TDS: Tax Deducted at Source

What is TDS (Tax Deducted at Source)?

TDS is a tax collection mechanism under which the payer deducts tax while making specified payments, such as salary, rent, interest, commission and professional fees, and deposits it with the Central Government. Its main purpose is to ensure timely tax collection and prevent tax evasion.

1. Who is Required to Deduct TDS?

TDS provisions may apply to:

• Private and Public Limited Companies.

• Partnership Firms and LLPs.

• Proprietorship Firms.

• Individuals and HUFs.

• Trusts and other specified entities.

• Employers paying salaries.

• Persons making payments to contractors, professionals and landlords.

TDS applicability depends on the nature and amount of payment and applicable legal provisions.

2. Important TDS Threshold Limits and Rates (FY 2026-27)

Important Notes:

• Contractor payments have separate per-transaction and annual thresholds.

• Salary TDS depends on the employee's estimated taxable income and applicable tax regime.

• Higher TDS rates may apply if PAN is not furnished.

• Certain payments by individuals and HUFs have specific applicability conditions.

3. TDS Payment Due Dates (FY 2026-27)

For non-government deductors:

• April to February: 7th of the following month.

• March: 30th April.

Important:

• Government deductors making payment through book adjustment must deposit TDS on the same day.

• Certain transactions, such as property purchases and specified rent payments, have separate deadlines.

4. Quarterly TDS Return Filing Due Dates

Applicable TDS Forms:

• Form 138: Salary TDS (earlier Form 24Q).

• Form 140: Payments to residents (earlier Form 26Q).

• Form 139: Payments to non-residents (earlier Form 27Q).

5. TDS Interest and Penalties

Detailed Explanation:

1. Non-Deduction of TDS:
   Interest at 1% per month or part of a month, from the date TDS was deductible until actual deduction.

2. Late Deposit of TDS:
   Interest at 1.5% per month or part of a month, from the deduction date until actual payment.

3. Late Filing of TDS Return:
   A fee of ₹200 per day is charged until filing, subject to a maximum equal to the TDS amount.

4. Non-Filing or Incorrect Filing:
   A penalty ranging from ₹10,000 to ₹1,00,000 may apply under the relevant provisions.

5. Disallowance of Expenses:
   30% of specified expenditure may be disallowed when applicable TDS is not deducted or deposited within the prescribed time.

Note: The ₹10,000–₹1,00,000 penalty relates to provisions under the Income-tax Act, 1961. For FY 2026-27, corresponding provisions under the Income-tax Act, 2025 must be considered.

6. Documents Required for TDS Return Filing

1. TAN and PAN of the deductor.

2. PAN details of deductees.

3. Payment and expense details.

4. TDS deduction amounts and applicable rates.

5. TDS challans and payment receipts.

6. BSR code, challan serial number and deposit date.

7. Previous quarter return acknowledgement.

8. Details of correction statements, if any.

9. Salary and employee details, wherever applicable.

7. Benefits of Timely TDS Return Filing

• Avoids late fees and interest.

• Prevents penalties and tax notices.

• Ensures proper TDS credit in the recipient's tax records.

• Helps in smooth income tax return filing and refunds.

• Maintains statutory compliance.

• Reduces the risk of disputes and legal proceedings.

8. TDS Compliance Services

Professional TDS compliance services generally include:

• TDS applicability and threshold checking.

• TDS calculation and deduction.

• Monthly TDS payment and challan preparation.

• Quarterly TDS return preparation and filing.

• Form 16 and Form 16A generation.

• TDS reconciliation with Form 26AS and TRACES.

• Correction and revision of TDS returns.

• Handling TDS notices, defaults and demands.

• Assistance with lower or nil TDS deduction certificates.

9. Frequently Asked Questions (FAQs)