What is TDS (Tax Deducted at Source)?
Last updated: 27 June 2026
TDS (Tax Deducted at Source) is a mechanism under the Income Tax Act where the payer of certain incomes — such as salary, rent, contractor payments, or professional fees — deducts a prescribed percentage of tax before making payment and deposits it directly with the Income Tax department on behalf of the recipient.
TDS ensures tax collection at the point of income generation rather than waiting for the payee to file returns. The deducted amount appears in the payee's Form 26AS and is credited against their final tax liability.
Key TDS sections for SMBs (FY 2025-26)
| Section | Nature of payment | Rate | Threshold |
|---|---|---|---|
| 192 | Salary | As per slab | No threshold |
| 194C | Contractors / subcontractors | 1% (individual/HUF), 2% (others) | ₹30,000 single / ₹1,00,000 aggregate |
| 194H | Commission / brokerage | 2% | ₹20,000 |
| 194I | Rent | 2% (P&M), 10% (land/building) | ₹50,000/month |
| 194J | Professional / technical fees | 10% (professional), 2% (technical) | ₹50,000 |
| 194Q | Purchase of goods | 0.1% | Purchases > ₹50 lakh; buyer turnover > ₹10 crore |
Fact box. TDS must be deposited by the 7th of the following month (e.g., April deductions by 7 May). March TDS is due by 30 April. Quarterly TDS returns (Form 24Q for salary, Form 26Q for others) are due 31 July, 31 October, 31 January, and 31 May. Late filing attracts ₹200/day under Section 234E.
Important 2025 change: 206C(1H) abolished
TCS on sale of goods over ₹50 lakh (Section 206C(1H)) was abolished from 1 April 2025. Sellers no longer collect TCS on goods sales; the equivalent deduction happens at the buyer's end under Section 194Q.
How TDS is claimed
The amount deducted appears in the payee's Form 26AS (Annual Information Statement). At the time of filing income tax returns, the payee claims TDS credit against total tax payable. If TDS exceeds tax liability, a refund is issued.
Frequently asked questions
Can the payee request a lower or nil TDS deduction? Yes. The payee can apply to the Assessing Officer for a certificate under Section 197 authorising lower or nil TDS if their expected tax liability is lower than what would be deducted at standard rates.
Does GST TDS (Section 51) differ from income tax TDS? Yes. GST TDS (Section 51 of CGST Act) applies only when government departments and specified entities make payments exceeding ₹2.5 lakh to GST-registered suppliers — it is entirely separate from income tax TDS.
Sources: Income Tax Department — incometax.gov.in; TDSMAN TDS/TCS Rate Chart FY 2025-26
General information, not professional advice. Verify on the official portal for your case. Reviewed by a Chartered Accountant; last updated 27 June 2026.
Related: TCS (Tax Collected at Source) · Advance Tax · EPF