Tax Deducted at Source (TDS) is a crucial compliance obligation under Indian income tax law.
It ensures advance collection of tax at the time of payment, and failure to deduct or deposit TDS can lead to interest, penalties, and disallowance of expenses.
This blog explains who is required to deduct TDS, applicable thresholds, key sections, and consequences of non-compliance under the Income Tax Act, 1961.
Legal Reference
- Sections 192 to 196H, Income Tax Act, 1961
- Rule 31, 31A, Income Tax Rules, 1962
- Relevant circulars by CBDT and notifications from Finance Act, 2024
Who Must Deduct TDS in India?
Individuals or Entities Making Specified Payments
You are required to deduct TDS if:
- You are a company, partnership firm, LLP, or sole proprietor subject to tax audit in the previous year
- You are making specified payments (like salary, interest, rent, commission, professional fees) that cross the applicable threshold
- You are an individual or HUF (not audited) paying rent over ₹50,000 per month – required to deduct TDS under Section 194-IB
Payments That Attract TDS
Common transactions that require TDS deduction:
- Salary – Section 192
- Interest (other than securities) – Section 194A
- Contractor or sub-contractor payments – Section 194C
- Professional fees – Section 194J
- Commission or brokerage – Section 194H
- Rent – Section 194I
- Purchase of immovable property – Section 194-IA (₹50 lakh+)
- Rent paid by individuals exceeding ₹50,000/month – Section 194-IB
- Payment to non-residents (NRI sellers, foreign freelancers) – Section 195
Who is Exempt From TDS Deduction?
- Individuals or HUFs not under audit and paying other than rent
- Payments below the prescribed threshold limits
- Payments to entities with valid exemption certificates (Form 15G, 15H, or lower/NIL TDS certificate from AO)
- Certain government and RBI-related payments exempt under specific circulars
Example Scenarios
- Example 1: A business paying ₹45,000 monthly to a consultant
- Must deduct TDS @10% under Section 194J
- Example 2: An individual buying a flat worth ₹75 lakh
- Must deduct 1% TDS under Section 194-IA and file Form 26QB
- Example 3: An individual paying rent of ₹60,000/month
- Must deduct 5% TDS under Section 194-IB and file Form 26QC
TDS Deduction and Filing Process
- Step 1: Check if TDS applies and applicable section
- Step 2: Deduct TDS at prescribed rate on payment/credit
- Step 3: Deposit TDS to government within 7 days of next month (or by 30th April for March deductions)
- Step 4: File TDS return quarterly (Form 24Q/26Q/27Q/26QB/26QC)
- Step 5: Issue TDS certificate (Form 16/16A) to the payee
Penalties and Consequences for Non-Compliance
- Interest under Section 201 – 1% per month for non-deduction, 1.5% per month for non-payment
- Penalty of ₹200 per day for late filing of TDS return (Section 234E)
- Disallowance of expenses under Section 40(a)(ia) if TDS not deducted
- Prosecution in extreme cases under Section 276B
Conclusion
TDS is a critical withholding mechanism in India’s tax system, and non-compliance can result in financial and legal consequences.
Any person or entity making taxable payments — whether to residents or non-residents — must assess whether they are obligated to deduct and deposit TDS under the applicable section.
Call to Action
Unsure whether you need to deduct TDS or file a TDS return?
Avoid penalties, late fees, and scrutiny by setting up your TDS system properly from the start.
Book a consultation with Anshul Goyal, Chartered Accountant, and we’ll help you stay fully compliant with India’s TDS laws.
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Disclaimer
This article is for informational purposes only. TDS applicability depends on the nature of the payment, entity type, and threshold limits.
Anshul Goyal is a Chartered Accountant licensed with ICAI, India.
Please seek professional advice before executing payments that may attract TDS obligations.
Frequently Asked Questions
1. Do individuals need to deduct TDS?
Yes, if paying rent above ₹50,000/month (Section 194-IB) or buying property above ₹50 lakh (Section 194-IA).
2. What is the due date for depositing TDS?
By the 7th of the following month. For March, by 30th April.
3. Can I pay TDS without a TAN?
Yes, for sections like 194-IA and 194-IB, individuals can deduct TDS using PAN and pay via Form 26QB/26QC.
4. Is TDS applicable on foreign payments?
Yes, under Section 195. Special rates and treaties may apply.
5. What happens if TDS is not deposited?
Interest, late fees, disallowance of expense, and even prosecution in serious cases.