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Tax Deducted at Source (TDS), is a tax collection method introduced by the Income Tax Department. It helps gather tax at the point where income is generated. This system plays a key role in India’s tax structure. It supports regular tax collection and ensures better compliance. TDS helps reduce tax evasion by tracking payments. The responsibility to deduct and deposit TDS lies with the payer, such as an employer, bank, or business, depending on the type of transaction involved. In this blog, you will learn all about Tax deducted at source (TDS).
What is Tax Deducted at Source (TDS)?
Tax Deducted at Source (TDS) is a system introduced under the Income Tax Act, 1961. In this method, a part of the payment is deducted by the payer such as an employer, bank, or tenant, and deposited directly with the government. The balance amount goes to the payee. This helps in timely and consistent tax collection while reducing the chances of tax evasion. The taxpayer later receives credit for the amount deducted. The entire process is regulated by the Central Board of Direct Taxes (CBDT) under the Income Tax Department.
TDS is applicable to various categories of income and financial transactions as notified under the Income Tax Act. Below is a list of key income types where TDS must be deducted:
Why Is TDS Deducted?
Here are the key reasons for TDS deduction:
TDS helps the government collect taxes throughout the financial year. Instead of waiting for taxpayers to pay at the end of the year, the government receives money regularly from various sources. This steady flow supports government spending on infrastructure, healthcare, education, and public welfare. It also improves cash flow management for the exchequer and reduces dependence on delayed tax collections.
TDS ensures that tax gets paid before the income reaches the recipient. This system lowers the chances of non-payment or underpayment of tax. Since the payer deducts the tax at the time of the transaction, the recipient cannot avoid tax payments later. This acts as a preventive measure against tax evasion and makes the tax system more secure and dependable.
TDS creates a direct link between income and PAN (Permanent Account Number). Every time a payer deducts TDS, they submit details in a quarterly return. These returns build a digital trail of the recipient’s earnings. The government tracks all deductions and matches them with the recipient's tax return. This process promotes transparency and helps detect discrepancies in income declarations.
TDS spreads the tax liability across the year. Instead of paying a large sum at once while filing the income tax return, the taxpayer pays it in part through monthly or periodic deductions. This method reduces financial pressure and makes tax payments more manageable. It also simplifies budgeting for individuals and businesses.
TDS Applicability: Who Should Deduct and Who Bears It?
Here is a detailed explanation of TDS applicability:
Employers deduct TDS on salaries under Section 192 of the Income Tax Act. They calculate the employee’s total annual income, consider applicable deductions, and deduct TDS accordingly. The employer issues Form 16 as proof of TDS deducted and deposited with the Income Tax Department. This form helps employees file income tax returns.
Banks deduct TDS on interest paid on fixed deposits, recurring deposits, or other instruments if the total interest exceeds the threshold. For most individuals, the threshold is ?10,000, but for senior citizens, it is ?50,000. TDS on interest income falls under Section 194A. PAN is essential to apply the correct TDS rate. Without PAN, banks deduct TDS at a higher rate of 20%.
Any individual or business that makes specific payments such as contractor fees, professional fees, rent, insurance commission, or property purchase consideration must deduct TDS as per the respective sections of the Income Tax Act:
TDS applies when payments exceed the threshold mentioned under each section. The deductor must deposit the amount to the government account and file TDS returns.
A business deducts TDS under Section 194Q if its turnover exceeds Rs. 10 crores in the previous financial year and it purchases goods worth more than Rs. 50 lakh from a resident seller. The buyer deducts TDS at the rate of 0.1% on the amount exceeding Rs. 50 lakh. This provision prevents tax evasion in high-value business transactions.
Any person making a payment to a non-resident or foreign company deducts TDS under Section 195. This section applies to payments such as interest, royalties, technical fees, and other income taxable in India. The deductor must determine whether the payment is taxable and deduct TDS accordingly. If the recipient holds a certificate for a lower or nil rate under the Double Taxation Avoidance Agreement (DTAA), the deductor applies the reduced rate.
The employee receives a salary after the employer deducts TDS. The deducted amount appears in Form 26AS and Form 16. The employee calculates the total tax liability and claims credit for the TDS while filing the income tax return. If the TDS amount exceeds the actual tax liability, the employee receives a refund.
A person who earns interest or provides services receives payments after TDS. The bank or business deducts TDS before making the payment. The recipient includes the gross income (including TDS) in the income tax return and adjusts the deducted amount against the final tax liability. If the deducted amount is higher, the recipient claims a refund.
When a person sells property or high-value goods, the buyer deducts TDS before making the payment. The seller bears the TDS as it reduces the net amount received. However, the seller claims the deducted amount while filing the income tax return. The tax credit is reflected in Form 26AS, helping the seller to adjust the final tax liability.
Non-resident individuals or companies receive payments after the deductor applies TDS under Section 195. If a non-resident is eligible for a lower tax rate under a tax treaty, the deductor uses a certificate from the Assessing Officer or Form 15CA/CB. The non-resident reports the income and claims the TDS as a credit while filing the return in India or their home country, depending on treaty provisions.
Due Date for Depositing TDS to the Government in India
Tax Deducted at Source (TDS) must be paid to the government on or before the 7th day of the following month. Once TDS is deposited, the deductor must submit a TDS return. This return contains details of the amount deducted and paid to the government. The due date for filing the TDS return is the last day of the month after the quarter ends which ensures timely and accurate tax reporting.
There are various types of TDS return forms:
Form No | Applicable Transaction | Due Date |
---|---|---|
Form 26QB | TDS on sale of immovable property | Within 30 days from the end of the month of deduction |
Form 26QC | TDS on rent payments | Within 30 days from the end of the month of deduction |
Form 24Q | TDS on salary payments | Q1 – 31st JulyQ2 – 31st OctoberQ3 – 31st JanuaryQ4 – 31st May |
Form 26Q | TDS on all payments (except salary) to residents | Q1 – 31st JulyQ2 – 31st OctoberQ3 – 31st JanuaryQ4 – 31st May |
Form 27Q | TDS on payments (except salary) to non-residents | Q1 – 31st JulyQ2 – 31st OctoberQ3 – 31st JanuaryQ4 – 31st May |
TDS Rates and Thresholds (FY 2025–26)
Here are the TDS rates and thresholds chart for FY 2025–26 (AY?2026–27) based on official provisions as per the Finance Act, 2025 with effect from April 1, 2025:
Section | Nature of Payment | Threshold | TDS Rate |
---|---|---|---|
192 | Salary | As per applicable slab (new tax regime) | As per slab |
193 | Interest on securities | Nil | 10% |
194A | Interest other than securities | ?10,000 (bank), ?5,000 (others) | 10% |
194B | Lottery, crossword, gambling winnings | ?10,000 (per transaction) | 30% |
194BB | Horse race winnings | ?10,000 | 30% |
194C | Payments to contractors/sub-contractors | ?30,000 (single), ?1,00,000 (aggregate) | Ind./HUF: 1%, Others: 2% |
194D | Insurance commission | ?15,000 | Ind./HUF: 5%, Others: 10% |
194DA | Payout under life-insurance policy | ?1,00,000 | 1% |
194E | Payments to non-resident sportsman/association | Nil | 20% |
194EE | Payment under NSS | ?2,500 | 10% |
194G | Commission on sale of lottery tickets | ?15,000 | 5% |
194H | Brokerage/commission | ?15,000 | 2% |
194I | Rent (land/furniture/building vs machinery/plant) | ?2.4L/year (land/building); NIL for machinery | 10% / 2% |
194IA | Purchase of immovable property (except agri land) | ?50L | 1% |
194IB | Rent by individuals/HUF (not subject to audit) | ?50,000 per month | 5% |
194J | Professional/technical fees, royalty | ?30,000 | 10% |
194LA | Compensation on compulsory property acquisition | ?2,50,000 | 10% |
194LB | Interest on infra development bonds (NRI) | Nil | 5% |
194LC | Interest on long-term foreign-currency loans/bonds | Nil | 5% |
194N | Cash withdrawals (non-filers, past 3 years) | ?20L–?1Cr: 2%; >?1Cr: 5% | – |
194Q | Purchase of goods by resident (non-company/HUF) | >?50L | 0.1% |
194P | Pension/interest to senior citizens (≥75 years) | As per slab | As per slab |
194R | Benefits/perquisites to business/profession | ?20,000 | 10% |
194S | Payment on transfer of Virtual Digital Assets | ?10,000 | 1% |
TDS Certificate
A TDS certificate is a legal document provided by a person who deducts tax, such as an employer, bank, or tenant. It confirms the amount of tax deducted and paid to the government as required under Section 203 of the Income Tax Act. This includes:
Procedures to Pay TDS Online
Here are the procedures to pay TDS online:
Here are the prerequisites:
A valid TAN is required. It identifies the deductor and is mandatory for all TDS payments except for specific cases like property or rent where PAN may be used instead.
The deductor may either log in using their credentials or proceed without logging in. For pre-login access, the deductor must enter a TAN or PAN, a mobile number, and verify with an OTP.
The mobile number should be active to receive the OTP needed to initiate the payment process.
Prepare one of the accepted payment methods: net banking, debit card
Step-by-Step Procedure to Pay TDS Online
Here is a step-by-step process to pay TDS online:
Step 1: Generate Challan Reference Number (CRN)
Begin the TDS payment process by visiting the official Income Tax e-Filing portal and selecting the “e-Pay Tax” option. If you are not logged in, enter your TAN or PAN along with a mobile number. Submit the OTP received to proceed. If you are already logged in, go to e-File → e-Pay Tax → New Payment. Select the “TDS/TCS” option as your tax type. Then choose the relevant payment category such as “TDS on Salary,” “TDS on Interest,” or others. Select the correct assessment year and choose the appropriate minor head, such as 200 for TDS on payments other than salary. Once completed, a Challan Reference Number (CRN) is generated.
Step 2: Fill in the Challan Details
After receiving the CRN, a form appears where you must fill in specific details. Select the payment type and mention the nature of the transaction such as salary, interest, or commission. Provide the total amount paid to the recipient and the exact TDS amount deducted. Ensure that the details match your accounting records. The portal shows a summary for review. Verify all entries carefully. Once satisfied, click “Proceed” to move to the payment mode selection.
Step 3: Select the Mode of Payment
Choose a payment method that suits your needs. Use Net Banking for direct bank transfers through authorized banks. Debit Cards issued by banks like SBI, PNB, and ICICI are also accepted without additional charges. If your bank is not authorized, select a Payment Gateway that supports UPI, debit card, or credit card. For large payments, opt for RTGS/NEFT. A mandate form is generated and must be submitted to your bank. If you prefer to pay offline, choose Pay at Bank Counter and submit the challan at an authorized bank within 15 days.
Step 4: Complete the Payment
You are redirected to the chosen bank’s payment portal. Complete the transaction and authorize the payment. On success, a confirmation message appears. You also receive an email and SMS containing the Challan Identification Number (CIN). Save and download the receipt from the portal.
Step 5: Record and Use Payment Details
Keep the CIN safe, as it must be quoted during TDS return filing. The receipt is essential for records and audit purposes. Always make the payment within 15 days of CRN generation to avoid invalidation.
How to Check the TDS Payment Status?
Here are the procedures to check the TDS payment status:
Step 1: Log in to the e-Filing Portal
Go to the official e-Filing website of the Income Tax Department. Enter your login credentials, which include the PAN or TAN as the User ID and your account password. Use the correct captcha code to access your dashboard securely. This portal provides all tax-related services under one roof, including the ability to check TDS payment status.
Step 2: Go to “e-Pay Tax” and Access “Payment History”
Once logged in, locate the “e-Pay Tax” option from the dashboard menu. Click on it and then select “Payment History.” This section contains all your previously generated payment challans and their current status. Alternatively, you may also go to “Challan Status Inquiry” under the “Working with Payments” section. This option helps users check the challan status without logging in if the Challan Reference Number (CRN) and mobile number are available.
Step 3: Find the Challan Reference Number (CRN)
In the Payment History, search for the specific TDS payment using the CRN. The CRN is a unique 14-digit number generated at the time of challan creation. It is essential to track or verify the status of your payment. You must correctly match the CRN with the transaction to ensure you view the right entry.
Step 4: Read the Payment Status Clearly
Each CRN entry displays the payment status. If the status shows “Payment Not Initiated,” it means that the challan is generated, but payment is not started. “Initiated” indicates the transaction is in progress. “Awaiting Bank Confirmation” means the bank has not yet confirmed the payment. “Paid” confirms the successful deposit of TDS to the government account. If the status shows “Payment Failed” or “No Response,” it suggests an issue during the transaction. In such cases, refer to the FAQ section or contact your bank.
Step 5: Confirm Receipt with Challan Identification Number (CIN)
After a successful payment, the system generates a Challan Identification Number (CIN). This CIN is displayed along with the payment date in your Payment History. It serves as the official acknowledgment of the payment. Always save this CIN for future use, especially when filing TDS returns. The CIN ensures that the tax deducted is properly linked with your return.
This process helps users confirm their TDS payment status in a timely and accurate manner, reducing the risk of compliance issues.
Conclusion
Tax Deducted at Source (TDS) is an essential mechanism that ensures timely tax collection and better compliance across various transactions in India. It spreads the tax burden evenly, helps track income, and reduces the chance of tax evasion. Staying compliant with TDS rules, filing returns on time, and keeping proper records are crucial for both individuals and businesses. Understanding TDS strengthens tax planning, avoids penalties, and contributes to better financial discipline throughout the financial year. If you want to file a TDS return, contact Online Legal India to get assistance.