TDS is tax collected at the point of payment. When a business pays rent, a contractor, a professional or salary above set limits, it deducts a percentage, pays the rest to the person, and deposits the tax with the government. The person paid sees the credit in their annual tax statement and adjusts it against their own tax.
Under income tax
From 1 April 2026 the Income-tax Act, 2025 replaced the 1961 Act. TDS on salary now sits in section 392 and most other TDS in section 393, which brings together what were more than fifty separate sections. Rates and thresholds were largely carried over (as of October 2026). Tax deducted in a month is deposited by the 7th of the next month, with 30 April for March, and quarterly statements are filed.
Under GST
GST has its own TDS. Government departments and notified bodies deduct 2% on contracts above ₹2.5 lakh. Since 10 October 2024, registered buyers of metal scrap also deduct 2% on purchases above that value. The deduction is reported in GSTR-7.
For the person being paid
A contractor billing ₹5,00,000 may receive less than the invoice amount. The ledger should show the TDS as a separate line, so the customer balance does not show an amount still owed.