Understanding Tax Deducted at Source (TDS) in India
Statutory provisions, section thresholds, and compliance guidelines under the Income Tax Act, 1961.
What is TDS and Who Deducts It?
Tax Deducted at Source (TDS) is a mechanism introduced by the Government of India to collect income tax directly from the origin of financial transactions. Any entity or individual (subject to audit thresholds) making specified payments such as salary, professional fees, contractor charges, rent, or brokerage is legally obligated to deduct a prescribed percentage of tax before disbursing the net balance to the payee.
Key TDS Sections & Annual Thresholds (FY 2024-25 / AY 2025-26)
| Section | Nature of Payment | Exemption Threshold (₹) | Rate (with PAN) | No-PAN Rate |
|---|---|---|---|---|
| 194A | Bank / Post Office FD Interest | ₹40,000 (₹50k Senior) | 10% | 20% |
| 194C | Contractor Payments (Individual/HUF) | ₹30k single / ₹1 Lakh agg | 1% | 20% |
| 194H | Commission or Brokerage | ₹15,000 | 5% | 20% |
| 194I (a) | Rent on Plant & Machinery | ₹2,40,000 | 2% | 20% |
| 194I (b) | Rent on Land & Building | ₹2,40,000 | 10% | 20% |
| 194J | Professional Services & Royalty | ₹30,000 | 10% (2% Tech) | 20% |
| 194-IA | Transfer of Immovable Property | ₹50,00,000 | 1% | 20% |
Important Note on Section 206AA (Higher TDS on Missing PAN)
If the payee fails to furnish a valid Permanent Account Number (PAN) to the deductor, the tax deduction rate automatically escalates to a mandatory minimum of 20% or the section rate (whichever is higher). Always verify the payee's PAN in Form 26AS / AIS before disbursal.
Claiming TDS Credit: Form 26AS & AIS
All deducted TDS must be deposited by the deductor to the Central Government by the 7th of the following month. Once the quarterly TDS return (Form 24Q or 26Q) is filed, the tax credits reflect in your Form 26AS and Annual Information Statement (AIS) on the Income Tax e-filing portal. You can adjust these credits against your final tax liability or claim an income tax refund when filing your annual ITR.