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Understanding TDS: The 2-Minute Concept
TDS stands for Tax Deducted at Source. The idea is simple. Instead of waiting for the recipient to pay tax on income at the end of the year, the payer cuts a portion of the tax right at the point of payment and deposits it with the government. The recipient then claims this as credit against their final tax liability when filing the ITR.
Example: Ramesh is a freelance developer. He raises a bill of Rs. 1,00,000 to ABC Pvt Ltd. Under Section 393(1) Sl. No. 6(iii), ABC deducts TDS at 10% = Rs. 10,000. Ramesh gets Rs. 90,000 in hand. The Rs. 10,000 appears in his Form 26AS and is credited against his final tax when he files his ITR.
Three things trigger TDS: the right nature of payment, a threshold amount being crossed, and a person who is required to deduct. If any one of these is absent, TDS does not apply.
Section Number Mapping: 1961 Act vs 2025 Act
The Income Tax Act 2025 did not change any TDS rate or threshold. It only renumbered the sections and consolidated them into Sections 392 and 393. Here is the complete cross-reference:
| Old Section (1961 Act) | New Reference (2025 Act) | Nature of Payment |
| Section 192 | Section 392(1) | Salary |
| Section 192A | Section 392(7) | EPF withdrawal |
| Section 193 | Section 393(1) Sl. No. 5(i) | Interest on securities (debentures, bonds) |
| Section 194 | Section 393(1) Sl. No. 7 | Dividend |
| Section 194A (bank/PO) | Section 393(1) Sl. No. 5(ii) | Interest from bank, co-op bank, post office |
| Section 194A (others) | Section 393(1) Sl. No. 5(iii) | Interest from other specified persons |
| Section 194B | Section 393(3) Sl. No. 1 | Lottery, crossword, card game, gambling winnings |
| Section 194BA | Section 393(3) Sl. No. 2 | Online game winnings |
| Section 194BB | Section 393(3) Sl. No. 3 | Horse race winnings |
| Section 194C | Section 393(1) Sl. No. 6(i) | Contract work payments |
| Section 194D | Section 393(1) Sl. No. 1(i) | Insurance commission |
| Section 194DA | Section 393(1) Sl. No. 8(i) | Life insurance policy payout (taxable) |
| Section 194G | Section 393(3) Sl. No. 4 | Lottery ticket commission |
| Section 194H | Section 393(1) Sl. No. 1(ii) | Commission and brokerage |
| Section 194I(a) | Section 393(1) Sl. No. 2(ii)(a) | Rent on machinery/plant/equipment |
| Section 194I(b) | Section 393(1) Sl. No. 2(ii)(b) | Rent on land/building/furniture/fittings |
| Section 194IA | Section 393(1) Sl. No. 3(i) | Purchase of immovable property |
| Section 194IB | Section 393(1) Sl. No. 2(i) | Rent by individual/HUF (non-specified person) |
| Section 194IC | Section 393(1) Sl. No. 3(ii) | JDA cash consideration to landowner |
| Section 194J (technical) | Section 393(1) Sl. No. 6(iii)(a) | Technical services, call centre, film royalty |
| Section 194J (professional) | Section 393(1) Sl. No. 6(iii)(b) | Professional fees, director fees, royalty |
| Section 194K | Section 393(1) Sl. No. 4(i) | Income from mutual fund units |
| Section 194LA | Section 393(1) Sl. No. 3(iii) | Compulsory acquisition compensation |
| Section 194M | Section 393(1) Sl. No. 6(ii) | Contract/commission/professional by individual/HUF |
| Section 194N (filer) | Section 393(3) Sl. No. 5 | Cash withdrawal above Rs. 1 crore |
| Section 194O | Section 393(1) Sl. No. 8(v) | E-commerce sales/services |
| Section 194P | Section 393(1) Sl. No. 8(iii) | Senior citizen 75+ (pension + interest, same bank) |
| Section 194Q | Section 393(1) Sl. No. 8(ii) | Purchase of goods (buyer turnover > Rs. 10 crore) |
| Section 194R | Section 393(1) Sl. No. 8(iv) | Business perquisites and benefits |
| Section 194S | Section 393(1) Sl. No. 8(vi) | VDA/crypto transfer |
| Section 194T | Section 393(3) Sl. No. 7 | Payments to partners of a firm |
| Section 195 | Section 393(2) Sl. No. 17 | Any sum to non-resident (other than salary) |
| Section 197 | Section 395 | Lower/nil TDS certificate |
| Section 201 | Section 398 | Consequences of failure to deduct/deposit |
Complete TDS Rate Chart for Tax Year 2026-27
The following table contains every TDS provision with the actual rate. Where the Act uses the phrase ‘rates in force,’ the applicable rate as per the Finance Act 2026 for Tax Year 2026-27 is specified here.
| 2025 Act Reference | Old Section | Nature of Payment | Rate | Threshold |
| Sec 392(1) | 192 | Salary (slab-based average rate) | Average rate on estimated annual income | Basic exemption limit |
| Sec 392(7) | 192A | EPF withdrawal (taxable) | 10% (20% without PAN) | Rs. 50,000 |
| Sl. 5(i) | 193 | Interest on debentures/bonds (securities) | 10% for individuals (slab rate applies; TDS at 10%) | Rs. 10,000 |
| Sl. 7 | 194 | Dividend from domestic company | 10% | Nil (Rs. 10,000 exception for non-cash small dividends to individuals) |
| Sl. 5(ii) | 194A | Interest from bank/co-op bank/post office | 10% for individuals | Rs. 1,00,000 (senior citizen); Rs. 50,000 (others) |
| Sl. 5(iii) | 194A | Interest from other specified persons (non-bank) | 10% for individuals | Rs. 10,000 |
| Sl. 3(1) of 393(3) | 194B | Lottery/crossword/card game/gambling winnings | 30% | Rs. 10,000 per single transaction |
| Sl. 3(2) of 393(3) | 194BA | Online game winnings (net winnings) | 30% | Nil (on net winnings at withdrawal and year-end) |
| Sl. 3(3) of 393(3) | 194BB | Horse race winnings | 30% | Rs. 10,000 per single transaction |
| Sl. 6(i) | 194C | Contract work (individual/HUF contractor) | 1% | Rs. 30,000 per contract; Rs. 1,00,000 aggregate |
| Sl. 6(i) | 194C | Contract work (company/firm/other) | 2% | Rs. 30,000 per contract; Rs. 1,00,000 aggregate |
| Sl. 1(i) | 194D | Insurance commission | 5% for individuals / 10% for companies (Finance Act rate) | Rs. 20,000 |
| Sl. 8(i) | 194DA | Life insurance payout (taxable portion only) | 2% on income portion only | Rs. 1,00,000 |
| Sl. 3(4) of 393(3) | 194G | Lottery ticket commission | 2% | Rs. 20,000 |
| Sl. 1(ii) | 194H | Commission/brokerage (non-insurance) | 2% | Rs. 20,000 |
| Sl. 2(i) | 194IB | Rent by individual/HUF (non-specified person) | 2% | Rs. 50,000 per month |
| Sl. 2(ii)(a) | 194I(a) | Rent on machinery/plant/equipment | 2% | Rs. 50,000 per month |
| Sl. 2(ii)(b) | 194I(b) | Rent on land/building/furniture/fittings | 10% | Rs. 50,000 per month |
| Sl. 3(i) | 194IA | Consideration for immovable property purchase | 1% on consideration or stamp duty value, whichever is higher | Rs. 50 lakh |
| Sl. 3(ii) | 194IC | Cash consideration under JDA | 10% | Nil |
| Sl. 3(iii) | 194LA | Compensation on compulsory acquisition | 10% | Rs. 5,00,000 |
| Sl. 6(iii)(a) | 194J | Technical services / call centre / film royalty | 2% | Rs. 50,000 |
| Sl. 6(iii)(b) | 194J | Professional fees / director fees / royalty / non-compete | 10% | Rs. 50,000 (Nil for director fees) |
| Sl. 4(i) | 194K | Income from mutual fund units (not capital gains) | 10% | Rs. 10,000 |
| Sl. 6(ii) | 194M | Contract/commission/professional by individual/HUF | 2% | Rs. 50 lakh aggregate |
| Sl. 5 of 393(3) | 194N | Cash withdrawal (ITR filer) | 2% on amount above Rs. 1 crore (Rs. 3 crore for co-op society) | Rs. 1 crore (Rs. 3 crore for co-op society) |
| Sl. 5 of 393(3) | 194N | Cash withdrawal (non-filer below Rs. 1 crore) | 2% | Rs. 20 lakh |
| Sl. 5 of 393(3) | 194N | Cash withdrawal (non-filer above Rs. 1 crore) | 5% | Rs. 1 crore |
| Sl. 8(v) | 194O | E-commerce sales/services | 0.1% | Nil (Rs. 5 lakh for individual/HUF with PAN/Aadhaar) |
| Sl. 8(iii) | 194P | Senior citizen 75+ (pension + interest, same specified bank) | Slab rate as applicable | As applicable |
| Sl. 8(ii) | 194Q | Purchase of goods (buyer > Rs. 10 crore turnover) | 0.1% on amount exceeding Rs. 50 lakh | Rs. 50 lakh from single seller |
| Sl. 8(iv) | 194R | Business perquisite or benefit (cash or kind) | 10% on value of benefit | Rs. 20,000 per recipient per year |
| Sl. 8(vi) | 194S | VDA/crypto transfer | 1% | Rs. 50,000 (specified person); Rs. 10,000 (others) |
| Sl. 7 of 393(3) | 194T | Salary/remuneration/commission/bonus/interest to partner | 10% | Rs. 20,000 per partner per year |
| Sl. 17 of 393(2) | 195 | Any sum to non-resident (not salary) | Rates in force or DTAA rate, whichever is applicable | Nil |
Note: For ‘rates in force’ on interest (Sl. 5(i), 5(ii), 5(iii)): The applicable TDS rate for individual recipients under the Finance Act 2026 for Tax Year 2026-27 is 10%. For companies it is 10% on domestic companies and 20% on foreign companies. The slab rate applies when computing the individual’s final tax liability at filing; TDS is deducted at the standard 10% rate at the withholding stage for most individual payees.
Note: For lottery/horse race/gambling (Sl. 1, 2, 3 of 393(3)): ‘Rates in force’ means 30% as confirmed in the special rate table under Section 115 equivalent of the 2025 Act (Table Sl. No. 1 – any person on winnings from lottery, horse race, gambling = 30%).
Section 392(1): TDS on Salary
TDS on salary uses the average rate method. The employer estimates the employee’s total taxable salary for the full Tax Year, computes tax on it at applicable slab rates, and divides the total tax by 12 months (or remaining months). There is no fixed percentage.
| Item | Details |
| Who deducts | Every employer paying salary income |
| Rate | Average rate: total estimated tax divided by number of months in Tax Year |
| Threshold | Below the basic exemption limit, no TDS |
| Standard deduction | Rs. 75,000 under new regime (Sec 202(1)); Rs. 50,000 under old regime |
| Certificate | Form 16 issued to employee by May 31 after Tax Year |
| TAN required | Yes |
Example: Priya earns Rs. 14 lakh salary. Under new regime, after Rs. 75,000 standard deduction and Rs. 1,50,000 NPS deduction, taxable income = Rs. 11,75,000. Tax at new regime slabs = approx Rs. 93,750. Monthly TDS = Rs. 93,750 / 12 = Rs. 7,813.
Multiple employers: If an employee joins a second employer mid-year, they can disclose prior salary under Section 392(4)(i). The new employer then deducts TDS on the consolidated income. Without disclosure, both employers compute independently and the employee faces a shortfall at filing. House property loss: Under Section 392(4)(iii), an employee can declare house property loss from home loan interest. The employer reduces taxable salary by up to Rs. 2,00,000 (the maximum set-off limit). This reduces monthly TDS. ESOPs in eligible start-ups: Section 392(3) defers TDS on ESOP perquisites for employees of notified eligible start-ups. TDS applies at the earliest of: sale of shares, leaving the start-up, or the prescribed period under Section 289(3).
Section 392(7): TDS on EPF Withdrawal
| Item | Details |
| Rate | 10% (20% if PAN not furnished) |
| Threshold | Rs. 50,000 aggregate withdrawal |
| When no TDS | Employee has 5+ years of continuous service (Schedule XI, Part A applies) |
| Who deducts | EPF trustees or authorised person under EPF scheme |
| Certificate | Form 16A |
Example: Kavya withdraws Rs. 90,000 from EPF after 3 years of service. Service under 5 years, so taxable. TDS = 10% on Rs. 90,000 = Rs. 9,000. She receives Rs. 81,000. Had she completed 5 years, TDS = nil.
Section 393(1) Sl. No. 5(i): Interest on Securities (Old Section 193)
| Item | Details |
| Rate | 10% for individual recipients (Finance Act 2026 rate in force) |
| Threshold | Rs. 10,000 aggregate in the Tax Year |
| Who deducts | Any person paying interest on securities (debentures, bonds) |
| Key exemptions | National Development Bonds; Central/State Govt securities except 8% SB 2003, 7.75% SB 2018, FRSB 2020; LIC; GIC; other insurers; business trusts |
| Certificate | Form 16A |
Example: A company pays Rs. 15,000 as debenture interest to Rahul. TDS = 10% = Rs. 1,500. If paid to LIC, no TDS since LIC is exempt.
Section 393(1) Sl. No. 7: Dividend (Old Section 194)
| Item | Details |
| Rate | 10% |
| Threshold | Nil. TDS on every dividend (exception: non-cash dividend to individual up to Rs. 10,000 per year has no TDS) |
| Who deducts | Domestic company declaring the dividend |
| Key exemptions | LIC, GIC, other insurers on their own shareholdings; business trust SPVs; individual shareholders where non-cash dividend is below Rs. 10,000 |
| Certificate | Form 16A |
Example: XYZ Ltd declares Rs. 5 per share. Arun holds 3,000 shares. Dividend = Rs. 15,000. TDS = 10% = Rs. 1,500. Arun receives Rs. 13,500 and claims Rs. 1,500 as credit in his ITR.
Section 393(1) Sl. No. 5(ii) and 5(iii): Interest Other Than on Securities (Old Section 194A)
| Item | Details |
| Rate Sl. 5(ii) | 10% for individuals (Finance Act 2026 rate in force) |
| Threshold Sl. 5(ii) – senior citizen (60+) | Rs. 1,00,000 aggregate per year from the same bank |
| Threshold Sl. 5(ii) – others | Rs. 50,000 aggregate per year from the same bank |
| Rate Sl. 5(iii) | 10% for individuals (Finance Act 2026 rate in force) |
| Threshold Sl. 5(iii) | Rs. 10,000 from non-bank specified persons |
| Key exemptions | Savings account interest (not time deposits); co-op society interest to members; interest from firm to partners; government refund interest; MACT compensation interest to individuals |
| Avoid TDS | Form 15G (below 60 years, nil tax liability); Form 15H (senior citizen, nil tax liability) |
Example: Mohan, 66 years, earns Rs. 92,000 FD interest from SBI. Threshold for senior citizen = Rs. 1,00,000. No TDS. If interest were Rs. 1,05,000, TDS = 10% on Rs. 1,05,000 = Rs. 10,500.
Example: Rajesh deposits Rs. 5 lakh at 10% with an NBFC. Annual interest = Rs. 50,000. NBFC threshold is Rs. 10,000 (Sl. 5(iii)). TDS = 10% on Rs. 50,000 = Rs. 5,000.
Section 393(3) Sl. No. 1: Lottery, Card Games, Gambling (Old Section 194B)
| Item | Details |
| Rate | 30% (rate in force per Finance Act for any person on winnings from lottery, gambling, card game) |
| Threshold | Rs. 10,000 per single transaction (not annual aggregate) |
| Who deducts | Any person paying the winnings |
| Prize in kind | Organiser must ensure TDS is paid before releasing the prize |
| Certificate | Form 16A |
Example: Geeta wins Rs. 50,000 in a lucky draw. TDS = 30% = Rs. 15,000. She receives Rs. 35,000. She reports Rs. 50,000 under Income from Other Sources in her ITR, and Rs. 15,000 TDS is credited.
Section 393(3) Sl. No. 2: Online Game Winnings (Old Section 194BA)
| Item | Details |
| Rate | 30% (rate in force per Finance Act for net winnings from online games) |
| Threshold | Nil. No minimum exemption. TDS on net winnings. |
| When deducted | At the time of each withdrawal AND on remaining net winnings at year-end |
| Net winnings computation | Total cumulative winnings minus total cumulative deposits in user account |
| Who deducts | Online gaming platform (e-commerce operator) |
Example: Vikram deposits Rs. 20,000 and wins Rs. 35,000 on a fantasy sports app. Net winnings = Rs. 15,000. He withdraws Rs. 25,000. TDS = 30% on net winnings in the withdrawal. At year-end, TDS on any remaining net balance.
Section 393(3) Sl. No. 3: Horse Race Winnings (Old Section 194BB)
| Item | Details |
| Rate | 30% (rate in force per Finance Act for winnings from horse race) |
| Threshold | Rs. 10,000 per single transaction |
| Who deducts | Bookmaker or person holding government licence for horse racing |
Example: Ashok wins Rs. 30,000 on a single race at a licensed racecourse. TDS = 30% = Rs. 9,000. He receives Rs. 21,000.
Section 393(1) Sl. No. 6(i): Contract Work (Old Section 194C)
| Item | Details |
| Rate | 1% if contractor is individual or HUF; 2% if contractor is company, firm, or other |
| Threshold | Rs. 30,000 per single contract; OR Rs. 1,00,000 aggregate from the same contractor in the year |
| Who deducts | Designated person (companies, firms, government, trust, entities liable to tax audit, and individuals/HUFs with turnover above Rs. 1 crore or receipts above Rs. 50 lakh) |
| What is ‘work’ | Advertising, broadcasting, carriage of goods/passengers (not railways), catering, job work using customer’s material, supply of labour/manpower |
| Material split | TDS on labour portion only if invoice separates material; on full value if not separated |
| Transporter exemption | No TDS if contractor owns 10 or fewer goods carriages and furnishes PAN + declaration |
| Personal use | No TDS if individual/HUF makes payment exclusively for personal purposes |
Example: ABC Ltd pays Rs. 2,00,000 to a transport company (corporate) for goods delivery. TDS = 2% = Rs. 4,000.
Example: A company pays Rs. 1,20,000 to a freelance graphic designer (individual). Single payment exceeds Rs. 30,000. TDS = 1% = Rs. 1,200.
Section 393(1) Sl. No. 1(i): Insurance Commission (Old Section 194D)
| Item | Details |
| Rate | 5% for individuals; 10% for domestic companies (Finance Act 2026 rates in force) |
| Threshold | Rs. 20,000 aggregate per Tax Year from the same insurer |
| Covers | Commission for soliciting, procuring, renewal, or revival of insurance policies |
| Threshold is per payer | Each insurance company applies threshold independently |
Example: An LIC agent earns Rs. 35,000 in total commission from LIC. TDS = 5% on Rs. 35,000 = Rs. 1,750 (individual rate under Finance Act 2026).
Section 393(1) Sl. No. 8(i): Life Insurance Policy Payout (Old Section 194DA)
| Item | Details |
| Rate | 2% on the income comprised in the payout (not on the full sum) |
| Threshold | Rs. 1,00,000 aggregate taxable payout in the Tax Year |
| Applies to | Only taxable insurance payouts (where premium exceeds 10% of sum assured for post-April 2012 policies, or sum assured exceeds Rs. 5 lakh for post-April 2023 policies) |
| Death claims | Always exempt. No TDS on death claims. |
Example: Anita’s ULIP matures. She paid Rs. 6 lakh total premium and receives Rs. 8 lakh. Payout is taxable since annual premium exceeded 10% of sum assured. Income portion = Rs. 2 lakh. TDS = 2% on Rs. 2 lakh = Rs. 4,000. TDS is not on Rs. 8 lakh.
Section 393(3) Sl. No. 4: Lottery Ticket Commission (Old Section 194G)
| Item | Details |
| Rate | 2% |
| Threshold | Rs. 20,000 aggregate per Tax Year |
| Covers | Commission, remuneration, or prize paid to stockists, distributors, purchasers, or sellers of lottery tickets |
Example: A lottery distributor earns Rs. 30,000 commission from a state lottery corporation. TDS = 2% = Rs. 600.
Section 393(1) Sl. No. 1(ii): Commission and Brokerage (Old Section 194H)
| Item | Details |
| Rate | 2% |
| Threshold | Rs. 20,000 aggregate per Tax Year |
| Who deducts | Specified person (companies, firms, and individuals/HUFs above tax audit threshold) |
| Excludes | Insurance commission (Sl. 1(i)) and brokerage on securities transactions |
| BSNL/MTNL exception | No TDS on commission to their public call office franchisees |
Example: A real estate developer pays Rs. 2,50,000 brokerage to an agent. TDS = 2% = Rs. 5,000.
Section 393(1) Sl. No. 2(i): Rent by Individual/HUF (Old Section 194IB)
| Item | Details |
| Rate | 2% |
| Threshold | Rs. 50,000 per month or part of a month |
| Who deducts | Person other than specified person (i.e., individual/HUF not liable to tax audit) |
| When deducted | Once only, in the last month of the Tax Year or last month of tenancy, whichever is earlier |
| TAN required | No. Use Form 26QC. |
| REIT exemption | No TDS when rent is paid to a REIT on real estate assets owned directly by it |
Example: Rahul, a salaried employee, pays Rs. 60,000/month rent. In March 2027 (last month of Tax Year), he deducts TDS of 2% on Rs. 7,20,000 (annual rent) = Rs. 14,400. He pays the net amount and deposits TDS via Form 26QC. No TAN needed.
Section 393(1) Sl. No. 2(ii): Rent by Specified Person (Old Section 194I)
| Item | Details |
| Rate – machinery/plant/equipment | 2% |
| Rate – land/building/furniture/fittings | 10% |
| Threshold | Rs. 50,000 per month or part of a month |
| Who deducts | Specified person (companies, firms, entities liable to tax audit, and individuals/HUFs above turnover threshold) |
| When deducted | At credit or payment, whichever is earlier (every month, unlike Sl. 2(i) which is once a year) |
| REIT exemption | No TDS when rent is paid to a REIT on real estate assets owned directly by it |
Example: A manufacturing company pays Rs. 80,000/month for a factory building. Sl. 2(ii)(b) applies (building). TDS = 10% = Rs. 8,000 per month.
Example: A company rents machinery for Rs. 60,000/month. Sl. 2(ii)(a) applies (machinery). TDS = 2% = Rs. 1,200 per month.
Section 393(1) Sl. No. 3(i): Purchase of Immovable Property (Old Section 194IA)
| Item | Details |
| Rate | 1% on consideration OR stamp duty value, whichever is higher |
| Threshold | Rs. 50 lakh (Note 3: TDS applies where consideration or stamp duty value is equal to or greater than Rs. 50 lakh) |
| Who deducts | The buyer (transferee) |
| Consideration includes | Base price plus parking charges, club membership fees, maintenance deposits, electricity charges — all amounts paid to the seller |
| Excludes | Agricultural land |
| TAN required | No. Use Form 26QB. |
| Certificate to seller | Form 16B |
Example: Sunita buys a flat for Rs. 65 lakh. Developer charges Rs. 3 lakh for parking and Rs. 2 lakh maintenance deposit. Total consideration = Rs. 70 lakh. TDS = 1% on Rs. 70 lakh = Rs. 70,000. Sunita deposits TDS via Form 26QB before each payment instalment.
Section 393(1) Sl. No. 3(ii): JDA Cash Consideration (Old Section 194IC)
| Item | Details |
| Rate | 10% |
| Threshold | Nil. TDS on every payment. |
| Applies to | Cash consideration (not consideration in kind) under a Joint Development Agreement as referred to in Section 67(14) |
| Note | If both Sl. 3(i) and 3(ii) apply to the same transaction, TDS is deducted under Sl. 3(ii) only (Note 2 to Sl. 3) |
Example: A developer pays Rs. 20 lakh cash to a landowner under a JDA. TDS = 10% = Rs. 2 lakh.
Section 393(1) Sl. No. 3(iii): Compulsory Acquisition Compensation (Old Section 194LA)
| Item | Details |
| Rate | 10% |
| Threshold | Rs. 5,00,000 |
| Exemption | No TDS if acquisition is under the Right to Fair Compensation Act 2013 and compensation is exempt under Section 96 of that Act |
| Agricultural land | Excluded. No TDS on agricultural land acquisition compensation. |
Section 393(1) Sl. No. 6(iii): Professional and Technical Fees (Old Section 194J)
| Item | Details |
| Rate – technical services | 2% (also applies to call centre payments and royalty for sale/distribution/exhibition of cinematographic films) |
| Rate – professional fees, royalty, director fees, non-compete | 10% |
| Threshold | Rs. 50,000 per category per Tax Year; Nil for director fees |
| Who deducts | Specified person |
| Personal use exemption | No TDS if individual/HUF makes payment for personal purposes |
Example: A company pays Rs. 1,20,000 as legal fees to a lawyer. TDS = 10% = Rs. 12,000 (professional services).
Example: A company pays Rs. 80,000 for software maintenance (technical services). TDS = 2% = Rs. 1,600.
Example: A company pays Rs. 50,000 as sitting fees to a non-executive director. Threshold for director fees is Nil. TDS = 10% = Rs. 5,000 on the full amount.
Section 393(1) Sl. No. 4(i): Income from Mutual Fund Units (Old Section 194K)
| Item | Details |
| Rate | 10% |
| Threshold | Rs. 10,000 per Tax Year |
| Covers | Income distributed by mutual fund (e.g., dividends from debt funds) |
| Does NOT cover | Capital gains on redemption of mutual fund units. No TDS on mutual fund redemption capital gains. |
Example: A debt mutual fund credits Rs. 15,000 as dividend to an investor. TDS = 10% = Rs. 1,500. If the same investor redeems units and earns Rs. 30,000 capital gains, no TDS under this provision.
Section 393(1) Sl. No. 6(ii): Payments by Individual/HUF (Old Section 194M)
| Item | Details |
| Rate | 2% |
| Threshold | Rs. 50 lakh aggregate in the Tax Year |
| Who deducts | Individual or HUF not already covered by Sl. 6(i) or 6(iii) or Sl. 1(ii) (i.e., those below tax audit threshold) |
| Covers | Contract work, professional services, commission/brokerage |
| TAN required | No. Use Form 26QD. |
Example: A wealthy individual pays Rs. 30 lakh to an architect and Rs. 25 lakh to a contractor for building a bungalow. Total = Rs. 55 lakh, which exceeds Rs. 50 lakh. TDS = 2% on Rs. 55 lakh = Rs. 1,10,000.
Section 393(3) Sl. No. 5: Cash Withdrawals (Old Section 194N)
| Recipient Type | Threshold | TDS Rate |
| Has filed ITR for at least one of the last 3 years | Above Rs. 1 crore (Rs. 3 crore for co-operative society) | 2% on amount above threshold |
| Has NOT filed ITR (non-filer) | Rs. 20 lakh to Rs. 1 crore | 2% on the entire amount above Rs. 20 lakh |
| Has NOT filed ITR (non-filer) | Above Rs. 1 crore | 5% on the amount above Rs. 1 crore (in addition to 2% up to Rs. 1 crore) |
Note: Exemptions under Section 393(4) Sl. 18: No TDS on cash withdrawals paid to the Government, any banking company, co-operative banking society, business correspondent of a bank, or white label ATM operator.
Example: A trader (ITR filer) withdraws Rs. 1.5 crore in cash from his current account. TDS = 2% on Rs. 50 lakh (amount above Rs. 1 crore) = Rs. 1,00,000.
Example: Deepa (non-filer) withdraws Rs. 60 lakh in cash. TDS = 2% on Rs. 40 lakh (amount above Rs. 20 lakh) = Rs. 80,000.
Section 393(1) Sl. No. 8(v): E-Commerce Sales (Old Section 194O)
| Item | Details |
| Rate | 0.1% of gross amount of sales or services |
| Threshold | Nil (Rs. 5 lakh for individual/HUF seller who provides PAN/Aadhaar) |
| Who deducts | E-commerce operator (the platform) |
| Override rule | Sl. 8(v) takes precedence over all other TDS provisions for the same transaction. But Sl. 8(vi) (VDA) overrides Sl. 8(v) where both apply. |
| Direct payment | Even if buyer pays seller directly, the platform is deemed to have made the payment and must deduct TDS |
Example: Meera sells Rs. 8 lakh of products through an online marketplace. TDS = 0.1% = Rs. 800. She claims Rs. 800 as TDS credit in her ITR.
Section 393(1) Sl. No. 8(iii): Senior Citizen 75+ (Old Section 194P)
| Item | Details |
| Rate | Applicable slab rate after deductions and rebate |
| Who qualifies | Resident senior citizens aged 75 or above, earning ONLY pension and interest income from the same specified bank |
| Benefit | No ITR filing required. The specified bank computes total income, gives Chapter VIII deductions, applies Section 156 rebate, and deducts final tax. |
| Overrides all other provisions | Note 5 to Section 393(1) Table: Sl. 8(iii) takes precedence |
| If any other income source | This provision does not apply. Senior citizen must file ITR normally. |
Example: Mr. Sharma, 79, has pension and FD interest only, both from SBI. He submits the declaration to SBI. SBI computes his tax for the year, deducts it in March, and Mr. Sharma does not need to file an ITR.
Section 393(1) Sl. No. 8(ii): Purchase of Goods (Old Section 194Q)
| Item | Details |
| Rate | 0.1% on amount exceeding Rs. 50 lakh from a single seller |
| Threshold | Rs. 50 lakh from a single seller in the Tax Year |
| Who deducts | A buyer whose business turnover exceeded Rs. 10 crore in the preceding Tax Year |
| Does NOT apply | If TDS/TCS already applies to the same transaction under any other provision |
Example: Wholesale Traders Ltd (turnover Rs. 15 crore) buys Rs. 80 lakh goods from Supplier A. TDS = 0.1% on Rs. 30 lakh (excess above Rs. 50 lakh) = Rs. 3,000.
Section 393(1) Sl. No. 8(iv): Business Perquisites (Old Section 194R)
| Item | Details |
| Rate | 10% on value of benefit or perquisite |
| Threshold | Rs. 20,000 per recipient per year |
| Covers | Any benefit or perquisite (cash or kind) arising from a recipient’s business or profession, provided by the payer |
| In-kind benefit | Payer must ensure TDS is paid before releasing the benefit. Note 2 to Sl. 8(iv) applies. |
Example: A pharma company gifts medical equipment worth Rs. 50,000 to a doctor as a sales incentive. TDS = 10% = Rs. 5,000. Since benefit is in kind, the company ensures TDS is paid (by recovering from the doctor or paying itself) before delivering the equipment.
Section 393(1) Sl. No. 8(vi): VDA/Crypto Transfer (Old Section 194S)
| Item | Details |
| Rate | 1% |
| Threshold | Rs. 50,000 for specified person (individual/HUF with turnover below Rs. 1 crore for business or Rs. 50 lakh for profession, or with no business income); Rs. 10,000 for all others |
| Covers | Any consideration for transfer of a Virtual Digital Asset (cryptocurrency, NFT, or notified digital asset) |
| Exchange trades | The crypto exchange deducts TDS before crediting sale proceeds |
| P2P trades | The buyer is responsible for deducting 1% TDS before paying the seller |
| In-kind VDA | If consideration is one VDA for another (no cash), the payer must ensure tax is paid before releasing VDA (Note 6 to Sl. 8(vi)) |
| Overrides Sl. 8(v) | Note 4: Where both Sl. 8(v) and 8(vi) apply, TDS is only under Sl. 8(vi) |
Example: Arjun buys Bitcoin worth Rs. 2,00,000 from Rohit in a P2P trade. Arjun deducts TDS of 1% = Rs. 2,000. Pays Rohit Rs. 1,98,000. Deposits Rs. 2,000 using Form 26QE.
Section 393(3) Sl. No. 7: Payments to Partners of a Firm (Old Section 194T)
| Item | Details |
| Rate | 10% |
| Threshold | Rs. 20,000 per partner per Tax Year |
| Who deducts | The firm making the payment |
| Covers | Salary, remuneration, commission, bonus, and interest paid to a partner or credited to their account (including capital account) |
| Effective from | Tax Year 2025-26 onwards (introduced by Finance Act 2024) |
Example: A law firm pays Rs. 5 lakh remuneration and Rs. 60,000 interest to each of its 3 partners. Total per partner = Rs. 5.6 lakh. TDS = 10% = Rs. 56,000 per partner.
Example: A small partnership pays Rs. 15,000 interest to one partner. Below Rs. 20,000 threshold. No TDS.
Section 393(2): TDS on Payments to Non-Residents
Section 393(2) contains a separate table for payments to non-residents. Key entries:
| Sl. No. | Nature of Payment | Payee | Rate |
| 1 | Income from participation in India (sports/entertainment) – Section 211 | Non-resident sportsman, entertainer, or sports association | 20% |
| 2 | Interest on foreign currency loan (loan/bond before July 2023) | Non-resident or foreign company | 5% |
| 3 | Interest on rupee denominated bond (issued before July 2023) | Non-resident or foreign company | 5% |
| 4(a) | Interest on long-term bond listed on IFSC exchange (issued April 2020 to June 2023) | Non-resident or foreign company | 4% |
| 4(b) | Interest on long-term bond listed on IFSC exchange (issued on or after July 2023) | Non-resident or foreign company | 9% |
| 5 | Interest paid by infrastructure debt fund | Non-resident or foreign company | 5% |
| 11 | Income from units referred to in Section 208 (offshore fund) | Offshore fund | 10% |
| 12 | LTCG from transfer of units under Section 208 | Offshore fund | 12.5% |
| 13 | Interest or dividends on bonds/GDRs under Section 209 | Non-resident | 10% |
| 14 | LTCG from transfer of bonds/GDRs under Section 209 | Non-resident | 12.5% |
| 17 | Any other interest or sum chargeable under the Act (not salary) | Non-resident or foreign company | Rates in force (typically 20% for individual; 40% for foreign company; or DTAA rate if lower) |
Example: A West Indian cricketer is paid Rs. 10 lakh for playing in an exhibition match in India. Indian organiser deducts TDS = 20% on Rs. 10 lakh = Rs. 2 lakh under Sl. No. 1.
Example: An Indian company pays USD 50,000 as royalty to a US software company. Taxable in India under Sl. No. 17. Under the India-USA DTAA the rate may be 10-15% on royalty. Company deducts at the applicable DTAA rate after the US company provides a tax residency certificate.
Note: For Sl. No. 17: Any person making payment to a non-resident, whether or not they are resident in India, must deduct TDS. There is no threshold. Form 15CA must be filed for every remittance. Form 15CB (CA certificate) is required for taxable remittances above Rs. 5 lakh.
Section 395: Lower or Nil TDS Certificate (Old Section 197)
| Item | Details |
| Who can apply | Any person entitled to receive income on which TDS is required |
| Basis | If total income of the payee justifies lower rate or nil deduction |
| How to apply | Application to Assessing Officer in prescribed form; also now available electronically to prescribed income-tax authority under Section 395(6) |
| Certificate validity | Till the date specified in the certificate; must be renewed annually |
| Effect on deductor | Deductor must deduct at the rate in the certificate until it expires |
| Cancellation | AO can cancel the certificate after giving reasonable opportunity to applicant |
| Non-resident determination | Under Section 395(2), payer to a non-resident can apply for determination of the taxable proportion of the payment |
Example: Ananya earns professional fees from multiple clients. Her total income attracts tax at only 5%. She applies for a lower TDS certificate at 5%. All her clients then deduct at 5% instead of 10%, preserving her cash flow.
Example: A non-resident company with treaty exemption applies for nil TDS certificate. Once issued, Indian payers make payments without deduction.
Section 398: Consequences of Failure to Deduct or Deposit TDS
Deemed Assessee in Default
Section 398(1): A person who fails to deduct TDS, or deducts but does not deposit, is deemed to be an assessee in default. This triggers recovery proceedings for the tax amount.
Exception: Not Deemed in Default
Section 398(2): A deductor is NOT deemed in default if the payee has:
- Filed their ITR under Section 263.
- Included the income in the return.
- Paid the tax due on that income.
The deductor must obtain a CA certificate in the prescribed form confirming the above.
Interest under Section 398(3)
| Default | Rate | Period |
| TDS not deducted at all | 1% per month or part of a month | From date TDS was deductible to date actually deducted |
| TDS deducted but not deposited | 1.5% per month or part of a month | From date deducted to date actually deposited |
Example: XYZ Ltd deducts TDS of Rs. 10,000 on April 15, 2026, but deposits it on June 10, 2026. Delay = 2 months. Interest = 1.5% x 2 = 3%. Interest = Rs. 10,000 x 3% = Rs. 300.
30% Disallowance of Expense
Where a business fails to deduct TDS on a payment, 30% of that payment is disallowed as a business expense. This increases the payer’s taxable income. (100% disallowance in case of payment to non-resident) The disallowed amount will be allowed in the year in which TDS is paid to government.
Example: ABC Ltd pays Rs. 5 lakh as professional fees to a consultant without deducting TDS. Rs. 1.5 lakh (30% of Rs. 5 lakh) is disallowed. ABC pays tax on Rs. 1.5 lakh at its applicable rate.
Section 398(5): Time Limit for Default Order
No order deeming a person an assessee in default can be passed after 6 years from the end of the Tax Year in which TDS was deductible.
Practical Compliance Checklist
If you are an employer
- Collect investment and deduction declarations from employees at the start of the Tax Year.
- Revise TDS computation whenever salary changes, bonus is paid, or declarations are updated.
- For employees joining mid-year, ask for Form 12B (salary details from previous employer).
- Issue Form 16 to all employees by May 31 after the Tax Year ends.
If you are paying rent above Rs. 50,000 per month
- If you are a company/firm (specified person): Deduct TDS monthly at 10% for building (Sl. 2(ii)(b)) or 2% for machinery (Sl. 2(ii)(a)). Use Form 26Q.
- If you are an individual/HUF not liable to tax audit: Deduct 2% once in the last month under Sl. 2(i). No TAN. Use Form 26QC.
If you are buying property above Rs. 50 lakh
- Deduct 1% TDS on total consideration including parking, club fees, maintenance (Sl. 3(i)).
- Deposit via Form 26QB within 30 days from end of month of payment. No TAN needed.
- Issue Form 16B to the seller.
If your firm pays partners
- From Tax Year 2025-26 onwards, deduct 10% TDS on all salary, remuneration, commission, bonus, or interest paid to any partner if aggregate exceeds Rs. 20,000 per partner per year (Sl. 7 of Sec 393(3)).
- Obtain TAN. File Form 26Q quarterly. Issue Form 16A to each partner.
If you make payments to non-residents
- Check applicable DTAA before deducting. Lower DTAA rate applies only if non-resident furnishes a valid Tax Residency Certificate.
- File Form 15CA for every remittance. Obtain Form 15CB (CA certificate) for taxable remittances above Rs. 5 lakh.
- Apply under Section 395(2) for determination of taxable proportion if the full remittance is not taxable.
If you failed to deduct TDS
- Deduct and deposit immediately. Pay interest at 1% per month from the due date.
- Check if payee has already paid tax on the income. If yes, obtain CA certificate under Section 398(2) to avoid being deemed an assessee in default.
- 30% of the payment will be disallowed as business expense if TDS was not deducted. Factor this into your tax planning.
The TDS framework under the Income Tax Act 2025 is a direct continuation of the 1961 Act with cleaner organisation. Every rate, threshold, and exemption from the old Act is preserved. The practical obligation remains identical: deduct at the correct rate on the right amount at the right time, deposit within the prescribed due date, and issue the TDS certificate. These three steps, done consistently, ensure full TDS compliance.
