TDS Compliance Guide: Rates, Payment, Returns & Penalties

TDS (Tax Deducted at Source) compliance is mandatory for businesses making payments above certain thresholds. Missing TDS deduction, late payment, or delayed return filing can result in penalties of ₹10,000-₹1 lakh, disallowance of expenses, and interest charges at 1.5% per month.

But TDS compliance isn't complicated—it's just systematic. Deduct TDS at the right rate → Pay by 7th of next month → File quarterly returns (24Q/26Q/27Q) → Issue TDS certificates.

This complete guide covers TDS rates for all payment types, deduction rules, payment deadlines, quarterly return filing process, penalties, and how to avoid common mistakes.

What is TDS and Why It Matters?

TDS (Tax Deducted at Source) is a mechanism where the payer deducts tax at source before making payments and deposits it directly with the government. The deductee later claims this as advance tax paid when filing ITR.

TDS Rates Chart (FY 2025-26)

Here are the most common TDS rates applicable for businesses:

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Section	Nature of Payment	Threshold	TDS Rate
192	Salary	No threshold (on total salary)	As per slab
194A	Interest on Time Deposits (other than securities) -Payer (Banking Company/ Society/ Post office notified schemes)	₹50,000/year (₹1,00,000 for senior citizens)	10%
194A	Interest (other than securities) Payer is any other person	₹10,000/year (₹10,000 for senior citizens)	10%
194C	Contractor/Sub-contractor payments	₹30,000 (single) or ₹1,00,000 (aggregate)	1% (Individual/HUF) 2% (Any other person)
194D	Insurance commission	₹20,000/year	2% (other than domestic company) 10% (all other cases)
194H	Commission/Brokerage	₹20,000/year	2%
194I	Rent - Land/Building/Furniture	₹50,000/month	10%
194I	Rent - Plant & Machinery/Equipment	₹50,000/month	2%
194IA	Payment (consideration/stamp duty value)- Immovable properties (other than agricultural land)	₹50,00,000	1% (Consideration /stamp duty value w.e.h.)
194IB	Rent - paid by certain Individuals/HUF	₹50,000/month	2%
194IC	Payment - Joint Development Agreement	No threshold	10%
194J	Payee - Call Centres	₹50,000/year	2%
194J	Professional/Technical Fees	₹50,000/year	10%
194J	Director's Fees	No threshold	10%
194LA	Compensation - Compulsory acquisition immovable property	₹5,00,000	10%
194M	Payment by Individual/HUF to Contractors	₹50,00,000/year (turnover/sales)	2%
194N	Cash withdrawal from bank	₹1 crore/year (₹3Cr for co-ops/govt)	2%
194O	E-commerce transactions (by operator)	Gross sale > ₹5,00,000	0.1%
194Q	Purchase of goods (by buyer)	₹50,00,000/year	0.1%
194R	Perquisites- Business/ Profession	₹20,000/year	10%
194S	Payment - Transfer of Virtual Digital Asset	₹50,000/year (specified person) ₹10,000/year (all other cases)	1%
194T	Payment - Remuneration/ Interest to Partners	₹20,000/year	10%

TDS Compliance Timeline

Step-by-Step: How to Deduct & Pay TDS

Step 1: Identify TDS Applicability

Before making any payment, check:

• Nature of payment: What are you paying for? (rent, professional fees, contractor, etc.)
• Amount: Does it exceed threshold for that payment type?
• PAN availability: Has the payee provided PAN?
• Form 15G/15H: Has the payee submitted declaration (if applicable)?

Step 2: Calculate TDS

Formula: TDS Amount = Payment Amount × TDS Rate

Example: Professional fees of ₹1,00,000 → TDS = ₹1,00,000 × 10% = ₹10,000

Net payment to vendor: ₹1,00,000 - ₹10,000 = ₹90,000

Step 3: Make Payment

Pay the net amount (after TDS deduction) to the vendor. Inform them of TDS deducted and provide acknowledgment.

Step 4: Pay TDS to Government (by 7th)

1. Login to Income Tax e-filing portal (www.incometax.gov.in)
2. Go to e-Pay Tax → Select Challan 281
3. Enter details: Assessment Year, TDS section, amount
4. Make payment via net banking
5. Download challan (BSR code will auto-update in 3-4 days)

Step 5: File Quarterly TDS Return

Use TRACES portal (www.tdscpc.gov.in) to file returns:

• Form 24Q: Salary TDS
• Form 26Q: Non-salary TDS (all other payments)
• Form 27Q: TDS on payments to non-residents

Step 6: Issue TDS Certificates

After successful return filing and processing (takes 7-10 days), download TDS certificates from TRACES and share with deductees.

TDS Return Filing: Quarterly Due Dates

Quarter	Period Covered	Due Date
Q1	April - June	31 July
Q2	July - September	31 October
Q3	October - December	31 January
Q4	January - March	31 May

TDS Penalties & Interest

Common TDS Mistakes to Avoid

❌ Mistake 1: Not Deducting TDS on Advance Payments

Rule: TDS must be deducted at the time of payment OR at the time of credit to payee's account, whichever is earlier.
Mistake: Paying advance to contractor without TDS.
Solution: Deduct TDS even on advance payments.

❌ Mistake 2: Using Wrong TDS Section

Mistake: Deducting professional fees under 194C (contractor) instead of 194J (professional).
Impact: Incorrect return filing, mismatch in Form 26AS.
Solution: Always verify correct section before deduction.

❌ Mistake 3: Not Getting PAN from Payees

Mistake: Paying without collecting PAN, then deducting TDS at 20% instead of normal rate.
Solution: Collect PAN before making any payment. If no PAN, deduct at 20%.

❌ Mistake 4: Not Filing Quarterly Returns on Time

Mistake: Paying TDS monthly but not filing quarterly returns.
Impact: ₹200/day penalty + deductee doesn't get credit in Form 26AS.
Solution: Set reminders for 31 July, 31 Oct, 31 Jan, 31 May.

❌ Mistake 5: Not Issuing TDS Certificates

Mistake: Filing returns but not downloading and sharing Form 16A with vendors.
Impact: Vendors can't claim TDS credit, they'll follow up aggressively.
Solution: Download from TRACES and email to all vendors within 15 days of filing.

TDS Compliance Checklist

Frequently Asked Questions

Q1: What happens if I forget to deduct TDS?

A: You can still deduct TDS from subsequent payments. But you'll face penalty (100% of TDS not deducted) + interest (1.5%/month). Plus 30% of that expense will be disallowed in your ITR.

Q2: Can I pay TDS annually instead of monthly?

A: No. TDS must be paid by 7th of the month following deduction. Annual payment will attract interest for all the delayed months.

Q3: What if vendor provides Form 15G/15H (no TDS deduction)?

A: If vendor's income is below taxable limit and they provide Form 15G/15H, you can skip TDS. But maintain the form for records and report in TDS return.

Q4: How to correct mistakes in filed TDS return?

A: File a correction statement on TRACES. You can correct deductee details, amounts, PAN, etc. within 5 years.

Q5: What if I deducted TDS but forgot to pay to government?

A: Pay immediately with interest (1.5%/month). File return with correct details. Inform deductee that there will be a delay in their Form 26AS credit.