What is TDS (Tax Deducted at Source)?
Tax Deducted at Source (TDS) is a mechanism under the Income Tax Act, 1961 where the payer is required to deduct tax at a prescribed rate before making payment to the payee for specified types of transactions — such as salary payments, contractor payments, rent, professional fees, interest, and more. The deducted tax is then deposited with the government and a TDS certificate is issued to the payee.
TDS is essentially the government's method of collecting tax at the point of income generation itself, reducing the risk of tax evasion. Businesses that make qualifying payments above threshold limits are legally required to deduct TDS, deposit it, and file quarterly TDS returns.
TDS Return Forms — Which One Do You Need?
| Form | Applicable For | Due Date |
|---|---|---|
| Form 24Q | TDS on Salaries (Section 192) | Q1: Jul 31 | Q2: Oct 31 | Q3: Jan 31 | Q4: May 31 |
| Form 26Q | TDS on all Non-Salary Payments to Residents (Section 194, 194A, 194C etc.) | Same as above |
| Form 27Q | TDS on payments to Non-Residents (Section 195, 196D etc.) | Same as above |
| Form 27EQ | TCS (Tax Collected at Source) | Same as above |
Key TDS Rates (FY 2024-25)
| Section | Nature of Payment | Threshold Limit | TDS Rate |
|---|---|---|---|
| 192 | Salaries | Basic exemption limit | As per income tax slab |
| 194C | Contractor/Sub-contractor | ₹30,000/transaction or ₹1 Lakh/year | 1% (Individual/HUF), 2% (Others) |
| 194J | Professional/Technical Services | ₹30,000/year | 10% (Professional), 2% (Technical) |
| 194A | Interest from Banks/FD | ₹40,000/year (Bank), ₹5,000 (other) | 10% |
| 194H | Commission/Brokerage | ₹15,000/year | 5% |
| 194I | Rent | ₹2.4 Lakh/year | 10% (Land/Building), 2% (Plant/Machinery) |
Consequences of TDS Non-Compliance
- 🔴 Interest u/s 201(1A): 1% per month if TDS not deducted; 1.5% per month if deducted but not deposited
- 🔴 Penalty u/s 271C: Penalty equal to the amount of TDS not deducted/deposited
- 🔴 Prosecution: In serious cases, imprisonment of 3 months to 7 years under Section 276B
- 🔴 Expense Disallowance: If TDS is not deducted on qualifying payments, 30% of such expense is disallowed in your income tax computation
- 🔴 Late Filing Fee u/s 234E: ₹200 per day of delay in filing TDS return
TDS Filing FAQs
Companies, firms, LLPs, individuals/HUFs with accounts subject to tax audit are generally required to deduct TDS. Individuals not subject to tax audit need to deduct TDS only on rent above ₹50,000/month (Section 194IB) and on contractual work.
Form 16 is the TDS certificate issued to employees showing TDS deducted from salary. Form 16A is issued for TDS deducted on non-salary payments (rent, professional fees, interest). Both are generated through TRACES portal after TDS return filing.
TAN (Tax Deduction Account Number) is a 10-digit alphanumeric number mandatory for all TDS deductors. It is applied through Form 49B on the NSDL portal. The TAN number must be quoted on all TDS challans, returns, and certificates. LegalPehchan assists with TAN registration as well.