the TRACES portal to rectify errors such as incorrect PAN, wrong amount, incorrect challan details, or addition/deletion of deductee records. There is no limit on the number of corrections, and they should be filed promptly to avoid notices to the deductee.
Q5. How do I correct a TDS challan if the wrong section code or assessment year was entered?
Challan corrections can be made through the bank (for physical challans within 7 days) or through the TRACES portal under the challan correction mechanism. Corrections for fields like assessment year, major head, minor head, and PAN are permitted. For online challans paid through the e-pay facility, corrections can be requested through the TRACES portal after the return is filed.