TDS

Tax Deducted at Source (TDS) is the mechanism under which the payer of an income is required to deduct income tax at the prescribed rate before making the payment to the recipient and deposit it with the Central Government. Governed by Chapter XVII-B (Sections 192 to 206) of the Income Tax Act 1961.

Common Indian TDS rates (FY 2025-26 — illustrative; verify against current Finance Act):

| Section | Nature of payment | Rate | |---------|---------------------|------| | 192 | Salary | Slab rate | | 192A | EPF withdrawal | 10% | | 194 | Dividend | 10% | | 194A | Interest other than securities | 10% | | 194C | Contractor payments | 1% (Individual/HUF) / 2% (Others) | | 194H | Commission / brokerage | 5% | | 194I | Rent (land/building) | 10% | | 194I | Rent (plant & machinery) | 2% | | 194J | Professional fees / technical services | 10% (2% for technical services) | | 194Q | Purchase of goods (above ₹50 lakh) | 0.1% | | 195 | Payment to non-resident | As per treaty / domestic rate, higher of | | 206AA | Deductee without PAN | 20% or applicable, higher |

TDS workflow:

1. Deduct TDS at the time of credit / payment, whichever is earlier. 2. Deposit with Government — through Challan ITNS 281, by the 7th of the following month (April deduction by May 7; March deduction by April 30 special date). 3. File TDS return quarterly: - Form 24Q — salary (quarters end Jun, Sep, Dec, Mar; due July 31, Oct 31, Jan 31, May 31). - Form 26Q — non-salary resident payments. - Form 27Q — non-resident payments. - Form 27EQ — TCS returns. 4. Issue TDS certificate: - Form 16 (annual, salary) by June 15 following the FY. - Form 16A (quarterly, non-salary) within 15 days of quarterly return filing. 5. Deductee claims credit in their ITR based on 26AS / AIS / TIS populated from the deductor's filing.

Consequences of default:

• Section 201: deemed assessee in default; interest @ 1% per month for failure to deduct; @ 1.5% per month for failure to deposit after deduction.
• Section 271C: penalty equal to TDS not deducted.
• Section 276B: prosecution — rigorous imprisonment 3 months to 7 years.
• Section 40(a)(ia): disallowance of 30% of the expense in the deductor's own assessment for non-deduction / non-payment of TDS on resident payments (100% disallowance for non-residents under Section 40(a)(i)).

For startups: Build TDS into vendor onboarding, payroll, and accounts payable from day one. Mistakes here are visible in the company's own tax assessment as expense disallowance — an extremely common cap-table-era audit finding.