TDS explained: who deducts, when and how it flows
2 min read
Updated 03 Oct 2026
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AI summary
The payer cuts tax from a payment and pays it to the government on the receiver's behalf. Here is the full cycle.
5 sections
What TDS is
TDS (Tax Deducted at Source) means the person making a payment keeps back a small part of it as tax and deposits it with the government. The receiver gets credit for that tax against their own income tax.
Example: you pay a contractor ₹1,00,000. You deduct 1% TDS (₹1,000), pay the contractor ₹99,000 and deposit ₹1,000 with the government.
Where it sits in the law
From 1 April 2026 the Income-tax Act, 2025 groups all TDS into three sections:
| Section | Covers | Old 1961 sections |
|---|---|---|
| 392 | TDS on salary | 192 |
| 393 | All other TDS (rent, contract, fees, interest, commission, etc.) | 193 to 194T |
| 394 | TCS (tax collected by the seller) | 206C |
The five steps
| Step | What you do | Deadline |
|---|---|---|
| 1. Get a TAN | Apply once for a Tax Deduction Account Number | Before the first deduction |
| 2. Deduct | Cut TDS when you book the expense or pay, whichever is earlier | On the date of credit or payment |
| 3. Deposit | Pay the TDS online with challan | 7th of next month (30 April for March) |
| 4. File the return | Quarterly TDS return: Form 140 (non-salary), Form 138 (salary), Form 144 (non-residents) | 31 Jul, 31 Oct, 31 Jan, 31 May |
| 5. Issue certificate | Form 131 (non-salary, quarterly) or Form 130 (salary, yearly) | 15 days after return due date / 15 June |
When you must deduct
- The payment type is covered (contract, professional fees, rent, commission, interest and so on).
- The amount crosses the yearly or single-payment limit.
- You are the right kind of payer. Most business payers must deduct. Individuals and HUFs not under tax audit deduct only in a few cases, such as rent above ₹50,000 a month or contract/professional payments above ₹50 lakh a year.
Key points
- Deduct on the amount before GST when GST is shown separately on the bill.
- If the receiver has no PAN, TDS is generally 20% (old 206AA).
- The receiver sees the credit in Form 168 (earlier Form 26AS) only after you deposit and file the return.
See also: TDS rate chart, TDS due dates, and interest and fees for late TDS.
Law as of September 2026. Verify against the latest notifications before relying on it for filings.
Sources
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