Tax Deducted at Source (TDS) is a mechanism under the Income Tax Act that ensures tax is collected at the time income is paid, rather than later at the time of filing returns. It helps the government receive tax revenue throughout the year and makes it easier to track taxable income.
What is TDS?
TDS stands for Tax Deducted at Source. It means a person making specified payments must deduct tax from the payment and deposit it with the government.
- The person deducting TDS is called the Deductor
- The person receiving the payment is called the Deductee
The deductee receives the net amount (after TDS), but the gross income is considered for tax calculation. The TDS amount deducted is reflected in the deductee’s PAN and is adjusted against their final tax liability. If total TDS exceeds final tax payable, the excess is refunded after filing the Income Tax Return (ITR).
Applicability of TDS
TDS applies when:
A specified payment is made such as salary, rent, interest, commission, contract payments, professional fees, etc.
The payment exceeds the threshold limit prescribed under the law.
Key rules:
- If the total payment does not exceed the threshold limit for that section, no TDS is required.
- If the payee submits Form 15G/15H declaring income below the taxable limit, TDS may not be deducted (subject to rules).
- Different payments have different rates and thresholds.
To know the exact rate and limit, deductors must refer to the relevant TDS rate chart under the Income Tax Act.
Example of TDS Deduction
A company, Dine Pvt. Ltd., pays monthly office rent of ₹80,000.
- Applicable section: 194I (Rent)
- TDS rate: 10%
TDS = ₹80,000 × 10% = ₹8,000
Net payment to owner = ₹72,000
The owner will:
- Show ₹80,000 as income
- Claim credit of ₹8,000 TDS while filing ITR
TDS Due Dates for Deposits
TDS deducted must be deposited to the government on or before the 7th of the next month.
Examples:
- TDS deducted in June - deposit by July 7th
- TDS deducted in March - deposit by May 31st
- In case of property purchase (194-IA) - deposit within 30 days from end of the month of deduction
Delay attracts interest and penalties.
TDS Return Filing Due Dates
TDS returns are filed quarterly. Here are the due dates:
| Quarter | Period | Due Date |
| Q1 | Apr–Jun | July 31 |
| Q2 | Jul–Sep | Oct 31 |
| Q3 | Oct–Dec | Jan 31 |
| Q4 | Jan–Mar | May 31 |
How to Deposit TDS Online
TDS payments must be made through the Income Tax Portal using the TAN login.
Steps:
- Visit the Income Tax Portal
- Click on e-Pay Tax
- Make the payment using net banking/other modes
The older OLTAS system has been fully migrated to the new e-Pay Tax system.
Types of TDS Returns (Forms)
Different forms apply for different types of payments:
| Form | Applicable For | Due Dates |
| 24Q | Salary payments | Quarterly on July 31, Oct 31, Jan 31, May 31 |
| 26Q | Non-salary payments to residents | Same dates as above |
| 27Q | Payments to non-residents (except salary) | Same dates as above |
| 26QB | TDS on property purchase | Within 30 days from the end of the month |
| 26QC | TDS on rent under 194-IB | Within 30 days |
Returns must include TAN, PAN of deductees, amount deducted, and nature of payment.
TDS Certificates
Deductors must issue TDS certificates to deductees as proof of tax deducted.
| Certificate | For | Frequency | Issue Deadline |
| Form 16 | Salary | Yearly | May 31 |
| Form 16A | Non-salary payments | Quarterly | 15 days after the return due date |
| Form 16B | Sale of property | Per transaction | 15 days after filing 26QB |
| Form 16C | Rent under 194-IB | Per transaction | 15 days after filing 26QC |
TDS Credit in Form 26AS
Form 26AS is a consolidated statement showing:
- All TDS deducted
- Tax deposited against your PAN
- Advance/self-assessment taxes paid
Tips:
- Always verify whether a deductor has deposited TDS properly.
- Ensure the correct PAN is shared to avoid credit issues.
- Incorrect reporting can lead to mismatches and tax notices.
Penalty for Late Filing of TDS Returns
Under Section 234E:
- ₹200 per day late fee applies for delayed TDS returns
- The total fee cannot exceed the amount of TDS
The late fee must be paid before submitting the pending TDS return.
Difference Between TDS & Income Tax
| Basis | TDS | Income Tax |
| Collection Time | During payment | After total income calculation |
| Collected By | Payer (deductor) | Taxpayer |
| Purpose | Advance tax collection | Final tax liability |
| Filing | Deductor files TDS returns | Taxpayer files ITR |
| Applicability | Specified payments | Total annual income |
Conclusion
TDS is an essential compliance mechanism for both individuals and businesses. Understanding TDS deduction rules helps:
- Avoid penalties and interest
- Ensure correct tax credit in Form 26AS
- Smooth filing of income tax returns
- Maintain legal compliance
Deductors must check the applicable rate, threshold, due dates, and file returns on time, while deductees should verify their Form 26AS to claim correct TDS credit.
