What is TDS?

How it works

The payer deducts at the prescribed rate (for example 10% on professional fees), deposits it by the 7th of the next month, files quarterly returns, and issues Form 16/16A. The payee claims the credit in their return.

How the mechanism works end to end

The deductor withholds tax at the prescribed rate when crediting or paying the amount (whichever is earlier), deposits it by the 7th of the following month (30 April for March), reports it in the quarterly TDS return (24Q for salary, 26Q for resident non-salary, 27Q for non-residents), and issues a certificate (Form 16/16A). The credit then appears in the payee's Form 26AS and AIS, and is claimed against final tax liability in the return.

Worked example

A company pays a consultant Rs.1,00,000 under Section 194J: it deducts Rs.10,000 (10%), pays Rs.90,000, deposits the Rs.10,000 by the next month's 7th, and reports it in 26Q. The consultant's actual tax on that income might be 30% (Rs.30,000) or nil — TDS is a provisional collection, settled at filing through self-assessment tax or refund.

What failure costs the deductor

Interest at 1% per month for failure to deduct and 1.5% per month for deducting-but-not-depositing (Section 201(1A)), disallowance of 30% of the expense under Section 40(a)(ia), late-filing fees of Rs.200/day under 234E, and penalties under 271C/271H in serious cases. From 1 April 2026, TDS provisions are consolidated under Sections 392-393 of the Income-tax Act 2025 with unchanged rates — the Finance Act 2025 thresholds (e.g. Rs.50,000 for 194J, Rs.6 lakh p.a. for 194-I, Rs.20,000 for 194H) carry over.

This content is for general guidance only and does not constitute professional advice. Tax law changes frequently — verify the current position and consult a qualified Chartered Accountant before acting. Last reviewed: June 2026.