Someone pays you less than the invoice says and calls the shortfall TDS. It is not a discount and it is not lost — it is tax collected from you at the moment the money moved, sitting against your PAN until you claim it. For the business at the other end of that payment, it is a deadline with a penalty behind it.
A deductor must withhold TDS at the prescribed rate once a payment crosses its threshold, deposit it by the 7th of the following month, and file a quarterly return — with interest, a daily late fee and a 30% expense disallowance waiting for anyone who does not.
The bottom line
The deadlines: deposit by the 7th of the next month, except March, which runs to 30 April. Quarterly returns follow.
What Budget 2025 changed: thresholds went up. Professional fees under Section 194J and rent under Section 194I now trigger at ₹50,000, and bank interest at ₹50,000, or ₹1,00,000 for senior citizens.
The two expensive mistakes: no PAN means 20% under Section 206AA, and not deducting at all can disallow 30% of the expense in your own computation.
How TDS works, and who has to do it
TDS moves tax collection to the point of payment. The payer withholds tax before paying, deposits it against the payee's PAN and reports it. The payee then claims that amount as tax already paid when filing their own return.
Businesses, employers and certain individuals must deduct, and they need a TAN — a Tax Deduction Account Number — before they can. On the receiving side, the deduction shows up in the payee's Form 26AS and Annual Information Statement, which is where they go to check that it actually reached the government.
The new Income-tax Act, 2025 reorganised the sections without changing the underlying rates, so the numbers below are the operative ones.
Rates and thresholds for FY 2025-26 and 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 lifted many of these, taking a large number of small invoices out of deduction altogether. It also removed Section 206AB, the higher-TDS rule for non-filers, which takes one verification step out of every payment run.
When to deposit, when to file
Deposit TDS by the 7th of the month following the deduction. March is the exception, with a deadline of 30 April.
Returns are quarterly:
- Q1, April to June — 31 July
- Q2, July to September — 31 October
- Q3, October to December — 31 January
- Q4, January to March — 31 May
Salary TDS goes in Form 24Q and non-salary in Form 26Q, with 27Q for payments to non-residents.
The certificates
Once returns are filed, the deductor issues certificates so the payee can claim credit. Form 16 is the annual certificate for salary TDS, usually issued by employers around mid-June. Form 16A is the quarterly certificate for everything else — professional fees, rent, interest.
These have to match the deductee's Form 26AS. Together they are the payee's proof that tax was paid on their behalf, which is why a missing certificate turns into a phone call.
No PAN, higher rate
Where the payee does not furnish a valid PAN, Section 206AA requires TDS at 20%, or the applicable rate if that is higher.
The gap is significant. A designer invoicing professional fees without a PAN has 20% withheld instead of 10%, and recovering the difference means filing a return to claim it. Collect and verify the PAN before you deduct, not after.
What non-compliance costs
- Interest on late deduction: 1% per month from when the tax was deductible to when it was deducted.
- Interest on late deposit: 1.5% per month from deduction to deposit.
- Late-filing fee under Section 234E: ₹200 per day until the return is filed, capped at the TDS amount.
- Penalty under Section 271H: for not filing, or filing an incorrect return, on top of the fee.
- Disallowance: failing to deduct at all can mean 30% of the expense is disallowed in your own income computation.
That last one is usually the largest number on the list, and the one businesses discover late. The interest is a cost of delay; the disallowance is a cost of forgetting.
A worked example
A company pays a freelance consultant ₹3,00,000 in professional fees. That crosses the ₹50,000 threshold under Section 194J, so the company deducts 10%, being ₹30,000, and pays over ₹2,70,000.
It deposits the ₹30,000 by the 7th of the next month, files the quarterly return and issues Form 16A. The consultant claims the ₹30,000 as tax already paid when filing their ITR.
Had the consultant not provided a PAN, the deduction would have been 20%, or ₹60,000, under Section 206AA — the same work, ₹30,000 less in hand until the return is filed.
Common mistakes
- Working from pre-Budget 2025 thresholds, and over-deducting or under-deducting as a result.
- Depositing late. At 1.5% per month the interest builds quietly.
- Paying before collecting the PAN. That triggers 20% and a reconciliation problem at both ends.
- Not issuing Form 16 or Form 16A. The payee cannot easily claim credit without it.
- Treating non-deduction as a small oversight. It can cost 30% of the expense.
Frequently asked questions
What is the TDS rate on professional fees in 2026? 10% under Section 194J, 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, except for tax deducted in March, which is due 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.
What is the penalty for late TDS filing? A fee of ₹200 per day under Section 234E, capped at the TDS amount, plus possible penalty and interest.
Do I need a TAN to deduct TDS? Yes. A deductor needs a Tax Deduction Account Number before deducting and depositing.