What is TDS?
TDS (Tax Deducted at Source) is a mechanism of tax collection introduced under Section 190 of the Income Tax Act, 1961. Under this system, the person making a specified payment (salary, rent, professional fees, etc.) is required to deduct tax at a prescribed rate before making the payment. According to the Income Tax Department, India collected approximately ₹8.46 lakh crore through TDS in FY 2024-25, making it the single largest source of direct tax revenue.
When you make a payment covered under TDS provisions, you deduct the prescribed percentage as tax, deposit it to the government within 7 days (by the 7th of the following month), file quarterly TDS returns (Form 24Q/26Q), and issue TDS certificates (Form 16/16A) to the payee. The payee claims this TDS as credit when filing their income tax return.
TDS rates for FY 2026-27
| Section | Nature of payment | TDS rate | Threshold |
|---|---|---|---|
| 192 | Salary | Slab rates | Basic exemption |
| 194A | Interest (banks) | 10% | ₹40,000/yr |
| 194C | Contractor (individual) | 1% | ₹30,000/payment |
| 194C | Contractor (company) | 2% | ₹30,000/payment |
| 194J | Professional fees | 10% | ₹30,000/yr |
| 194-IB | Rent (by individual) | 5% | ₹50,000/mo |
| 194H | Commission | 5% | ₹15,000/yr |
| 195 | Payment to NRI | 20%+ | Any amount |
Note: If the payee does not provide a valid PAN, TDS is deducted at 20% flat rate or the applicable rate, whichever is higher, as per Section 206AA of the Income Tax Act.
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