Tax deducted at source, TDS, is income tax that you cut from a payment and pay to the government on behalf of the person you are paying. The payee gets credit for it against their own income tax. For a business, TDS is less about tax and more about procedure: deduct the right amount, pay it on time, file the statement and give the payee a certificate.
From 1 April 2026, the Income-tax Act, 2025 replaced the Income-tax Act, 1961. Most TDS on payments other than salary now sits in one section, section 393, with a table of payments, rates and limits. The old section numbers, such as 194C and 194J, are still widely used in conversation, and the new table carries most of the same rates. Payments paid or credited before 1 April 2026 stay under the old law.
01Who has to deduct
| Payer | Deducts TDS on the common business payments |
|---|---|
| Company, firm, LLP, cooperative society, trust | Yes |
| Individual or HUF whose business turnover was above ₹1 crore, or professional receipts above ₹50 lakh, in the previous year | Yes |
| Other individuals and HUFs | Only under the separate entries for them, such as rent above ₹50,000 a month and large contract or professional payments above ₹50 lakh in a year |
You need a TAN, the tax deduction account number, to deduct and pay TDS, except for the few payments reported through Form 141, such as buying property.
02Common payments, rates and limits
As of October 2026, the main entries a small or mid-sized business meets are:
| Payment | Rate | When TDS applies |
|---|---|---|
| To a contractor or sub-contractor for work | 1% if the contractor is an individual or HUF, 2% for others | A single payment above ₹30,000, or payments above ₹1,00,000 in the year |
| Fees for professional services | 10% | Payments above ₹50,000 in the year to one person |
| Fees for technical services | 2% | Payments above ₹50,000 in the year to one person |
| Rent of land, building or furniture | 10% | Above ₹50,000 for a month or part of a month |
| Rent of plant, machinery or equipment | 2% | Above ₹50,000 for a month or part of a month |
| Fees, remuneration or commission to a director | 10% | No threshold |
| Purchase of goods | 0.1% | Above ₹50 lakh in the year from one seller, if your turnover was above ₹10 crore |
The full table has many more entries. Read the entry for any payment you are unsure of, or ask your CA.
Once the limit is crossed
For professional fees, once payments to a person cross ₹50,000 in the year, TDS applies to the whole amount paid to that person in the year, including the first ₹50,000. Contractor payments work the same way once the yearly total crosses ₹1,00,000.
03A worked example
A Rajkot engineering company, a private limited company, makes these payments in October 2026:
| Payment | Amount | TDS | Rate |
|---|---|---|---|
| Painting of the factory shed by a contractor firm | ₹45,000 | ₹900 | 2% |
| Audit fees to a CA firm, total for the year so far ₹60,000 | ₹60,000 | ₹6,000 | 10% |
| Godown rent | ₹55,000 | ₹5,500 | 10% |
| Total | ₹12,400 |
It pays the CA firm ₹54,000, the painting contractor ₹44,100 and the landlord ₹49,500, deposits ₹12,400 by 7 November 2026, and reports it in the quarterly statement for October to December.
04Deposit dates and statements
| Task | When, as of October 2026 |
|---|---|
| Deposit tax deducted | By the 7th of the next month. Tax deducted in March by 30 April. |
| Quarterly statement for non-salary TDS (Form 140, earlier Form 26Q) | 31 July, 31 October, 31 January and 31 May for the four quarters. Check the current dates on the e-filing portal. |
| Certificate to the payee | After the statement is filed, from the TRACES portal |
The payee sees the tax in their Form 26AS and annual information statement only after you file the statement, so a late statement delays their credit.
05What happens when TDS goes wrong
- Not deducted or deducted short
- You can be treated as an assessee in default for the tax, with interest.
- Deducted but paid late
- Interest runs for each month or part of a month of delay.
- Statement filed late
- A fee is charged for each day of delay, and a penalty can apply in addition.
- Expense disallowed
- If TDS was due and not deducted or paid, part of that expense can be disallowed when your own income is computed, until you pay.
These consequences are why many businesses deduct TDS even when a payment is close to a limit.
06When the payee has no PAN
If the payee does not give a valid PAN, TDS is deducted at a higher rate, commonly 20%. Collect the PAN before the first payment, and check it on the e-filing portal.
07Lower deduction certificates
A payee whose final tax will be lower than the TDS can apply to the Income Tax Department for a certificate allowing lower or no deduction. If a supplier gives you one, deduct at the rate it states, for the period and amount it covers, and keep a copy.
08Keeping it simple
A small manufacturer usually meets only four or five TDS entries: contractors, professional fees, rent, perhaps commission and purchase of goods. Listing the regular payees for each, with PAN and the year's running total, keeps the deductions right without fresh checking each month.
09Before the first payment of the year
Check each regular payee's PAN, note which entry applies, and set the year's running totals to zero on 1 April. A ten-minute check here prevents most TDS errors.
This guide is general information as of October 2026 and does not amount to tax advice.