Tax Deducted at Source (TDS)

Tax Deducted at Source (TDS) is a system where the payer deducts tax at the time of payment and deposits it with the government as advance tax on incomes like salary, interest, rent, and commission.
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What is TDS
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3 min
25-November-2025

TDS, or Tax Deducted at Source, is an integral part of India’s taxation system. It ensures timely tax collection while easing the burden on taxpayers at the end of the year. Whether it’s salary, rent, bank interest, or contractor payments, TDS applies to multiple income streams and acts as a steady inflow of tax revenue for the government.

Let’s dive into what TDS is, how it works, the rules around it, and how you can stay compliant without losing your mind (or your money).

What is TDS?

In India’s tax ecosystem, TDS plays a critical role. It is deducted at the source—meaning you don’t pay the entire sum of tax later; instead, it’s collected bit by bit through your earnings.

This applies to multiple sources such as salary, rent, interest, and commissions. Think of it as the government’s way of keeping the cash flow steady and ensuring that you don’t face a massive bill at year-end.


Applicability of TDS


  • Any person making specified payments under the Income Tax Act must deduct TDS at the time of making such payments.
  • Different types of payments are covered under different TDS provisions, and each category has a prescribed threshold limit.
  • If the total payment during a financial year does not exceed the applicable threshold, TDS is not required to be deducted.
  • If the payee submits Form 15G or Form 15H declaring that their total taxable income is below the basic exemption limit, TDS may not be deducted, subject to eligibility.
     

What are TDS rates?


  • TDS rates vary depending on the nature of the transaction and the profiles of the payer and payee.
  • TDS becomes applicable once the payment amount crosses the specified threshold limit.
  • Refer to the TDS rate chart for applicable rates and threshold limits across different payment categories.


 
 

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Example of TDS (Tax Deducted at Source)

Here’s a real-world example:

  • Scenario: Company ABC rents an office for Rs. 80,000/month.
  • Applicable TDS: 10%.
  • Calculation: Company ABC deducts Rs. 8,000 (10% of Rs. 80,000) and pays the landlord Rs. 72,000.
  • Deposit: That Rs. 8,000 goes directly to the government.

Result? The landlord gets slightly less, but their taxes are already partially settled.

Also Read: Tax Evasion


Tax Deducted at Source (TDS) Rules

Like traffic rules, ignoring TDS regulations can get expensive. Here’s the gist:

  • TDS must be deducted when the payment is due or made, whichever comes first.
  • Delay in deduction? You pay 1% monthly interest.
  • Delay in deposit? That’s 1.5% monthly interest until it’s cleared.
  • All TDS deducted must be deposited by the 7th of the next month.

While TDS is unavoidable, you can still maximise your post-tax earnings with safe and high-yield instruments like Bajaj Finance FDs. With assured returns, you know exactly how much you’ll earn. Check latest FD rates.


When should TDS be deducted, and who is liable to deduct it?


TDS applies to specific payments under the Income Tax Act. But here’s where it gets interesting:

  • Individuals/HUFs not under audit → No need to deduct TDS (with some exceptions).
  • On rent above Rs. 50,000/month → 5% TDS applies, even if you’re not under audit.
  • Forms like 15G/15H → Submit to avoid TDS if your income is below taxable limits.

Example: If you earn Rs. 20,000 in annual bank interest and your total income is below Rs. 4,00,000, filing Form 15G or 15H saves you from unnecessary TDS.


Types of TDS (Tax Deducted at Source)

TDS isn’t just for salaries. It applies across multiple income categories, such as:

  • Salary
  • Bank interest (including FD interest)
  • Brokerage/commission
  • Contractor payments
  • Insurance commission
  • Rent payments
  • Property transactions
  • Lottery winnings

If TDS is deducted on your FD interest, don’t worry—your returns still outshine many other investment options. Plus, you can always claim a refund if your income is below taxable limits. You can start investing now in Bajaj Finance FDs with just Rs. 15,000.

When and how to file TDS returns in India

A. Who needs to file?

Anyone responsible for deducting TDS must file returns.

B. Filing frequency:

  • Payments must be made by the 7th of the next month.
  • Returns are quarterly, with deadlines like 31st July, 31st Oct, 31st Jan, and 31st May.

C. Information required:

  • TAN (Tax Deduction Account Number)
  • PAN of deductee
  • Amount of TDS deducted
  • Type of payment

D. Forms you’ll need:

  • Form 24Q → Salaries
  • Form 26Q → All non-salary payments
  • Form 27Q → Payments to non-residents
  • Form 26QB → Property sales
  • Form 26QC → Rent

How to know the deducted TDS amount

Tracking TDS is simple:

  1. Register on the Income Tax Department portal.
  2. Login and go to My Account → View Form 26AS.
  3. Form 26AS will show all TDS entries linked to your PAN.
  4. Redirect to TRACES for detailed reports.

Due date for depositing TDS to the government

TDS must be deposited to the government on or before the 7th of the month following the month in which it was deducted.

  • Example:
    • TDS deducted in June must be deposited by 7th July.
    • TDS deducted in March can be deposited up to 31st May.
  • For TDS on property purchases (Section 194-IA), the due date is 30 days from the end of the month in which TDS is deducted.
  • Missing these deadlines may lead to interest and penalties under the Income Tax Act.

Quarterly Due Dates for Filing TDS Statements

QuarterPeriodDue Date
Q1April – June31st July
Q2July – September31st October
Q3October – December31st January
Q4January – March31st May


TDS returns

TDS returns must be filed on a quarterly basis, and the deductor needs to provide details such as TAN, amount of TDS deducted, nature of payment, PAN of the deductee, and other relevant information. The different TDS return forms are listed below:

Form NoTransactions reported in the returnDue date
Form 26QTDS on all payments other than salariesQ1 – 31st July 
Q2 – 31st October 
Q3 – 31st January 
Q4 – 31st May
Form 24QTDS on salary paymentsQ1 – 31st July 
Q2 – 31st October 
Q3 – 31st January 
Q4 – 31st May
Form 27QTDS on payments made to non-residents other than salariesQ1 – 31st July 
Q2 – 31st October 
Q3 – 31st January 
Q4 – 31st May
Form 26QBTDS on purchase or sale of property30 days from the end of the month in which TDS is deducted
Form 26QCTDS on rent payments30 days from the end of the month in which TDS is deducted


 

What is a TDS certificate?

A TDS certificate is an official document issued to the deductee, confirming the amount of tax deducted at source. It is mandated under Section 203 of the Income Tax Act, 1961.

There are two main types of TDS certificates:

1. Form 16 (For Salaried Individuals)

  • Issued by employers to their employees.
  • Contains details such as:
    • Income computation
    • TDS deducted
    • TDS deposited with the government
  • Must be provided to employees by 31st May of the following financial year.

2. Form 16A (For Non-Salaried Individuals)

  • Issued by deductors for payments like professional fees, interest, rent, etc.
  • Includes:
    • Tax calculation
    • TDS deduction details
    • TDS payment information

Both certificates help taxpayers verify TDS credits and are essential for filing income tax returns.

TDS and Income Tax: Differences between them

BasisTDSIncome Tax
DefinitionDeducted at sourcePaid on total income
When collectedAt payment timeAfter calculating annual income
PurposeAdvance collectionFinal settlement
Who deducts/paysPayer deductsRecipient pays
AdjustmentTreated as advance taxFinal tax after adjusting TDS


Uploading TDS statements on the Income Tax website

Steps:

  1. Visit Income Tax e-filing portal.
  2. Login with your TAN.
  3. Navigate → e-File → Income Tax Forms → File Income Tax Forms.
  4. Select the relevant form (24Q/26Q etc.).
  5. Validate with either:
    • DSC (Digital Signature Certificate)
    • EVC (Electronic Verification Code)

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Conclusion

TDS may feel like an annoying deduction, but it’s actually a system designed to keep tax compliance smooth and steady. By understanding the rules, filing returns on time, and using tools like Form 26AS, you can stay ahead of your tax game.

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Frequently asked questions

When is TDS 2%?

Under GST, TDS (Tax Deducted at Source) is applicable at a rate of 2% on payments made to suppliers of taxable goods and services, where the total value of supply exceeds Rs. 2.5 lakhs.

What is the meaning of TDS?

TDS, or Tax Deducted at Source, is a mechanism where a portion of income is deducted by the payer at the time of making specific payments and directly remitted to the government as advance tax collection.

What are the rules of TDS?

TDS rules mandate the payer to deduct tax at specified rates for payments like salary, rent, and commissions. Deductions vary based on thresholds, payment nature, and recipient category, with regular filing and timely deposit requirements.

What is TDS and how is it deducted?

TDS is an advance tax collection system deducted by the payer while making payments like salary, rent, or interest. The deducted amount is deposited with the government on behalf of the recipient, reducing their overall tax liability.

How does TDS work?

TDS works by deducting a specified percentage of tax from eligible payments at the source by the payer. The deducted amount is deposited with the government and reflects in the recipient’s tax account for filing returns.

What is TDS full in tax?

TDS stands for Tax Deducted at Source. It is a tax collection process ensuring tax deduction on eligible payments like salaries, rent, and professional fees, promoting regular tax inflow and minimising evasion.

Is TDS refundable?

 Yes, if you have paid excess tax, it will be refunded. File your Income Tax Return (ITR) to initiate the process. Once processed, the government refunds the excess amount directly to your bank account via ECS.

What is the TDS limit for rent in FY 2025-26?

For FY 2024-25, TDS on rent is applicable if the total annual rent paid exceeds Rs.  4,00,000. Individuals or HUFs (not subject to tax audit) must deduct 5% TDS under Section 194IB, while other entities deduct 10% under Section 194I.

What is the TDS rate for salary?

TDS on salary is deducted under Section 192 based on the employee’s applicable income tax slab after considering deductions and exemptions. There is no fixed percentage, as the rate varies according to the taxable income of the individual.

How is TDS calculated?

TDS is calculated using the formula:
Average Income Tax Rate = Total Income Tax Payable ÷ Estimated Annual Income
This method helps employers determine the TDS to be deducted from salaries each month. The total tax liability is computed as per the income tax slabs applicable, and then it’s spread evenly across the financial year.

What is TDS on tax amount?

TDS on salary is deducted according to the income tax slab applicable to the employee. For other income types like interest or professional fees, TDS is charged at fixed rates—generally between 10% to 20%—regardless of the total income. In such cases, TDS applies directly to the payment received rather than your overall earnings.

Who is responsible for deducting TDS?

Employers are required to deduct TDS from employees' monthly salaries and deposit it with the government by the 7th of the next month. In the case of rent payments or property sales, TDS must be deposited by the 30th of the following month.

Why should I consider an FD if TDS is deducted?
Why should I consider an FD if TDS is deducted?

Even after TDS, FDs remain one of the safest and most reliable ways to earn steady returns. Bajaj Finance FDs, in particular, offer higher-than-bank interest rates and flexible payout options to meet your goals. Check latest interest rates.

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