Tax Deducted at Source (TDS) is the Income Tax Department's mechanism for collecting tax at the point where income originates, rather than waiting for the taxpayer to file a return. If you pay salary, professional fees, rent, commission, or interest above certain thresholds, the law requires you to deduct a portion as tax and deposit it with the government. For FY 2025-26 (Assessment Year 2026-27), the TDS structure remains largely aligned with the Income Tax Act's Sections 192 through 194O.
This guide covers the key TDS sections, their rates and thresholds, and practical examples. Use our TDS Calculator to compute deductions instantly.
When a deductor makes a payment to a deductee, they withhold a fixed percentage as TDS and pay the net amount. The deductee can claim this TDS as tax already paid when filing their return. TDS ensures the government collects tax throughout the year rather than at year-end and brings more transactions into the tax net.
Key compliance requirements for deductors:
TDS on salary is not a flat rate. Employers estimate the employee's annual tax liability based on the applicable regime (old or new — see our Income Tax Calculator) and deduct TDS proportionately each month. No TDS if annual salary is below the taxable threshold.
Bank and post office interest attracts 10% TDS if interest in a financial year exceeds Rs 40,000 (Rs 50,000 for senior citizens). Example: If a senior citizen earns Rs 70,000 interest, TDS is 10% on the full Rs 70,000 = Rs 7,000.
1% for individual/HUF contractors, 2% for others. Threshold: Rs 30,000 single payment or Rs 1,00,000 aggregate in a year. Example: A company pays a contractor Rs 1,50,000 in the year — TDS = 2% × 1,50,000 = Rs 3,000.
5% TDS on commission or brokerage exceeding Rs 15,000 (raised to Rs 20,000 in recent budgets — verify for your specific period). Example: Rs 50,000 commission — TDS = 5% × 50,000 = Rs 2,500.
2% TDS on rent of plant and machinery, 10% on rent of land, building, or furniture. Threshold: Rs 2,40,000 per year. Example: Annual rent of Rs 4,80,000 for an office — TDS = 10% × 4,80,000 = Rs 48,000.
5% TDS on rent paid by individuals or HUFs not covered by tax audit, if monthly rent exceeds Rs 50,000. Example: Rs 60,000 monthly rent — TDS = 5% × 60,000 = Rs 3,000 per month.
10% TDS on professional or technical fees exceeding Rs 50,000 in a year (threshold raised from Rs 30,000). Reduced rate of 2% applies to technical services. Example: Rs 2,00,000 consultancy fee — TDS = 10% × 2,00,000 = Rs 20,000.
0.1% TDS on payments by e-commerce operators to sellers, if aggregate exceeds Rs 5,00,000 per year. Example: A seller earns Rs 10,00,000 via an e-commerce platform — TDS = 0.1% × 10,00,000 = Rs 1,000.
0.1% TDS on purchases exceeding Rs 50,00,000 per seller per year (buyer must have turnover above Rs 10 crore). Example: A manufacturer buys Rs 80,00,000 goods from one supplier — TDS = 0.1% × 80,00,000 = Rs 8,000.
If the deductee's total income is below the taxable limit, they can apply to the Assessing Officer using Form 13 for a lower deduction or nil deduction certificate under Section 197. Once issued, the deductor deducts TDS at the lower or nil rate specified.
1% TDS on sale of immovable property (other than agricultural land) where the sale consideration or stamp duty value exceeds Rs 50,00,000. This applies even if the buyer has no taxable income. Example: A property sells for Rs 85,00,000 — the buyer deducts Rs 85,000 as TDS and pays Rs 84,15,000 to the seller.
TDS or Tax Deducted at Source is a mechanism where the payer deducts a percentage of the payment as tax before paying the recipient and deposits it with the government. It applies to salaries, professional fees, rent, interest, commission, and other specified payments.
Under Section 194I, TDS on rent paid to individuals is 2% if rent exceeds Rs 50,000 per month or Rs 6,00,000 per year. For individuals and HUFs not covered by audit, Section 194IB applies 5% TDS on rent above Rs 50,000 per month.
If the TDS deducted exceeds your actual tax liability, you can claim a refund by filing your income tax return. The refund is credited to your bank account after processing by the CPC.
TDS compliance touches almost every business transaction and many individual payments in India. Knowing the right section, rate, and threshold prevents penalties and ensures smooth tax filing. Pair our TDS Calculator with the GST Calculator and Income Tax Calculator to handle all your tax obligations in one place.
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