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The 2-Minute TDS Primer: Understand the Whole Concept Right Here
Think about this. You go to a restaurant, eat food worth Rs 1,000, and the waiter collects Rs 950 at the counter while sending Rs 50 directly to the government. You still paid Rs 1,000 – the split happened at the point of payment. That, in essence, is how TDS works.
TDS stands for Tax Deducted at Source. Instead of letting the receiver collect the full income and then pay tax later, the government requires the payer to cut a portion of tax right at the time of payment. This keeps tax collection continuous and prevents evasion.
Who deducts TDS? The payer. So if a company pays you a salary, the company deducts TDS and deposits it with the government. You get the net amount.
Who bears the tax? The receiver. TDS is not an extra charge on the payer. It is the receiver’s own tax, just collected early.
When is TDS deducted? At the time of credit or payment, whichever comes first. For example, if a company credits professional fees to a ‘payable account’ on March 25 but pays cash on April 5, TDS applies on March 25.
A quick example: Ramesh is a freelance developer. He raises a bill of Rs 1,00,000 to ABC Pvt Ltd. Under Section 194J (professional fees), ABC must deduct TDS at 10%, which is Rs 10,000. Ramesh gets Rs 90,000 in hand. The Rs 10,000 goes to the government and gets credited against Ramesh’s final tax liability.
Now, not every payment attracts TDS. Each section under the Income Tax Act specifies a threshold limit. TDS kicks in only when the payment crosses that limit. For instance, a bank deducts TDS on your fixed deposit interest only if it exceeds Rs 50,000 in a year (Rs 1 lakh for senior citizens).
Similarly, TDS rates differ by payment type. Salary uses the average slab rate. Contractor payments attract 1% or 2%. Professional fees attract 10%. Lottery winnings attract the applicable rates in force. Crypto transfers attract 1%.
There are also special rules. Senior citizens above 75 years with only pension and bank interest do not need to file a return – the bank does everything. Individuals and HUFs generally do not deduct TDS unless their turnover exceeds prescribed limits or specific sections (like 194IB and 194M) apply to them.
The following sections cover every major TDS provision in detail, with examples and a quick-reference table for easy lookup.
Quick Reference: TDS Rate Chart: All Key Sections at a Glance
Use this table as your one-stop lookup for any TDS payment.
| Section | Nature of Payment | TDS Rate | Threshold | Key Notes |
|---|---|---|---|---|
| 192 | Salary | Average rate | Basic exemption limit | Based on estimated annual salary |
| 192A | EPF withdrawal | 10% | Rs 50,000 | Only if taxable under Rule 8 |
| 193 | Interest on securities | At rates in force [10%] | Rs 10,000 (aggregate) | Exempt: Govt securities, LIC, GIC holdings |
| 194 | Dividends | 10% | Rs 10,000 | No TDS on non-cash div up to Rs 10,000 |
| 194A | Interest (other than securities) | At rates in force [10%] | Rs 50,000 (bank/PO); Rs 10,000 others; Rs 1 lakh (senior citizens) | Banks, firms, co-ops partly exempt |
| 194B | Lottery / game winnings | At rates in force [30%] | Rs 10,000 per transaction | Not applicable to online games from 1 Apr 2023 |
| 194BA | Online game winnings | At rates in force [30%] | Net winnings in user account | TDS at year-end or on withdrawal |
| 194BB | Horse race winnings | At rates in force [30%] | Rs 10,000 per transaction | Bookmaker/licence holder deducts |
| 194C | Contractor payments | 1% (Indiv/HUF); 2% (others) | Rs 30,000 per contract; Rs 1 lakh aggregate | Transporters with <=10 trucks exempt with PAN |
| 194D | Insurance commission | At rates in force [2%, 10% if payee is domestic co.] | Rs 20,000 | Applicable to agents |
| 194DA | Life insurance payout | 2% of income portion | Rs 1,00,000 | Only on taxable portion; Sec 10(10D) exempt payouts not covered |
| 194E | Payment to non-resident sportsman/association | 20% | No threshold | Covers athletes, entertainers, sports associations |
| 194G | Lottery ticket commission | 2% | Rs 20,000 | Distributors, sellers, purchasers of lottery tickets |
| 194H | Commission / Brokerage | 2% | Rs 20,0000 | Excludes insurance commission and securities transactions |
| 194I | Rent | 2% (machinery/plant/equipment); 10% (land/building/furniture) | Rs 50,000 per month | REITs exempt; HUF/Indiv with turnover below limit exempt |
| 194IA | Property purchase | 1% (or stamp duty value, higher) | Rs 50 lakh | No TAN needed; covers club fees, parking, maintenance charges |
| 194IB | Rent by individuals/HUF | 2% | Rs 50,000 per month | TDS at year-end or on vacation of property |
| 194IC | JDA consideration (cash) | 10% | No threshold | Sec 45(5A) joint development agreements |
| 194J | Professional / Technical fees; Royalty; Director fees | 10% (professional/director); 2% (technical services / call centre) | Rs 50,000 | Call centres: 2% only |
| 194K | Mutual fund units income | 10% | Rs 10,000 | Capital gains not covered |
| 194LA | Compulsory acquisition compensation | 10% | Rs 5 Lakh | Exempt if covered under LARR Act, Sec 96 |
| 194LB | Infrastructure debt fund interest (non-resident) | 5% | No threshold | Foreign companies and non-resident non-companies |
| 194LC | Interest by Indian company (foreign borrowing) | 5% / 4% / 9% | No threshold | Rate depends on type and date of borrowing |
| 194M | Contract/commission/professional by individuals/HUF | 2% | Rs 50 Lakh | For those not covered under 194C, 194H, 194J |
| 194N | Cash withdrawals | 2% (above Rs 1 crore); 2% / 5% if ITR not filed | Rs 1 crore (Rs 20 lakh if ITR not filed) | Co-ops: limit is Rs 3 crore |
| 194O | E-commerce sales/services | 0.1% | Rs 5 lakh (Indiv/HUF with PAN/Aadhaar) | E-commerce operator deducts on gross amount |
| 194P | Senior citizen (75+ yrs) pension + interest | Slab rate | No separate threshold | Bank computes and deducts; no ITR filing needed |
| 194Q | Purchase of goods | 0.1% on amount exceeding Rs 50 lakh | Rs 50 lakh purchase | Buyer with turnover > Rs 10 crore; not applicable if TCS under 206C applies |
| 194R | Business perquisite / benefit | 10% | Rs 20,000 | Applies on non-monetary benefits too |
| 194S | Virtual digital asset (crypto) transfer | 1% | Rs 50,000 (specified person); Rs 10,000 (others) | Specified person = small turnover individual/HUF |
| 194T | Payments to partners of firm | 10% | Rs 20,000 | Salary, remuneration, commission, bonus, interest to partners |
| 195 | Any sum to non-resident (other than salary) | Rates in force | No threshold | Can apply for lower deduction certificate |
Section 192: TDS on Salary
Who deducts: Any employer (company, firm, government, individual) paying salary to an employee.
Rate: Average rate of income tax based on the estimated salary income for the full financial year.
When: At the time of actual payment of salary.
Unlike most TDS sections, Section 192 does not use a fixed rate. The employer estimates the employee’s total salary income for the year, computes the applicable tax at slab rates, and then divides it by 12 months. That monthly amount is the TDS.
Example: Priya earns a salary of Rs 12 lakh per year. Tax on this (after standard deduction) is, say, Rs 1,10,000. Her employer deducts Rs 1,10,000 / 12 = Rs 9,167 per month as TDS.
Key Sub-provisions of Section 192:
Multiple employers (Sec 192(2)): If an employee works for two employers at the same time or changes jobs mid-year, she can share her income details with one employer who then deducts TDS on the consolidated income. Without this, there is a risk of under-deduction.
Example: Suresh changes jobs in August. He informs his new employer about the salary already received from the old employer. The new employer adds both figures and deducts TDS correctly for the remaining months.
Relief under Section 89 (Sec 192(2A)): Government employees or those in specified organisations who receive salary arrears can claim relief under Section 89. The employer recalculates TDS after giving this relief.
Other income declaration (Sec 192(2B)): An employee can declare other income (like house property income or loss) to the employer. The employer adjusts TDS accordingly. However, TDS on salary cannot be reduced below zero on account of such declarations.
Perquisite tax payment (Sec 192(1A)): If a non-monetary perquisite (like a company car) is given, the employer can choose to pay tax on it from the company’s own funds instead of deducting it from the employee’s salary.
Eligible start-ups and ESOPs (Sec 192(1C)): Employees of eligible start-ups receiving ESOPs do not have TDS deducted at vesting. TDS applies later: when shares are sold, when the employee leaves, or 48 months after the assessment year – whichever comes first.
Example: Deepak works at an eligible start-up. He receives ESOPs in FY 2023-24. He stays at the company until FY 2027-28 and then sells the shares. TDS applies at the time of sale.
Section 192A: TDS on EPF Withdrawal
Rate: 10%
Threshold: Rs 50,000 (no TDS below this)
Who deducts: EPF trustees or authorised persons making payment.
TDS applies only when the EPF withdrawal is taxable. If an employee has completed 5 years of continuous service, the withdrawal is exempt from tax under Rule 8 of the Fourth Schedule, and no TDS applies.
Example: Kavya leaves her job after 3 years and withdraws Rs 80,000 from her EPF. Since she has not completed 5 years, the withdrawal is taxable. TDS of 10% = Rs 8,000 is deducted. Had she completed 5 years, no TDS would apply.
Section 193: TDS on Interest on Securities
Rate: At rates in force
Threshold: Aggregate interest exceeding Rs 10,000 during the financial year
When: At the time of credit or payment, whichever is earlier.
This section covers interest paid on debentures and other securities. However, several instruments are exempt. Interest on government securities (G-Secs, State Government bonds) is generally exempt. Interest payable to LIC, GIC, and other insurers on securities they hold is also exempt. Interest on certain notified debentures and National Defence Bonds is exempt as well.
Example: A company pays Rs 15,000 as debenture interest to a resident investor. TDS applies since the amount exceeds Rs 10,000. If the same interest is payable to LIC, no TDS is required.
Section 194: TDS on Dividends
Rate: 10%
Threshold: No TDS if dividend does not exceed Rs 10,000 to an individual and payment is not in cash.
Who deducts: The principal officer of the Indian company declaring the dividend.
After the removal of the Dividend Distribution Tax (DDT) in 2020, dividends became taxable in the hands of shareholders. Consequently, TDS on dividends under Section 194 now applies. The company deducts 10% TDS before paying the dividend.
Example: XYZ Ltd declares a dividend of Rs 5 per share. Arun holds 3,000 shares, so his dividend is Rs 15,000. Since it exceeds Rs 10,000, XYZ must deduct TDS of 10% = Rs 1,500. Arun receives Rs 13,500.
Exemptions apply for LIC, GIC, other insurers, business trusts (REITs/InvITs), and any other person notified by the Central Government.
Section 194A: TDS on Interest (Other than Securities)
Rate: At rates in force
Who deducts: Any person other than an individual or HUF (unless their turnover exceeds Rs 1 crore in business or Rs 50 lakh in profession).
This is one of the most common TDS sections for salaried individuals with fixed deposits.
| Type of Deposit | Normal Threshold | Senior Citizen Threshold |
|---|---|---|
| Bank FD / Co-op Bank / Post Office | Rs 50,000 | Rs 100,000 |
| Any other case (e.g., company deposit) | Rs 10,000 | Rs 10,000 |
Example: Mohan, a 66-year-old senior citizen, earns Rs 95,000 in FD interest from SBI in FY 2024-25. Since he is a senior citizen, the threshold is Rs 1 lakh. TDS does not apply here. If his interest were Rs 1,05,000, TDS would apply on the full amount.
Interest credited to a firm by its partner: No TDS applies. Similarly, a co-operative society paying interest to its members is generally exempt, unless the society’s turnover exceeds Rs 50 crore.
Section 194B: Lottery, Card Games, and Other Games (Offline)
Threshold: Rs 10,000 per transaction
Rate: At rates in force
This section applies to winnings from lottery tickets, crossword puzzles, card games, or any other form of gambling or betting. If winnings are in kind (like a car), the organiser must ensure tax has been paid before handing over the prize.
Example: Geeta wins Rs 50,000 in a lucky draw contest. TDS is deducted before the prize cheque is handed to her.
Section 194BA: Online Game Winnings
Rate: At rates in force
From April 1, 2023, online game winnings are covered under this separate section. TDS applies on net winnings in the user account at the end of the financial year. If a withdrawal is made during the year, TDS also applies at the time of withdrawal on net winnings comprised in that withdrawal.
Example: Vikram plays a fantasy sports app. Over the year, he deposits Rs 20,000 and wins Rs 35,000. His net winning is Rs 15,000. TDS applies on Rs 15,000 either when he withdraws or at year-end.
Section 194BB: Horse Race Winnings
Threshold: Rs 10,000 per transaction
Rate: At rates in force
Bookmakers and license holders at racecourses deduct TDS on winnings before paying out.
Section 194C: TDS on Contractor Payments
Rates: 1% for individuals and HUFs. 2% for companies, firms, and others.
Threshold: Rs 30,000 per contract or Rs 1 lakh aggregate in a year.
This section covers a very wide range of payments: advertising, broadcasting, carriage of goods or passengers, catering, and manufacturing to customer specifications. Sub-contracts are also covered.
| Included in ‘Work’ under 194C | NOT Included |
|---|---|
| Advertising contracts | Professional/technical services (covered by 194J) |
| Carriage of goods/passengers | Manufacturing with material bought from open market |
| Catering services | |
| Broadcasting/telecasting | |
| Job work (using customer’s material) |
Example: ABC Pvt Ltd hires a transport company to deliver goods worth Rs 2,00,000. Since the payment exceeds Rs 1 lakh in aggregate, TDS applies at 2% = Rs 4,000.
Transporter exemption: A goods transport contractor who owns 10 or fewer trucks is exempt from TDS, provided they furnish a declaration and their PAN.
Section 194D: TDS on Insurance Commission
Rate: 2% [10% if payee is a domestic company]
Threshold: Rs 20,000
Insurance agents who earn commission for procuring or renewing insurance policies are subject to TDS. This applies to all types of insurance.
Example: An LIC agent earns a commission of Rs 35,000 in a year. TDS is deducted on the full amount since it exceeds Rs 20,000.
Section 194DA: TDS on Life Insurance Policy Payout
Rate: 2% on the income portion of the payout
Threshold: Rs 1,00,000 aggregate payout in the financial year
Not all life insurance payouts attract TDS. If the maturity or death benefit is exempt under Section 10(10D) (for example, premiums not exceeding 10% of sum assured), no TDS applies. TDS under 194DA applies only to taxable payouts.
Example: Anita’s high-premium ULIP matures. Since the annual premium exceeded 10% of the sum assured, it is taxable. The insurer deducts TDS at 2% on the income (gain) portion of the payout.
Section 194E: TDS on Payments to Non-Resident Sportsmen or Sports Associations
Rate: 20%
Threshold: None
Any income covered under Section 115BBA (participation in India, advertisement, contribution to media related to sport) paid to a non-resident sportsman, entertainer, or sports association attracts TDS at 20%.
Example: A non-resident cricketer from the West Indies is paid Rs 10 lakh for participating in an exhibition match in India. The Indian organiser must deduct TDS of 20% = Rs 2 lakh.
Section 194G: TDS on Commission on Lottery Tickets
Rate: 2%
Threshold: Rs 20,000
Stockists, distributors, and sellers of lottery tickets who earn commission on these tickets are subject to TDS under this section.
Example: Rajan distributes lottery tickets and earns a commission of Rs 25,000 in a year. TDS of 2% = Rs 500 is deducted.
Section 194H: TDS on Commission and Brokerage
Rate: 2%
Threshold: Rs 20,000
This section covers commission or brokerage paid to agents who act on behalf of others in buying or selling goods or facilitating transactions. Professional services, insurance commission, and securities transactions are excluded.
Example: A company pays Rs 40,000 as brokerage to a real estate agent for a commercial deal. TDS of 2% = Rs 800 is deducted.
BSNL and MTNL public call office franchisees are specifically exempt from TDS under this section.
Section 194I: TDS on Rent
Rates: 2% for machinery, plant, or equipment. 10% for land, building, factory building, furniture, or fittings.
Threshold: Rs 50,000 per month.
The definition of ‘rent’ under this section is wide. It covers any payment for use of land, building, machinery, plant, equipment, furniture, or fittings, regardless of the name given to the payment (lease, sub-lease, tenancy, etc.).
| Asset Type | TDS Rate |
|---|---|
| Land / Building / Factory / Furniture / Fittings | 10% |
| Machinery / Plant / Equipment | 2% |
Example: A manufacturing company pays Rs 80,000 per month as rent for a factory building. Since it exceeds Rs 50,000 per month, TDS of 10% = Rs 8,000 is deducted each month.
REITs are exempt from TDS under this section. Individual and HUF payers with business turnover below Rs 1 crore (or Rs 50 lakh for profession) are not required to deduct TDS under 194I.
Section 194IA: TDS on Purchase of Immovable Property
Rate: 1% on the sale consideration or stamp duty value, whichever is higher.
Threshold: No TDS if both consideration and stamp duty value are below Rs 50 lakh.
If you buy a flat, house, or commercial property worth Rs 50 lakh or more, you must deduct TDS and deposit it to the government. Agricultural land is excluded. No TAN is required; just a PAN is sufficient.
Key point: The definition of ‘consideration’ includes all incidental charges – club membership fees, car parking, electricity connection charges, maintenance fees, and advance payment. All these are added together to determine if the threshold is crossed.
Example: Sunita buys a flat for Rs 70 lakh. The builder charges Rs 3 lakh separately for car parking and Rs 2 lakh for maintenance deposit. Total consideration = Rs 75 lakh. TDS of 1% = Rs 75,000 must be deducted by Sunita before paying the builder.
Section 194IB: TDS on Rent Paid by Individuals and HUFs
Rate: 2%
Threshold: Rent exceeding Rs 50,000 per month
This section applies to individuals and HUFs who are NOT subject to tax audit (i.e., those with turnover below Rs 1 crore in business or Rs 50 lakh in profession) but who pay high rent. No TAN is required; PAN is sufficient. TDS is deducted once – either in the last month of the year or when the tenant vacates the property.
Example: Rahul, a salaried employee, pays Rs 60,000 per month in rent for his flat. He must deduct TDS of 2% = Rs 1,200 in the last month of the financial year (or when he vacates) and deposit it.
Section 194IC: TDS on Joint Development Agreement (JDA) Payments
Rate: 10%
Threshold: None
Under a Joint Development Agreement (as per Section 45(5A)), a landowner hands over land to a developer in exchange for developed units or cash. Section 194IC applies to the cash component paid by the developer to the landowner. Consideration in kind (units/flats) is not covered.
Example: A developer pays Rs 20 lakh in cash to a landowner under a JDA. TDS of 10% = Rs 2 lakh is deducted on this cash portion.
Section 194J: TDS on Professional and Technical Fees
Rates: 10% for professional services, director fees, royalty (non-film), non-compete fees. 2% for technical services and call centre operators. 2% for film royalty.
Threshold: Rs 50,000 per category per year.
| Payment Type | TDS Rate |
|---|---|
| Legal, medical, engineering, architecture, accountancy, interior decoration fees | 10% |
| Director fees / remuneration (not salary) | 10% |
| Non-compete fees / royalty on business income (Section 28(va)) | 10% |
| Technical services (managerial, consultancy, technical assistance) | 2% |
| Call centre operations | 2% |
| Film royalty (sale/distribution/exhibition) | 2% |
Example: A company pays Rs 1,20,000 as legal fees to a lawyer. TDS of 10% = Rs 12,000 is deducted. If it pays Rs 80,000 for software maintenance (technical service), TDS of 2% = Rs 1,600 applies.
Section 194K: TDS on Income from Mutual Fund Units
Rate: 10%
Threshold: Rs 10,000
TDS applies on income distributed by mutual funds (like dividends from debt funds). Capital gains on redemption of mutual fund units are NOT covered under this section.
Example: A debt mutual fund distributes Rs 15,000 as income to an investor. TDS of 10% = Rs 1,500 is deducted. If the investor redeems units and earns a capital gain of Rs 15,000, no TDS applies under 194K.
Section 194LA: TDS on Compulsory Acquisition Compensation
Rate: 10%
Threshold: Rs 5 lakh
When the government acquires non-agricultural land or buildings under any law, and pays compensation, TDS applies on the compensation amount. Acquisitions under the Land Acquisition, Rehabilitation and Resettlement (LARR) Act 2013 that are exempt under Section 96 of that Act are not covered.
Example: The NHAI acquires Vinod’s commercial plot and pays Rs 25 lakh as compensation. TDS of 10% = Rs 2.5 lakh is deducted.
Sections 194LB and 194LC: TDS on Interest Paid to Non-Residents (Infrastructure and Foreign Borrowing)
Section 194LB: 5% TDS on interest paid by an Infrastructure Debt Fund to a non-resident or foreign company.
Section 194LC:
- 5%: Interest from Indian companies (or Business Trust) on money borrowed by Indian Companies (or Business Trust) in foreign currency under loan agreement made up to 30th June 2023
- 9%: Interest from Indian companies (or Business Trust) on money borrowed by Indian Companies (or Business Trust) by issue of long term bond or rupee denominated bond which is listed on recognized stock exchange in IFSC on or after 1st July 2023
- 4%: Interest from Indian companies (or Business Trust) on money borrowed by Indian Companies (or Business Trust) by issue of long term bond or rupee denominated bond which is listed on recognized stock exchange in IFSC on or after 30th June 2023
Example (194LC): An Indian company borrows in foreign currency under a loan approved before July 2023 and pays interest to a foreign lender. TDS at 5% applies on such interest.
Section 194M: TDS on Payments by Individuals/HUF for Contract, Commission, and Professional Fees
Rate: 2%
Threshold: Rs 50 lakh aggregate in a year
This section was introduced to plug a gap. Individuals and HUFs with large turnovers are already covered under Sections 194C, 194H, and 194J. But individuals and HUFs below the turnover threshold – say, a high-net-worth individual hiring contractors or professionals for personal use – were excluded. Section 194M brings them in when total payments exceed Rs 50 lakh. No TAN required; PAN is sufficient.
Example: A wealthy individual pays Rs 30 lakh to an architect and Rs 30 lakh to a contractor for building a private bungalow. Total = Rs 60 lakh. Since it exceeds Rs 50 lakh, TDS of 2% on the full Rs 60 lakh = Rs 1.2 lakh applies.
Section 194N: TDS on Large Cash Withdrawals
Rate: 2% above Rs 1 crore (or Rs 20 lakh for non-filers). Who deducts: Banks, co-operative banks, and post offices.
| Recipient Type | Cash Withdrawal Threshold | TDS Rate |
|---|---|---|
| ITR filed for all 3 prior years | Above Rs 1 crore | 2% |
| ITR NOT filed (non-filer) | Rs 20 lakh – Rs 1 crore | 2% |
| ITR NOT filed (non-filer) | Above Rs 1 crore | 5% |
| Co-operative society (ITR filed) | Above Rs 3 crore | 2% |
Example: A trader withdraws Rs 1.5 crore in cash from his current account and has filed ITR for the last 3 years. TDS of 2% applies on Rs 50 lakh (the amount above Rs 1 crore) = Rs 1 lakh.
Section 194O: TDS on E-Commerce Sales
Rate: 0.1% on gross sales or services
Threshold: Rs 5 lakh for individual/HUF e-commerce participants who provide PAN or Aadhaar
E-commerce operators (platforms like Amazon, Flipkart, Meesho) must deduct TDS on payments to sellers who use their platform. Even if the buyer pays the seller directly, the e-commerce operator is treated as having made the payment.
Example: Meera sells handmade products through an online marketplace and earns Rs 8 lakh in a year. The marketplace deducts TDS of 0.1% = Rs 800 before crediting her earnings.
Section 194P: Simplified TDS for Senior Citizens (75+ Years)
Resident senior citizens aged 75 or more who receive only pension and interest income from the same bank need not file a return. The bank (designated as ‘specified bank’ by the Central Government) computes total income, gives effect to Chapter VI-A deductions and Section 87A rebate, and deducts tax accordingly. The senior citizen just submits a declaration to the bank.
Example: Mr Sharma is 78 years old. He has pension credited to his SBI account and FD interest from the same SBI. He submits the declaration. SBI computes his total tax, deducts it, and Mr Sharma does not need to file a return.
Section 194Q: TDS on Purchase of Goods
Rate: 0.1% on the amount exceeding Rs 50 lakh per seller in a year
Who deducts: A ‘buyer’ whose business turnover exceeded Rs 10 crore in the preceding financial year.
This section applies from the buyer’s side. If TCS (tax collected at source) already applies under Section 206C, or if TDS under any other provision applies, Section 194Q does not apply additionally.
Example: Wholesale Traders Ltd has a turnover of Rs 15 crore. It purchases goods worth Rs 80 lakh from Supplier A during the year. TDS of 0.1% applies on Rs 30 lakh (amount above Rs 50 lakh) = Rs 3,000.
Section 194R: TDS on Business Perquisites and Benefits
Rate: 10%
Threshold: Rs 20,000 per recipient per year
This section covers any benefit or perquisite given to a resident by a business – in cash or kind – arising from that resident’s own business or profession. Think of free holidays, gift vouchers, sponsored events, or free inventory samples given to dealers.
Example: A pharmaceutical company gifts medical equipment worth Rs 50,000 to a doctor as part of a product promotion. TDS of 10% = Rs 5,000 must be ensured before the benefit is given.
Section 194S: TDS on Transfer of Virtual Digital Assets (Crypto)
Rate: 1%
Threshold: Rs 50,000 for ‘specified persons’ (small individual/HUF traders). Rs 10,000 for others.
From July 1, 2022, every transfer of a Virtual Digital Asset (VDA) like cryptocurrency, NFTs, etc. attracts TDS. The deductor is the person making payment for the VDA. For exchange-based trades, the exchange handles TDS. For peer-to-peer trades, the buyer is responsible.
Example: Arjun buys Bitcoin worth Rs 1,00,000 from Rohit (a non-specified person scenario). Arjun must deduct TDS of 1% = Rs 1,000 and deposit it before paying Rohit Rs 99,000.
Section 194T: TDS on Payments to Partners of a Firm
Rate: 10%
Threshold: Rs 20,000 per partner per year
Effective from April 1, 2025, firms must deduct TDS when paying salary, remuneration, commission, bonus, or interest to their partners. This brings partner payments under the TDS framework for the first time.
Example: A law firm pays Rs 5 lakh as remuneration to each of its three partners. Since the payment to each partner exceeds Rs 20,000, TDS of 10% = Rs 50,000 per partner is deducted.
Section 195: TDS on Payments to Non-Residents
Rate: Rates in force as per the Finance Act or applicable DTAA
Threshold: No fixed threshold – applies to any sum chargeable under the Act
This is the broadest TDS section. Any person – resident or non-resident – paying any sum to a non-resident (other than salary) must deduct TDS if the sum is chargeable to tax in India. This includes interest, royalty, technical fees, rent, capital gains, and more.
Payer believes only part is taxable (Sec 195(2)): The payer can apply to the Assessing Officer to determine the taxable proportion. TDS then applies only on that portion.
Recipient applies for nil/lower deduction (Sec 195(3)): The non-resident can apply for a certificate allowing receipt without TDS deduction. If granted, no TDS is deducted while the certificate is valid.
Example: An Indian company pays USD 50,000 as royalty to a US software company. This is chargeable to tax in India. The Indian company must deduct TDS at the applicable rate (as per the India-USA DTAA, it could be 10-15%).
Section 195(6) also requires the payer to file Form 15CA/15CB even for payments not chargeable to tax, thus enabling information tracking on cross-border remittances.
Closing Thoughts
TDS is not just a compliance obligation, it is the government’s way of keeping the tax chain intact at every point where money changes hands. Once you understand the logic behind each section (who pays, who deducts, what threshold, what rate), the entire framework becomes much easier to navigate. Keep the quick-reference table handy. When in doubt, deduct, because the consequences of non-deduction (disallowance of expenses, interest, and penalties) are far more painful than a minor over-deduction that can be claimed back by the payee.
Practical Compliance Checklist
If you are an employer:
- Estimate each employee’s annual salary at the start of the year and set monthly TDS accordingly. Revise whenever salary changes. Collect investment proofs by February.
- If an employee works for two employers simultaneously, ask for details of income from the other employer to avoid under-deduction.
If you are paying rent above Rs 50,000 per month:
- Check if you are a company/firm/entity covered by Section 194I. Deduct TDS at 10% (building) or 2% (machinery) and deposit using Form 26Q.
- If you are an individual/HUF not liable under 194I but paying rent above Rs 50,000 per month, Section 194IB applies. Deduct 2% once at year-end or on vacation. No TAN needed; file Form 26QC.
If you are buying property above Rs 50 lakh:
- Deduct 1% TDS on consideration (including parking, maintenance, club charges). Deposit using Form 26QB within 30 days of the end of the month. No TAN required.
If you are operating an online business with vendors/sellers:
- If you are an e-commerce operator, deduct TDS under Section 194O at 0.1% on gross sales facilitated. For small individual sellers with PAN/Aadhaar and sales below Rs 5 lakh, no TDS is needed.
- If your business turnover exceeds Rs 10 crore and you purchase goods from a single supplier worth over Rs 50 lakh in a year, Section 194Q applies. Deduct 0.1% on the amount above Rs 50 lakh.
If you are a firm paying your partners:
- From FY 2025-26, deduct TDS at 10% on salary, remuneration, commission, bonus, or interest paid to partners if the aggregate exceeds Rs 20,000 per partner per year.
If you are making payments to non-residents:
- Always check the applicable DTAA before deducting. If uncertain about taxability, file Form 15CA and obtain a CA certificate in Form 15CB. Consider applying under Section 195(2) for a proportionate determination.
