Regulatory & Tax

TDS

Tax Deducted at Source — mechanism where the payer deducts income tax before paying the recipient, then deposits with the government.

Under TDS, when an Indian entity makes certain payments (salary, professional fees, rent, contractor payments, commission, etc.), they deduct a percentage as income tax and pay it to the government on behalf of the recipient. The recipient claims this as credit against their final tax liability via Form 26AS.

Common TDS rates for SMBs: salary (slab-based), professional fees u/s 194J (10%), contractor payments u/s 194C (1-2%), rent above ₹50K/month u/s 194I (10% on building, 2% on equipment), commission u/s 194H (5%), payments to e-commerce sellers u/s 194-O (1%).

TDS returns are filed quarterly (TDS-1, TDS-2 for non-salary; 24Q, 26Q, 27EQ depending on type). Form 16 / 16A is the certificate issued to the deductee.

India context

For Indian SMBs paying contractors (designers, consultants, freelancers above ₹30K/year), TDS deduction at 10% under 194J is mandatory. Many small businesses skip this and face audit penalty — interest at 1.5%/month + penalty under Section 271C.

Examples

  • You pay a freelance designer ₹50,000/month. Deduct ₹5,000 TDS, pay ₹45,000 net, deposit ₹5,000 with government, issue Form 16A to the designer.
  • Marketplace fee from Amazon includes their 1% TDS u/s 194-O on your sales.

FAQ

Do I need TAN to deduct TDS?

Yes — TAN (Tax Deduction Account Number) is mandatory for any entity deducting TDS. Apply via Form 49B; takes 5-10 days.

What if I forget to deduct TDS?

You're liable to pay it from your own funds + interest 1% per month from due date + penalty up to 100% of TDS amount. Significantly worse than deducting on time.

Can the deductee claim refund?

Yes — if total tax liability is less than TDS deducted, refund through ITR filing. TDS appears in Form 26AS automatically.

Related concepts

TANPANForm 16AForm 26ASGSTTCS

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Related glossary entries

GSTIN — Goods and Services Tax Identification Number — a 15-character ID assigned to every GST-registered business in India.GSTR-1 — Monthly (or quarterly) statement of outward supplies — every B2B and B2C invoice your business issued in the period.GSTR-3B — Monthly self-declared summary of all outward and inward supplies and tax liability — the form you actually pay GST against.PAN — Permanent Account Number — 10-character alphanumeric ID issued by Income Tax Department, used as universal taxpayer ID.TCS (Tax Collected at Source) — Mechanism where the seller collects tax from the buyer at the time of sale — opposite of TDS.Place of Supply (GST) — GST rule that determines which state/UT gets the tax on a transaction — drives whether CGST+SGST or IGST applies.

More in Regulatory & Tax

DPDP ActGSTINGSTR-1GSTR-3BRCM (Reverse Charge Mechanism)ITC (Input Tax Credit)RERAFSSAI
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