A Complete Guide for FY 2025-26 (AY 2026-27)
Updated with Budget 2025 Changes | Applicable from 1st April 2025
1. What is TDS (Tax Deducted at Source)?
Tax Deducted at Source, popularly known as TDS, is one of the methods of collecting income tax in India. Instead of the recipient paying tax at the end of the year, TDS requires the payer to deduct a certain percentage of tax at the time of making a payment and deposit it directly with the Government of India.
Think of it this way — if your employer is paying you a salary, they are required to deduct a portion of that salary as income tax before it reaches you, and pay it to the government on your behalf. The amount deducted is reflected in Form 26AS, which you can then claim as a credit while filing your Income Tax Return (ITR).
TDS is governed under Chapter XVII-B of the Income Tax Act, 1961, and covers a wide range of payments — from salaries and professional fees to rent, lottery winnings, and even cryptocurrency transactions.
Why Does TDS Exist?
The government introduced TDS for several important reasons:
- Ensures a steady flow of tax revenue throughout the year rather than a lump-sum at year-end.
- Reduces tax evasion by collecting tax at the source before money reaches the recipient.
- Makes tax collection convenient since the burden is distributed between payer (deductor) and recipient (deductee).
- Promotes transparency and accountability in financial transactions.
- Helps the government estimate and plan tax revenues more accurately.
2. Key Terms You Must Know
- Deductor: The person or entity who makes a payment and is responsible for deducting TDS. Examples: Employers, companies paying rent, banks paying interest.
- Deductee: The person who receives the payment after TDS deduction. Examples: Employees, contractors, landlords, professionals.
- TAN: Tax Deduction and Collection Account Number. Every deductor must obtain a TAN from the Income Tax Department before deducting TDS.
- PAN: Permanent Account Number. The deductee must provide their PAN to avoid TDS being deducted at a higher rate (20%).
- Form 26AS: A consolidated tax credit statement that shows all TDS deducted on your income. You can check and verify this on the IT Department portal.
- Form 16: TDS certificate issued by employer to employee, showing salary paid and TDS deducted.
- Form 16A: TDS certificate for all payments other than salary (e.g., interest, professional fees, rent).
3. Who is Required to Deduct TDS?
Not everyone who makes a payment is required to deduct TDS. The obligation depends on the nature of the payment and the category of the payer:
3.1 Salaried Employees (Section 192)
Every employer — whether a company, firm, or individual — is required to deduct TDS on salary paid to employees if the salary exceeds the basic exemption limit. The TDS is deducted at the applicable income tax slab rate.
3.2 Businesses and Companies
All businesses and companies are required to deduct TDS on payments exceeding threshold limits for services such as professional fees, rent, contractor payments, interest, and more.
3.3 Individuals and HUFs (Hindu Undivided Families)
Individuals and HUFs are generally NOT required to deduct TDS on payments made for personal purposes. However, there are exceptions:
- Individuals and HUFs subject to tax audit under Section 44AB must deduct TDS on professional fees and contract payments.
- Any individual or HUF paying rent above Rs. 50,000 per month must deduct TDS under Section 194IB.
- Under Section 194M, individuals and HUFs must deduct TDS on payments exceeding Rs. 50 lakh in a year for contracts, brokerage, or professional fees.
3.4 Banks and Financial Institutions
Banks are required to deduct TDS on interest paid on fixed deposits, savings accounts (if applicable), and recurring deposits. Senior citizens enjoy a higher threshold of Rs. 1,00,000 (revised from April 2025).
4. TDS Rate Chart for Residents — FY 2025-26
The table below covers all major TDS sections applicable to resident Indians. These rates are effective from 1st April 2025.
| Section | Nature of Transaction | Threshold Limit | TDS Rate |
|---|---|---|---|
| 192 | Salary | Basic exemption limit of employee | Slab rates |
| 192A | Premature withdrawal from EPF | Rs. 50,000 | 10% |
| 193 | Interest on Securities | Rs. 10,000 | 10% |
| 194 | Dividends | Rs. 10,000 | 10% |
| 194A | Interest on bank/post office deposits (General) | Rs. 50,000 | 10% |
| 194A | Interest on bank/post office deposits (Senior Citizen) | Rs. 1,00,000 | 10% |
| 194A | Interest (Others) | Rs. 10,000 | 10% |
| 194K | Dividend by Mutual Funds | Rs. 10,000 | 10% |
| 194B | Lottery, game shows, gambling winnings | Rs. 10,000 | 30% |
| 194BA | Online gaming winnings | No limit | 30% |
| 194BB | Winnings from horse races | Rs. 10,000 | 30% |
| 194C | Payment to contractors / sub-contractors | Rs. 30,000 (single) or Rs. 1 lakh (FY) | 1% (Ind/HUF), 2% (Others) |
| 194D | Insurance Commission | Rs. 20,000 | 2% (Ind/HUF), 10% (Others) |
| 194DA | Payment from Life Insurance Policy | Rs. 1 lakh | 2% |
| 194EE | National Savings Scheme (NSS) | Rs. 2,500 | 10% |
| 194G | Lottery Commission | Rs. 20,000 | 2% |
| 194H | Commission / Brokerage | Rs. 20,000 | 2% |
| 194I(a) | Rent for Plant & Machinery | Rs. 50,000 p.a. | 2% |
| 194I(b) | Rent for Land, Building & Furniture | Rs. 50,000 p.a. | 10% |
| 194IA | Transfer of immovable property (except agri land) | Rs. 50 lakh | 1% |
| 194IB | Rent by Individual/HUF not covered under 194I | Rs. 50,000 pm | 2% |
| 194IC | Payment under Joint Development Agreement | No limit | 10% |
| 194J(a) | Fees for Technical Services, Call Centre, Royalty | Rs. 50,000 | 2% |
| 194J(b) | Fees for All Other Professional Services | Rs. 50,000 | 10% |
| 194LA | Compensation on transfer of immovable property | Rs. 5 lakh | 10% |
| 194M | Contracts, Brokerage or Professional Fees (Ind/HUF) | Rs. 50 lakh | 2% |
| 194N | Cash withdrawal exceeding limit | Rs. 1 Crore | 2% |
| 194O | TDS on e-commerce participants | Rs. 5 lakh | 0.10% |
| 194Q | Purchase of Goods | Rs. 50 lakh | 0.10% |
| 194R | Benefits or perquisites of business/profession | Rs. 20,000 | 10% |
| 194S | Transfer of Virtual Digital Assets (Crypto) | Rs. 10,000 / Rs. 50,000 | 1% |
| 194T | Payments by Partnership Firms to Partners | Rs. 20,000 | 10% |
Important Note: If the deductee does not furnish their PAN, TDS must be deducted at 20% or the applicable rate — whichever is higher.
5. TDS Rates for Non-Residents — FY 2025-26
When payments are made to non-residents (NRIs or foreign entities), different TDS provisions apply. These are primarily governed by Section 195 and other specific sections. Additionally, Health and Education Cess (4%) is applicable on TDS for non-residents.
Note: If the applicable DTAA (Double Taxation Avoidance Agreement) rate is lower than the statutory TDS rate, the DTAA rate can be applied, provided the non-resident furnishes a Tax Residency Certificate.
| Section | Nature of Payment | TDS Rate |
|---|---|---|
| Sec 192 | Salary payments | Normal Slab Rate |
| Sec 192A | Accumulated balance of provident fund | 10% |
| Sec 194B | Lottery, crossword, gambling winnings | 30% |
| Sec 194BA | Winnings from online games | 30% |
| Sec 194BB | Winnings from horse races | 30% |
| Sec 194E | Payment to non-resident sportsmen/sports associations | 20% |
| Sec 194EE | National Savings Scheme (NSS) deposits | 10% |
| Sec 194G | Commission on lottery tickets | 2% |
| Sec 194LB | Interest on infrastructure debt fund | 5% |
| Sec 194LC | Interest on long-term bonds/RDB listed on IFSC | 4% |
| Sec 194LC | Interest on bonds issued after 01-04-2023 | 9% |
| Sec 194N | Cash withdrawals exceeding Rs. 1 crore | 2% |
| Sec 194T | Payments to partners of a firm | 10% |
| Sec 195 | Long-term capital gains (Sec 115E – NRI) | 20% |
| Sec 195 | Long-term capital gains (Sec 112) | 12.50% |
| Sec 195 | Long-term capital gains (Sec 112A) > Rs 1.25L | 12.50% |
| Sec 195 | Short-term capital gains (Sec 111A) | 12.50% |
| Sec 195 | Dividend income (other than IFSC) | 10% |
| Sec 195 | Royalty paid by Government/Indian concern | 20% |
| Sec 195 | Fees for technical services | 20% |
| Sec 195 | Any other income | 20% |
| Sec 196A | Income from units of non-residents | 30% |
| Sec 196D | Income of FIIs from securities (not dividend/CG) | 20% |
6. TDS by Category of Deductee
Different categories of income earners attract TDS at different rates. Here is a simplified breakdown:
6.1 Salaried Employees
TDS on salary is deducted under Section 192. There is no fixed rate — instead, the employer calculates the estimated annual tax liability of the employee based on their total income (salary + other declared income) and deducts TDS proportionately every month.
- The employee must submit investment declarations (Form 12BB) to the employer.
- Deductions under Chapter VI-A (like 80C, 80D) and HRA exemption reduce the taxable salary.
- At year-end, the employer issues Form 16 to the employee.
6.2 Freelancers and Professionals
Professionals such as doctors, lawyers, architects, consultants, and chartered accountants are subject to TDS under Section 194J.
- Technical services and royalty: TDS at 2% (Section 194J(a))
- All other professional fees: TDS at 10% (Section 194J(b))
- Threshold: Rs. 50,000 per financial year (revised from Rs. 30,000).
6.3 Contractors and Sub-Contractors
Contractors receive payment under Section 194C. TDS rates differ based on the type of payee:
- Individuals and HUF contractors: TDS at 1%
- Companies and firms: TDS at 2%
- Single transaction threshold: Rs. 30,000; Annual threshold: Rs. 1,00,000
6.4 Landlords (Rent Receivers)
Rent payments attract TDS under different sections depending on who is paying:
- Section 194I — Businesses and companies paying rent: 2% for plant & machinery; 10% for land, building, and furniture (threshold revised to Rs. 6,00,000 per FY).
- Section 194IB — Individuals/HUF paying monthly rent above Rs. 50,000: TDS at 2%.
6.5 Investors and Account Holders
Interest income from banks, post offices, and other sources attracts TDS under Section 194A:
- For senior citizens: TDS applies only if interest exceeds Rs. 1,00,000 per year (revised from Rs. 50,000).
- For others (banks/post office): TDS applies if interest exceeds Rs. 50,000 per year.
- For other interest sources: TDS applies if interest exceeds Rs. 10,000 per year.
- Rate: 10% in all cases.
6.6 Partners of Partnership Firms
With effect from 1st April 2025, a new Section 194T has been introduced. Partnership firms are now required to deduct TDS at 10% on any payment to partners (salary, remuneration, commission, bonus, or interest) exceeding Rs. 20,000 in a financial year.
6.7 E-Commerce Sellers (Section 194O)
E-commerce operators must deduct TDS at 0.10% on the gross amount of sales made through their platform by e-commerce participants, if the total payments exceed Rs. 5 lakh in a year. This applies to sellers on platforms like Amazon, Flipkart, etc.
6.8 Buyers of Goods (Section 194Q)
Buyers who purchase goods worth more than Rs. 50 lakh in a financial year from a resident seller must deduct TDS at 0.10% on the amount exceeding Rs. 50 lakh. This section was introduced to improve the trail of high-value transactions.
6.9 Cryptocurrency / Virtual Digital Asset (VDA) Traders
Under Section 194S, TDS is applicable on consideration paid for transfer of Virtual Digital Assets (VDA), including cryptocurrency:
- Non-specified persons: TDS of 1% applies if consideration exceeds Rs. 10,000.
- Specified persons (small transactors): TDS of 1% applies if consideration exceeds Rs. 50,000.
This has made TDS compliance mandatory for crypto exchanges in India.
6.10 Lottery and Gaming Winners
Winnings from lotteries, crossword puzzles, gambling, and horse races attract the highest TDS rate:
- Section 194B — Lottery, game shows, gambling: 30% (threshold: Rs. 10,000 per transaction).
- Section 194BA — Online gaming winnings: 30% (no threshold — deducted on every win).
- Section 194BB — Horse race winnings: 30% (threshold: Rs. 10,000 per transaction).
7. Key TDS Changes for FY 2025-26
Budget 2025 brought several significant changes to TDS provisions effective from 1st April 2025. Understanding these changes is crucial to avoid excess or short deduction of TDS.
7.1 Threshold Limit Revisions
The government has liberalised the threshold limits for TDS deduction across multiple sections, reducing compliance burden for small transactions:
| Section | Previous Threshold | New Threshold (FY 2025-26) |
|---|---|---|
| Sec 193 – Interest on Securities | NIL (No threshold) | Rs. 10,000 |
| Sec 194A – Interest (Senior Citizen) | Rs. 50,000 | Rs. 1,00,000 |
| Sec 194A – Interest (Banks/PO – Others) | Rs. 40,000 | Rs. 50,000 |
| Sec 194A – Interest (Other cases) | Rs. 5,000 | Rs. 10,000 |
| Sec 194 – Dividend (Individual shareholder) | Rs. 5,000 | Rs. 10,000 |
| Sec 194K – Mutual Fund dividends | Rs. 5,000 | Rs. 10,000 |
| Sec 194B – Lottery / Crossword winnings | Aggregate in FY > Rs. 10,000 | Per transaction > Rs. 10,000 |
| Sec 194D – Insurance Commission | Rs. 15,000 | Rs. 20,000 |
| Sec 194G – Lottery Commission | Rs. 15,000 | Rs. 20,000 |
| Sec 194H – Commission/Brokerage | Rs. 15,000 | Rs. 20,000 |
| Sec 194I – Rent | Rs. 2,40,000 per FY | Rs. 6,00,000 per FY |
| Sec 194J – Professional/Technical Fees | Rs. 30,000 | Rs. 50,000 |
| Sec 194LA – Enhanced Compensation | Rs. 2,50,000 | Rs. 5,00,000 |
| Sec 206C(1G) – LRS / Overseas Tour Package | Rs. 7,00,000 | Rs. 10,00,000 |
7.2 Removal of Section 206AB
Previously, Section 206AB required deductors to check whether the payee had filed their ITR for the past three years, and if not, deduct TDS at double the applicable rate. This section has been removed with effect from 1st April 2025, significantly easing the compliance burden on deductors.
7.3 New Section 194T — TDS on Partner Payments
A brand new TDS provision has been inserted under Section 194T, requiring partnership firms to deduct TDS at 10% on payments to partners — including salary, remuneration, bonus, commission, and interest — if the total payment exceeds Rs. 20,000 in a financial year. This is a landmark change that brings partner payments into the TDS net for the first time.
7.4 Reduced TDS Rate under Section 194LBC
TDS on income received from investment in securitisation trusts (Section 194LBC) has been reduced for resident taxpayers to a uniform rate of 10%, regardless of whether the payee is an Individual/HUF or any other entity. Earlier, it was 25% for individuals/HUF and 30% for others.
8. TDS Compliance: What You Need to Know
8.1 TDS Deduction Timing
TDS must be deducted at the earliest of:
- When the amount is credited to the account of the payee, OR
- When the actual payment is made (cash, cheque, draft, etc.)
8.2 TDS Deposit Due Dates
After deducting TDS, the deductor must deposit it with the government within specified timelines:
- For TDS deducted in April to February: Must be deposited by the 7th of the following month.
- For TDS deducted in March: Must be deposited by 30th April.
- For TDS on purchase of immovable property (Sec 194IA/194IB/194IC): Must be deposited within 30 days of the end of the month of deduction.
8.3 TDS Return Filing
Deductors must file quarterly TDS returns (Form 24Q for salary, Form 26Q for others, Form 27Q for non-residents) within the due dates:
- Q1 (April to June): Due by 31st July
- Q2 (July to September): Due by 31st October
- Q3 (October to December): Due by 31st January
- Q4 (January to March): Due by 31st May
8.4 TDS Certificates
After filing the TDS return, the deductor must issue TDS certificates to the deductee:
- Form 16 (Salary TDS): Issued annually by 15th June of the following year.
- Form 16A (Other TDS): Issued quarterly within 15 days from the due date of the TDS return.
8.5 Interest and Penalties for Non-Compliance
Failure to comply with TDS provisions attracts interest and penalties:
- Late deduction of TDS: Interest at 1% per month from the date on which TDS should have been deducted to the date of actual deduction.
- Late deposit of TDS: Interest at 1.5% per month from the date of deduction to the date of actual deposit.
- Failure to file TDS return: Penalty of Rs. 200 per day under Section 234E until the return is filed.
- Non-filing or incorrect filing: Penalty of Rs. 10,000 to Rs. 1,00,000 under Section 271H.
9. How to Claim TDS Credit
If TDS has been deducted on your income, you can claim it as a tax credit while filing your Income Tax Return (ITR). Here is how:
- Step 1: Check your Form 26AS on the Income Tax portal (www.incometax.gov.in) to verify all TDS credits.
- Step 2: Cross-check with TDS certificates (Form 16/16A) issued by the deductor.
- Step 3: Mention the TDS details in the appropriate schedule of your ITR form.
- Step 4: If excess TDS has been deducted, the balance will be refunded by the Income Tax Department after processing.
It is important to ensure that the deductor has deposited the TDS and filed the return correctly, as any mismatch between Form 26AS and the deductor’s records can delay your refund.
Form 15G and Form 15H — Avoiding TDS
If your total income is below the taxable limit, you can submit a self-declaration to the payer to avoid TDS deduction:
- Form 15G: For individuals below 60 years of age and HUFs. You declare that your income is below the taxable limit.
- Form 15H: For senior citizens (60 years and above). You declare that tax on your estimated total income is nil.
These forms are typically submitted to banks to avoid TDS on interest income. Note: Furnishing false declarations attracts penalties under the Income Tax Act.
10. Practical Examples
Example 1: TDS on Professional Fees
ABC Pvt Ltd hires Mr. Sharma, a freelance consultant, and pays him Rs. 1,20,000 for the year. Since this exceeds the Rs. 50,000 threshold under Section 194J(b), TDS is applicable.
- TDS Rate: 10%
- TDS Amount: Rs. 12,000
- Net payment to Mr. Sharma: Rs. 1,08,000
Mr. Sharma can claim Rs. 12,000 as TDS credit in his ITR.
Example 2: TDS on Rent by an Individual
Ms. Priya pays Rs. 60,000 per month as rent for her office space. Since the monthly rent exceeds Rs. 50,000, she must deduct TDS under Section 194IB.
- TDS Rate: 2%
- TDS Amount per month: Rs. 1,200
- Annual TDS: Rs. 14,400
TDS must be deducted only once — at the end of the tenancy or March 31st (whichever is earlier).
Example 3: TDS on FD Interest for a Senior Citizen
Mr. Rao, aged 65, earns Rs. 1,20,000 as interest from his fixed deposit in SBI. Since it exceeds the new Rs. 1,00,000 threshold for senior citizens under Section 194A:
- Taxable interest = Rs. 1,20,000 − Rs. 1,00,000 = Rs. 20,000 (amount above threshold)
- TDS Rate: 10%
- TDS = Rs. 2,000 (bank deducts TDS only on the excess amount above threshold)
Mr. Rao can submit Form 15H if his total income is below the taxable limit.
Example 4: New Section 194T — Partner Payment
XYZ & Associates, a partnership firm, pays Rs. 5,00,000 annually to partner Mr. Mehta as remuneration. Since this exceeds Rs. 20,000, TDS under Section 194T applies from April 2025.
- TDS Rate: 10%
- TDS Amount: Rs. 50,000
- Net payment to Mr. Mehta: Rs. 4,50,000
11. Frequently Asked Questions (FAQs)
Q: Where can I check how much TDS has been deducted on my income?
You can view all TDS credits in your Form 26AS by logging into the Income Tax portal at www.incometax.gov.in. It shows a consolidated record of all TDS deducted on your behalf.
Q: What if TDS is deducted but not deposited by the deductor?
If the deductor deducts TDS but does not deposit it with the government, the deductee is not at fault. However, the deductee will not see this credit in Form 26AS, which may cause issues while filing ITR. It is advisable to follow up with the deductor and, if needed, report the issue to the Income Tax Department.
Q: What happens if my employer deducts excess TDS?
If excess TDS is deducted, you can claim a refund by filing your Income Tax Return accurately. The IT Department will process the refund after verification.
Q: Is TDS applicable on GST amount?
No. TDS is applicable only on the base amount of the payment, excluding GST. The GST component is not included in the TDS computation.
Q: What is the TDS rate if I do not provide my PAN?
If you fail to furnish your PAN to the deductor, TDS will be deducted at 20% or the applicable rate, whichever is higher. This can lead to higher tax deductions, so it is always advisable to provide your PAN.
Q: Can I claim TDS credit on income earned abroad?
TDS credit can only be claimed in India on income that is taxable in India. For income earned abroad, you may need to rely on DTAA provisions for relief from double taxation.
12. Conclusion
TDS is a cornerstone of India’s tax collection framework. It ensures that taxes are paid regularly and reduces the risk of evasion. For FY 2025-26, the government has taken several positive steps — relaxing threshold limits, removing Section 206AB, and introducing Section 194T for partner payments — all aimed at making the system more efficient and equitable.
Whether you are a salaried employee, a freelancer, a business owner, or an investor, understanding TDS helps you plan your finances better and ensures smooth compliance. Always verify your Form 26AS, submit investment proofs on time, and file your TDS returns by the due dates to avoid any interest or penalties.
When in doubt, consult a qualified Chartered Accountant (CA) who can guide you through the complexities of TDS laws and help you optimise your tax position legally.
Stay Tax-Smart. Stay Compliant. File On Time.
Compiled for FY 2025-26 (AY 2026-27)