No. TDS is advance collection of the payee's own income tax, not an additional tax. The deducted amount appears in the payee's Form 26AS and Annual Information Statement, and is set off against their final tax for the year. If the TDS is more than the tax actually payable, the excess is refunded after the return is processed.

What is the TDS rate on professional fees in 2026?

Fees for professional services such as a CA, lawyer, architect or consultant attract 10% TDS once payments to that person cross ₹50,000 in the year. Fees for technical services, and call-centre businesses, attract 2%. The threshold rose from ₹30,000 to ₹50,000 from 1 April 2025.

What happens if TDS is not deducted or deposited on time?

You pay interest of 1% a month if you fail to deduct and 1.5% a month if you deduct but deposit late, and the expense can be partly disallowed in your own income tax computation. Filing the quarterly statement late costs a fee of ₹200 a day, capped at the TDS amount, and penalties can follow for not filing at all.

Did TDS rates change under the new Income-tax Act 2025?

No. From 1 April 2026 the 1961 Act's sections 192 to 194T were folded into sections 392 and 393 of the Income-tax Act 2025, but the Income Tax Department has stated that rates and monetary thresholds were carried over unchanged. What changed is the section you quote, the payment codes and the form numbers — for example Form 26Q became Form 140.

Every person required to deduct or collect tax at source needs a TAN (Tax Deduction and Collection Account Number), a 10-character number you must quote on every TDS challan, statement and certificate. Companies, firms, LLPs and audited proprietors generally need one. Salaried individuals buying property or paying high rent can use their PAN instead.

Income tax & TDS

What is TDS? Meaning, Rates, Thresholds and Due Dates for Businesses in 2026

What is TDS in 2026: meaning, 194C/194J/194H/194I/194Q rates and the Finance Act 2025 thresholds, TAN, due dates, Forms 138/140 and the new section 393.

Edited by Sumeet YadavFounder & editor, MSMETOOLS · fact-checked against official sources

Updated October 2026 Verified against official sources 7 October 2026 13 min read

What is TDS — meaning, rates and due dates — MSMETOOLS guide cover

Contents (10)

1. TDS meaning: how tax deducted at source works
2. Who has to deduct TDS
3. TDS rates and thresholds for common business payments
4. Worked examples in ₹
5. TAN: the number you need before deducting
6. How TDS compliance works, step by step
7. TDS return forms and due dates for 2026
8. Interest, late fees and disallowance
9. What changed under the Income-tax Act 2025
10. What to do next

TDS shows up on almost every business payment in India: the contractor's bill, your CA's fee, the office rent, a big supplier's invoice. Get it wrong and the expense can be disallowed, interest runs every month and late fees pile up per day. This guide is for MSME owners, accountants and freelancers who want a clear answer to "what is TDS" plus the working detail: the rates and the Finance Act 2025 thresholds, TAN, deposit and return dates, certificates, and what changed when the Income-tax Act 2025 took over on 1 April 2026.

Quick answer

TDS (Tax Deducted at Source) means the payer keeps back a set percentage of certain payments — salary, contract work, professional fees, rent, commission, interest, large purchases — and deposits it with the government against the payee's PAN. The payee claims it as a credit in their own return. From 1 April 2026 the rules sit in section 393 of the Income-tax Act 2025, but rates and thresholds did not change.

Contractors: 1% (individual/HUF) or 2%, above ₹30,000 a bill or ₹1,00,000 a year
Professional fees: 10% above ₹50,000 a year; rent of buildings: 10% above ₹50,000 a month
Deposit by the 7th of the next month; March deductions by 30 April
Quarterly statements due 31 July, 31 October, 31 January and 31 May
No PAN from the payee: 20% or the normal rate, whichever is higher

TDS meaning: how tax deducted at source works

TDS is a way of collecting income tax at the moment income is paid, instead of waiting for the earner to file a return. The law names the payments covered, a rate for each and a yearly or per-payment threshold below which nothing is deducted.

Four people are involved in every TDS transaction:

Deductor — the payer (your business). It deducts the tax, deposits it, files a quarterly statement and issues a certificate.
Deductee — the payee (the contractor, landlord, CA). They receive the net amount and claim the TDS as a credit.
The government — receives the money through a challan quoting the deductor's TAN.
The tax department's systems — match the statement to the deductee's PAN so the credit shows in their Form 26AS and Annual Information Statement (AIS).

A simple example: you pay a consultant ₹1,00,000 for a project. You deduct 10%, i.e. ₹10,000, pay the consultant ₹90,000 and deposit ₹10,000 with the government. When the consultant files their return, the ₹10,000 counts as tax already paid. TDS is therefore not an extra tax on the payee — it is an advance on their own tax.

TDS at a glance (2026)

7th of the next month

Deposit due date

30 April for March

₹50,000

194J threshold

up from ₹30,000 in 2025

₹50,000 a month

Rent threshold

was ₹2.4 lakh a year

₹200 a day

Late statement fee

capped at TDS amount

Who has to deduct TDS

Salary TDS applies to every employer whose employees' estimated taxable income is above the basic exemption. For business payments, the obligation falls on:

Companies, LLPs, partnership firms, trusts and co-operatives — always, once the payment crosses the threshold.
Individuals and HUFs running a business or profession whose turnover in the previous year exceeded ₹1 crore (business) or ₹50 lakh (profession) — the same people who fall under tax audit.
Other individuals and HUFs are generally outside 194C, 194H and 194J, but must deduct 2% on contract work, commission or professional fees above ₹50 lakh a year (old section 194M), and on rent above ₹50,000 a month (old 194-IB) — using their PAN, without a TAN.

A small proprietor with ₹80 lakh turnover who pays a carpenter ₹50,000 does not deduct TDS. A private limited company paying the same carpenter does.

TDS rates and thresholds for common business payments

These are the payments an MSME meets most often. Rates were confirmed against the Income Tax Department's rate chart and the thresholds against its threshold list in October 2026; the Finance Act 2025 increases apply from 1 April 2025 and carry over into section 393.

Old section	Payment	Rate	No TDS if payment does not exceed	Section 393 reference
192	Salary	Slab rate	Basic exemption	Section 392
194C	Contractors and sub-contractors	1% individual/HUF, 2% others	₹30,000 a bill and ₹1,00,000 a year	393(1) Table Sl. 6(i)
194J	Professional fees	10%	₹50,000 a year	393(1) Table Sl. 6(iii)
194J	Technical services, call centres	2%	₹50,000 a year	393(1) Table Sl. 6(iii)
194H	Commission or brokerage	2%	₹20,000 a year	393(1) Table Sl. 1
194-I	Rent — land, building, furniture	10%	₹50,000 a month	393(1) Table Sl. 2(ii)
194-I	Rent — plant and machinery	2%	₹50,000 a month	393(1) Table Sl. 2(ii)
194Q	Purchase of goods (buyer turnover above ₹10 crore)	0.1% on the excess	₹50 lakh a year per seller	393(1) Table Sl. 8(ii)
194A	Interest by a non-bank (e.g. on an unsecured loan)	10%	₹10,000 a year	393(1) Table Sl. 5(ii)
194T	Salary, interest, commission to a partner	10%	₹20,000 a year	393

Three points that trip people up:

The contractor test is either/or. Deduct if a single bill is above ₹30,000, or if the total for the year goes above ₹1,00,000.
Rent is now monthly. Since 1 April 2025 the test is ₹50,000 a month for a month or part of a month, replacing the old ₹2,40,000 a year.
Manpower supply is contract work. The Finance Act 2026 placed supply of manpower within "work" from 1 April 2026, ending the debate over whether 194C or 194J applied — it is 1% or 2%.

If the payee has not given a valid PAN, deduct at 20% or the normal rate, whichever is higher (old section 206AA, now section 397(2)). Since 1 April 2025 the separate higher rate for people who had not filed returns (206AB) no longer applies.

A calculator resting on printed tax paperwork — TDS is held back from the payment itself — the payee receives the net amount and claims the rest as tax already paid.· Image: Images_of_Money (CC BY 2.0)

Worked examples in ₹

1. Transport contractor (individual). You pay a proprietor ₹40,000 for one consignment. The bill is above ₹30,000, so deduct 1%: ₹400. Pay ₹39,600. If the transporter were a company, TDS would be 2%: ₹800.

2. Your CA's fees. Quarterly fees of ₹15,000 add up to ₹60,000 for the year. Once the total crosses ₹50,000, TDS at 10% applies to the full ₹60,000 — ₹6,000 for the year, so deduct the shortfall from the bill that crosses the limit.

3. Office rent. Rent of ₹60,000 a month exceeds ₹50,000 a month, so deduct 10% — ₹6,000 every month. If the rent were ₹45,000, there would be no TDS under this provision.

4. Large supplier. Your turnover last year was ₹15 crore and you buy ₹80 lakh of raw material from one supplier this year. TDS at 0.1% applies only to the amount above ₹50 lakh: 0.1% × ₹30 lakh = ₹3,000.

5. Sales agent with no PAN. Commission of ₹25,000 is above ₹20,000. With a PAN you would deduct 2% (₹500); without one, 20% — ₹5,000.

Try it — TDS on a professional fee

Payment AmountNature of Payment (Section)

Payee PAN

Payment Amount₹60,000.00

Section194J

TDS Rate10%

TDS to Deduct₹6,000.00

Net Payable to Payee₹54,000.00

Open the full TDS Calculator (PDF, save, compare)

TAN: the number you need before deducting

A TAN (Tax Deduction and Collection Account Number) is a 10-character alphanumeric number (for example, MUMA12345B) that identifies you as a deductor. You quote it on every challan, quarterly statement and TDS certificate; a PAN cannot be used in its place for business deductions.

Apply online with Form 135 (Form 134 for government deductors — these replaced Form 49B from 1 April 2026 under the Income-tax Act, 2025) through the Protean TIN facilitation site or the e-filing portal; see our TAN registration guide. You need the entity's PAN, address and the details of the person responsible for deducting. One TAN per legal entity is normal; branches can take separate TANs if they deduct independently.

Individuals who only deduct on buying property or on rent above the limit do not need a TAN — they deposit with a challan-cum-statement under their PAN (Form 141 under the new rules, which replaced Forms 26QB, 26QC, 26QD and 26QE).

How TDS compliance works, step by step

The TDS cycle for one payment

Step 1

Check rate & threshold

Step 2

Deduct at credit or payment (earlier)

Step 3

Deposit by challan

7th of next month

Step 4

Quarterly statement

Form 138 / 140

Step 5

Issue certificate

Form 130 / 131

Step 6

Payee claims credit in AIS / 26AS

When to deduct. TDS is due when the amount is credited to the payee's account in your books or when you pay, whichever comes first. Booking a December invoice on 31 December means TDS is deductible in December even if you pay in February.

Deposit. Pay through the e-Pay Tax facility on the e-filing portal or your bank using the TDS/TCS challan (ITNS 281), quoting your TAN, the section or payment code and the period. Non-government deductors deposit by the 7th of the next month; tax deducted in March is due by 30 April.

Quarterly statement. File the TDS return listing each deductee's PAN, amount paid, TDS and the challan it went into. File through the TRACES/e-filing utilities or your software.

Certificate. Download the certificate from TRACES and give it to the deductee. Self-made certificates are not valid.

TDS return forms and due dates for 2026

The Income-tax Rules, 2026 renumbered every TDS form from 1 April 2026. Use the old forms only for periods up to 31 March 2026 (including the Q4 2025-26 statements filed in May 2026); never mix the two series in one statement.

Old forms vs new forms (from 1 April 2026)

What it is	Up to 31 March 2026	From 1 April 2026
Quarterly statement — salary	Form 24Q	Form 138
Quarterly statement — other payments to residents	Form 26Q	Form 140
Quarterly statement — payments to non-residents	Form 27Q	Form 144
Quarterly TCS statement	Form 27EQ	Form 143
TDS certificate — salary (annual)	Form 16	Form 130
TDS certificate — other payments (quarterly)	Form 16A	Form 131
Annual tax credit statement	Form 26AS	Form 168
No-deduction declaration	Form 15G / 15H	Form 121

Quarterly statement — salary

Up to 31 March 2026: Form 24Q
From 1 April 2026: Form 138

Quarterly statement — other payments to residents

Up to 31 March 2026: Form 26Q
From 1 April 2026: Form 140

Quarterly statement — payments to non-residents

Up to 31 March 2026: Form 27Q
From 1 April 2026: Form 144

Quarterly TCS statement

Up to 31 March 2026: Form 27EQ
From 1 April 2026: Form 143

TDS certificate — salary (annual)

Up to 31 March 2026: Form 16
From 1 April 2026: Form 130

TDS certificate — other payments (quarterly)

Up to 31 March 2026: Form 16A
From 1 April 2026: Form 131

Annual tax credit statement

Up to 31 March 2026: Form 26AS
From 1 April 2026: Form 168

No-deduction declaration

Up to 31 March 2026: Form 15G / 15H
From 1 April 2026: Form 121

TDS calendar for tax year 2026-27

7th of every month

Deposit TDS deducted in the previous month

31 July 2026

Q1 (April–June) statement — Forms 138, 140, 144

15 August 2026

Q1 Form 131 certificates to deductees

31 October 2026

Q2 (July–September) statement

31 January 2027

Q3 (October–December) statement

30 April 2027

Deposit TDS deducted in March 2027

31 May 2027

Q4 (January–March) statement

15 June 2027

Form 130 (salary) and Q4 Form 131 certificates

Non-salary certificates (Form 131, formerly 16A) are due within 15 days of the statement due date each quarter. Salary certificates (Form 130, formerly Form 16) are issued once a year by 15 June.

Aayakar Bhawan, the Income Tax Department building in Kolkata — TDS statements are processed centrally — mismatched PANs or challans show up as defaults on TRACES, not at your local tax office.· Image: Biswarup Ganguly (CC BY 3.0)

Interest, late fees and disallowance

Missing a step is expensive because the costs stack:

Interest for not deducting: 1% a month (or part of a month) from the date tax was deductible to the date it is actually deducted.
Interest for late deposit: 1.5% a month (or part) from the date of deduction to the date of deposit. This must be paid before the statement can be filed.
Late fee for the statement: ₹200 a day until you file, capped at the TDS amount. A Q1 statement for ₹20,000 of TDS filed 25 days late costs ₹5,000.
Penalty of ₹10,000 to ₹1 lakh can apply if the statement is not filed within a year of the due date or contains incorrect details.
Disallowance: if you fail to deduct or deposit TDS on a payment to a resident, 30% of that expense is disallowed when computing your own business income, until the TDS is paid.

As a deductee, check your AIS and Form 26AS before you file. If TDS was deducted but is missing, ask the deductor to correct the PAN or challan in a revised statement — the credit follows the statement, not the certificate.

What changed under the Income-tax Act 2025

The Income-tax Act 2025 replaced the 1961 Act from 1 April 2026, and "previous year/assessment year" became a single tax year. For TDS:

Sections merged. Sections 192 to 194T became section 392 (salary) and section 393, a set of tables for residents, non-residents and any person. TCS moved to section 394.
Rates and thresholds retained. The Income Tax Department's e-filing help says the rates and monetary thresholds were carried over as they were.
New payment codes. Challans and statements quote section 393 table items and four-digit payment codes instead of "194C".
Transition rule. If the earlier of credit or payment happened on or before 31 March 2026, the old Act applies; if on or after 1 April 2026, the new Act applies.
New forms as shown in the table above.

Official links

What to do next

Before your next vendor payment, run the amount through our free TDS calculator to get the deduction and net payable. If you run payroll, add professional tax to your deductions and generate payslips with the salary slip generator. For your own invoices, our invoice generator shows the amount your customer will pay after TDS.

This is general information, not legal or tax advice — confirm on the official source or with a professional.

Frequently asked questions

TDS stands for Tax Deducted at Source. The person making a payment — an employer, a business paying a contractor, a tenant paying rent — keeps back a fixed percentage of the payment as income tax and deposits it with the government in the payee's name. The payee then claims that amount as a credit against the tax on their own income tax return.

Sources & verification

Figures on this page were checked against the sources below when it was last reviewed on 7 October 2026. Each rate and limit is stored once with its own official source and review date, and official update channels are monitored daily so changes are picked up. How we verify

1.TDS Rates (provisions as amended by the Finance Act, 2026) — Income Tax Department, Government of India · accessed 7 October 2026
2.Threshold limits under Income-tax Act — Income Tax Department, Government of India · accessed 7 October 2026
3.TDS Compliance — e-Filing help — Income Tax Department (e-Filing portal) · accessed 7 October 2026
4.Slew of direct tax reforms proposed in Union Budget 2025-26 — Press Information Bureau, Ministry of Finance · accessed 7 October 2026
5.TDS / TCS Rate Chart Tax Year (FY 2026-27) — TDSMAN · accessed 7 October 2026
6.Key TDS / TCS proposed changes in Budget 2026-27 — TDSMAN · accessed 7 October 2026
7.Income-tax Act 2025 — TDS compliance guide — CompuTax · accessed 7 October 2026
8.TDS returns under the Income Tax Act 2025: forms, due dates and filing procedure — CAclubindia · accessed 7 October 2026

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We provide tools, guides and information for general educational purposes only. Always refer to official government websites for the latest and most accurate information.