TDS in India — FY 2025-26 (AY 2026-27) Complete Overview

What TDS is — and why it exists

Tax Deducted at Source (TDS) is a “pay-as-you-earn” mechanism introduced by the Government of India to ensure a steady stream of revenue throughout the year while curbing tax evasion. Under this system, any person or entity (the deductor) making a specified type of payment (salary, rent, interest, professional fees, etc.) to another person (the deductee) is legally obligated to withhold a defined percentage as tax.

The deducted amount is remitted directly to the Central Government against the deductee’s PAN. The deductee then claims this pre-paid tax as a credit against their total income tax liability when filing their annual return.

For execution support, see the TDS Return Filing service.

The TDS framework — five obligations

To maintain compliance and avoid penal interest, a deductor must execute the following five-step lifecycle:

1. Obtain a TAN: procure a 10-digit alphanumeric Tax Deduction and Collection Account Number. Exception: Individuals/HUFs using Sections 194-IA, 194-IB, or 194M can deduct using their PAN.
2. Deduct tax: withhold tax at the correct rate prescribed by the relevant section, at the time of crediting the payee’s account or making actual payment, whichever is earlier. (For salaries, deduction happens at the time of payment.)
3. Deposit the tax: remit deducted TDS to the Government via Challan ITNS 281 by the 7th of the subsequent month. TDS deducted in March must be deposited by 30 April.
4. File quarterly returns: submit details of all deductions and deductees to the Income Tax Department through forms 24Q, 26Q, 27Q, and 27EQ.
5. Issue TDS certificates: provide the deductee with a formal certificate (Form 16, 16A, etc.) downloaded from the TRACES portal.

Major TDS sections — operational map

The Finance Act 2025 introduced landmark changes to ease compliance: lowering several TDS rates, raising threshold limits, introducing the new Section 194T for partnership firms (per Finance (No. 2) Act 2024), and omitting Section 206AB (higher penal rates for non-filers). All changes take effect from 1 April 2025 unless otherwise specified.

Reference for TDS sections applicable for FY 2025-26 (AY 2026-27):

Section	Nature of payment	FY 2025-26 threshold	Current TDS rate
192	Salary	Basic exemption limit	Average slab rate
192A	Premature PF withdrawal	₹50,000	10%
193	Interest on securities	₹10,000	10%
194	Dividends	₹5,000	10%
194A	Interest (banks, post office, co-op)	₹50,000 individuals; ₹1,00,000 senior citizens (per Finance Act 2025)	10%
194A	Interest from others (unsecured loans)	₹10,000	10%
194B / 194BB	Lottery, puzzles, horse races	₹10,000	30%
194BA	Winnings from online games	No threshold	30%
194C	Payments to contractors / sub-contractors	₹30,000 single or ₹1,00,000 aggregate FY	1% (individual/HUF payee), 2% (others)
194D	Insurance commission	₹15,000	5%
194DA	Maturity of life insurance policy	₹1,00,000	5% (on income component)
194G	Commission on lottery tickets	₹15,000	5%
194H	Commission or brokerage	₹20,000 (per Finance Act 2025)	2% (reduced from 5%)
194-I(a)	Rent — plant, machinery, equipment	₹50,000 per month (per Finance Act 2025)	2%
194-I(b)	Rent — land, building, furniture	₹50,000 per month (per Finance Act 2025)	10%
194-IA	Immovable property purchase (non-agri)	₹50,00,000	1% (on consideration or stamp value, higher)
194-IB	Rent paid by individuals/HUFs (non-audit)	₹50,000 per month	2% (reduced from 5%)
194-IC	Joint Development Agreement (JDA)	No threshold	10%
194J(a)	Royalties, technical fees, call centre	₹30,000	2%
194J(b)	Professional services	₹30,000	10%
194K	Income from mutual funds	₹10,000	10%
194LA	Compulsory acquisition of property	₹2,50,000	10%
194LBC	Income from securitisation trusts	No threshold	10% (reduced per Finance Act 2025)
194LD	Interest to FII on rupee bonds	No threshold	5%
194M	Contractor / commission / professional payments by non-audit individuals/HUFs	₹50,00,000 annual	2% (reduced from 5% effective 1 October 2024 per Finance (No. 2) Act 2024)
194N	Cash withdrawal (bank / co-op / post office)	> ₹1 crore	2%
194N	Cash withdrawal (if ITR not filed)	₹20 lakhs to ₹1 cr / > ₹1 cr	2% / 5%
194O	E-commerce operator payments to participant	₹5,00,000	0.1%
194P	Super senior citizens (75+) pension + interest	Basic exemption	Slab rates
194Q	Purchase of goods (> ₹10 cr turnover buyer)	₹50,00,000	0.1%
194R	Business benefits or perquisites	₹20,000	10%
194S	Transfer of Virtual Digital Assets (crypto)	₹10,000 / ₹50,000	1%
194T	Payment by partnership firm / LLP to partners (salary, interest, bonus, commission)	₹20,000	10% (NEW section per Finance (No. 2) Act 2024, effective 1 April 2025)
195	Payments to non-residents	Varies	As per Act or DTAA (e.g., 12.5% LTCG, 20% STCG equity)

(Note: under Section 206AA, if the deductee fails to provide a valid PAN, TDS must generally be deducted at a flat rate of 20%, or the applicable rate, whichever is higher.)

TCS — Section 206C

Tax Collected at Source (TCS) shifts the burden to the seller, who adds a specified percentage to the invoice value, collects it from the buyer, and remits it to the Government.

Current TCS rates under Section 206C:

• 206C(1) — specified goods: scrap (1%), tendu leaves (5%), timber and other forest produce (2.5%), minerals like coal/lignite/iron ore (1%).
• 206C(1F) — motor vehicles: sale of a motor vehicle exceeding ₹10,00,000 attracts TCS at 1%.
• 206C(1G) — foreign remittances (LRS) + tour packages:
  • Overseas tour program packages: 5% for amounts up to ₹7 lakhs per FY; 20% on amounts exceeding ₹7 lakhs.
  • LRS remittances for education/medical: 5% on amounts exceeding ₹7 lakhs (0.5% if education is funded by an educational loan).
  • Other LRS remittances (investments, foreign equity, general spending): 20% on amounts exceeding ₹7 lakhs.
• 206C(1H) — sale of standard goods: a seller with turnover > ₹10 crore in the previous FY must collect TCS at 0.1% on receipts exceeding ₹50,00,000 from a single buyer. (If the transaction also attracts TDS under Section 194Q, TDS takes precedence and TCS 206C(1H) does not apply.)

Quarterly returns (24Q / 26Q / 27Q / 27EQ) + due dates

Filing accurate quarterly statements is mandatory. The forms are categorised by deductee type:

• Form 24Q: TDS on salaries (Section 192).
• Form 26Q: TDS on all payments other than salaries to resident Indians.
• Form 27Q: TDS on payments to non-residents (NRIs) and foreign companies.
• Form 27EQ: quarterly statement for Tax Collected at Source.

Due dates for filing quarterly returns (FY 2025-26):

Quarter	Period covered	Due date for TDS forms (24Q/26Q/27Q)	Due date for 27EQ
Q1	1 April to 30 June	31 July	15 July
Q2	1 July to 30 September	31 October	15 October
Q3	1 October to 31 December	31 January	15 January
Q4	1 January to 31 March	31 May	15 May

For execution support, see the TDS Return Filing service.

TDS certificates (Form 16 / 16A / 16B / 16C / 16D / 27D)

After filing returns, deductors must download certificates from TRACES and issue them to deductees. These certificates constitute the deductee’s legal proof of tax paid.

• Form 16: issued annually for salary income. Due by 15 June of the subsequent FY.
• Form 16A: issued quarterly for non-salary TDS (professional fees, interest, etc.). Due within 15 days from the due date of filing the respective quarterly TDS return.
• Form 16B: issued for TDS on the purchase of immovable property (Section 194-IA). Due within 15 days from the due date of filing Form 26QB.
• Form 16C: issued by individuals/HUFs for TDS on rent (Section 194-IB). Due within 15 days of filing Form 26QC.
• Form 16D: issued by individuals/HUFs for TDS on contractor/professional payments (Section 194M). Due within 15 days of filing Form 26QD.
• Form 27D: issued quarterly for TCS. Due within 15 days from the return filing deadline.

Section 197 — lower deduction certificate

If a taxpayer estimates that their total final tax liability for the year justifies a lower (or nil) rate of TDS than the statutory rate, they can apply to the Assessing Officer using Form 13.

On satisfaction, the officer issues a Lower Deduction Certificate under Section 197. The deductee provides this certificate to the payer, allowing the payer to legitimately deduct tax at the reduced rate specified in the certificate.

Penalty + interest table

Non-compliance with TDS regulations invokes immediate algorithmic scrutiny. The Income Tax Department imposes stringent interest rates for both delayed deduction and delayed remittance.

Default scenario	Applicable section	Penalty / interest quantum
Late filing of TDS return	Section 234E	₹200 per day of delay, capped at the total TDS deductible for that return
Penalty for non-filing / inaccurate return	Section 271H	Discretionary penalty ranging from ₹10,000 to ₹1,00,000, levied in addition to the 234E late fee
Failure to deduct TDS	Section 201(1A)(i)	Interest at 1% per month (or part of a month) from the date the tax was deductible until the actual date of deduction. Assessee declared “in default” under 201(1)
Deducted but failure to deposit	Section 201(1A)(ii)	Interest at 1.5% per month (or part of a month) from the date of deduction until the actual date of deposit

Income Tax Act 2025 — TDS provisions status

The transition from the Income Tax Act 1961 to the new, condensed Income Tax Act 2025 is slated to take operational effect from 1 April 2026. For the current financial year (FY 2025-26 / AY 2026-27), the TDS framework remains governed by the structure and numbering outlined above.

While the new Act consolidates sections and alters terminology (shifting “Previous Year” to “Tax Year”), the substantive threshold limits and TDS rate percentages finalised in the Finance Act 2025 will be bridged into the new legislation’s corresponding tax-withholding chapters. Verify against the latest CBDT clarifications closer to the effective date.

For how TDS integrates into your broader tax obligations, see Income Tax overview or check cross-compliance requirements in the GST overview.