Key Takeaways on TDS Calculation
- TDS (Tax Deducted at Source) is tax the payer deducts from a payment and deposits against the payee's PAN.
- TDS Formula: TDS = Amount paid or credited (excluding GST shown separately) × rate for the section.
- Threshold is a trigger, not a deduction: once a payment or the yearly total crosses the limit, TDS applies on the whole amount, not only the excess.
- Common sections (FY 2025-26): 194A interest, 194C contractors, 194D insurance commission, 194H commission, 194-I rent, 194J professional and technical fees, 194-IA property purchase. From 1 April 2026 the same payments fall under Section 393 of the Income-tax Act, 2025.
- Deposit monthly, file quarterly: deposit by the 7th of the next month (30 April for March); returns are due 31 July, 31 October, 31 January and 31 May.
- Defaults cost money: interest of 1% or 1.5% a month, a Rs 200 per day late fee, and a penalty up to the TDS not deducted.
Tax Deducted at Source (TDS) is one of the most complex yet essential parts of India's tax system. Employers, business owners and freelancers each need to know when to deduct TDS, how much to deduct and where to deposit it.
This guide covers the TDS calculation formula, rates, thresholds, and worked examples for FY 2025-26 and tax year 2026-27.
Looking for expert help with TDS calculation, TDS formula, TDS rates 2026, TDS sections 194, 194a, 194c, 194d, TDS calculator, how to calculate TDS? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant. End-to-end filings, notices, and deadline tracking, all in one place.
What Is TDS (Tax Deducted at Source)?
TDS is a tax mechanism where the payer deducts tax at the time of payment or credit, whichever is earlier, and deposits it with the government on behalf of the payee.
Example
A company pays Rs 1,00,000 to an individual contractor. Under Section 194C, TDS is 1% for an individual or HUF contractor once a single payment exceeds Rs 30,000 or the year's total exceeds Rs 1,00,000. The company deducts Rs 1,000 (1% of Rs 1,00,000) and deposits it with the government. The contractor receives Rs 99,000 and claims the Rs 1,000 TDS credit in their ITR.
Why Does TDS Exist?
- Revenue collection at source: Tax is collected as income is earned, not only at year end
- Compliance ease: Spreads tax collection across transactions
- Reduced evasion: Every deduction is reported against the payee's PAN in Form 26AS and AIS
TDS Formula: Basic Structure
TDS = Amount paid or credited × TDS rate, applied only if the amount (or the year's aggregate) crosses the section's threshold.
Where:
- Amount = Gross payment or credit to the payee, excluding GST where GST is shown separately on the invoice
- TDS rate = Rate fixed for the section (for example 1%, 2%, 10%, or slab rates for salary)
- PAN status = If the payee has not furnished a valid PAN, the higher rate under Section 206AA applies (Section 397(2) of the 2025 Act from 1 April 2026)
Common TDS Sections and Rates
Rates and thresholds below apply from 1 April 2025 (Finance Act, 2025) and carry over into Section 393 of the Income-tax Act, 2025 for tax year 2026-27.
| Section (1961 Act) | Payment | TDS Rate | Threshold |
|---|---|---|---|
| 192 | Salary | Average slab rate | Taxable salary above the basic exemption |
| 194A | Interest (other than on securities) | 10% | Bank/co-op bank/post office: Rs 50,000 (Rs 1,00,000 for senior citizens); others Rs 10,000 |
| 194C | Contractor payments | 1% individual/HUF, 2% others | Rs 30,000 single payment or Rs 1,00,000 in the year |
| 194D | Insurance commission | 2% (non-company agents) | Rs 20,000 in the year |
| 194H | Commission or brokerage | 2% | Rs 20,000 in the year |
| 194-I | Rent | 2% plant and machinery, 10% land, building, furniture | Rs 50,000 for a month or part of a month |
| 194J | Professional fees / technical services | 10% / 2% | Rs 50,000 each in the year (no threshold for director fees) |
| 194-IA | Purchase of immovable property (not agricultural land) | 1% of higher of price or stamp duty value | Rs 50 lakh or more |
| 194LA | Compensation on compulsory acquisition of immovable property | 10% | Rs 5,00,000 in the year |
| 194-O | E-commerce operator paying sellers | 0.1% of gross sales | Individual/HUF seller with PAN: no TDS up to Rs 5 lakh gross sales |
| 194N | Cash withdrawals from a bank | 2% | Above Rs 1 crore in the year |
| 194B | Lottery, crossword, game show winnings | 30% | Above Rs 10,000 per transaction |
| 194Q | Purchase of goods by a buyer with turnover above Rs 10 crore in the previous year | 0.1% of the amount above Rs 50 lakh | Purchases from one seller above Rs 50 lakh in the year |
Section-Wise TDS Calculation With Examples
Section 194A: Interest on Bank Deposits
Applicable to: Interest on fixed and recurring deposits with banks, co-operative banks and notified post office deposits
TDS Rate: 10%
Threshold: Rs 50,000 in the year per bank (Rs 1,00,000 for senior citizens)
Example:
- FD interest credited in FY 2025-26 by one bank to a 45-year-old: Rs 60,000
- Threshold of Rs 50,000 crossed, so TDS applies on the full Rs 60,000
- TDS: Rs 60,000 × 10% = Rs 6,000
For a senior citizen earning the same Rs 60,000, no TDS applies because it is below Rs 1,00,000. A resident whose total income is below the taxable limit can also submit Form 15G (Form 15H for seniors) to stop the deduction.
Section 194C: Payment to Contractors
Applicable to: Contract work, including advertising, broadcasting, carriage of goods and passengers (other than by railways), catering, and manufacturing to the customer's specification using customer material
TDS Rate: 1% (individual or HUF contractor), 2% (firm, company, others)
Threshold: Rs 30,000 for a single payment, or Rs 1,00,000 aggregate in the year
Example 1: Individual contractor with PAN
- Contract payment: Rs 2,00,000
- TDS at 1% on the full amount: Rs 2,000
- Payment to contractor: Rs 1,98,000
Example 2: Contractor without PAN
- Contract payment: Rs 2,00,000
- Section 206AA rate: 20% (higher of 20% or the normal rate)
- TDS: Rs 40,000; payment to contractor: Rs 1,60,000
A transporter who owns 10 or fewer goods carriages at any time in the year and furnishes a declaration with PAN is not subject to 194C TDS.
Section 194J: Professional and Technical Fees
Applicable to: Fees for professional services (doctors, lawyers, CAs, architects, consultants), fees for technical services, royalty, non-compete fees, director fees
TDS Rate: 10% for professional fees; 2% for technical services (not being professional services), royalty for sale or exhibition of films, and call centre payees
Threshold: Rs 50,000 in the year, separately for professional fees and technical fees (from 1 April 2025; Rs 30,000 earlier). No threshold for director fees.
Example:
- Professional fee paid to a lawyer in FY 2025-26: Rs 1,00,000
- Threshold of Rs 50,000 crossed, so TDS applies on the full amount
- TDS at 10%: Rs 10,000
- Payment to professional: Rs 90,000
Section 194-IA: Purchase of Immovable Property
Applicable to: Purchase of immovable property (other than agricultural land) from a resident seller
TDS Rate: 1% of the sale consideration or stamp duty value, whichever is higher
Threshold: Consideration or stamp duty value of Rs 50,00,000 or more
Example:
- Property purchase price: Rs 75,00,000 (stamp duty value Rs 70,00,000)
- TDS at 1% on Rs 75,00,000: Rs 75,000
- Amount paid to seller: Rs 74,25,000
The buyer deposits the tax with Form 26QB using their own PAN within 30 days from the end of the month of deduction; no TAN is needed. From 1 April 2026 the challan-cum-statement is Form 141.
Section 194-O: E-Commerce Operators
Applicable to: Sales of goods or services by a seller through an e-commerce platform
TDS Rate: 0.1% of the gross amount of sales (1% before 1 October 2024)
Threshold: None, except that no TDS applies to an individual or HUF seller whose gross sales through the platform do not exceed Rs 5 lakh in the year and who has furnished PAN or Aadhaar
Example:
- Annual sales by a company seller through a marketplace: Rs 80,00,000
- TDS at 0.1%: Rs 8,000, deducted by the marketplace operator
TDS When PAN Is Not Provided (Section 206AA)
If the deductee does not furnish a valid PAN, TDS is deducted at the higher of the normal rate, the rate in force, or 20%. For Sections 194Q and 194-O the fallback rate is 5% instead of 20%.
| Section | Normal Rate | Rate Without PAN |
|---|---|---|
| 194C | 1% or 2% | 20% |
| 194J | 10% | 20% |
| 194A | 10% | 20% |
| 194-O | 0.1% | 5% |
Impact: Not providing PAN results in much higher tax deduction upfront, so collect PAN before the first payment.
TDS Compliance Obligations
For Deductors (Those Deducting TDS)
- Obtain a TAN (not needed for one-off 194-IA, 194-IB or 194M deductions by individuals)
- Deduct TDS at the time of payment or credit, whichever is earlier
- Deposit TDS monthly through challan ITNS 281 by the 7th of the following month (30 April for March deductions)
- File quarterly TDS returns: Form 24Q for salary and Form 26Q for other payments to residents (Forms 138 and 140 for quarters of tax year 2026-27 onward)
- Issue TDS certificates: Form 16A within 15 days of the quarterly return due date; Form 16 for salary by 15 June after the year ends (Forms 131 and 130 for tax year 2026-27 onward)
TDS Deposit and Return Due Dates (FY 2026-27)
| Quarter | Period | Monthly deposit due | Quarterly return due |
|---|---|---|---|
| Q1 | Apr-Jun 2026 | 7 May, 7 June, 7 July 2026 | 31 July 2026 |
| Q2 | Jul-Sep 2026 | 7 August, 7 September, 7 October 2026 | 31 October 2026 |
| Q3 | Oct-Dec 2026 | 7 November, 7 December 2026, 7 January 2027 | 31 January 2027 |
| Q4 | Jan-Mar 2027 | 7 February, 7 March, 30 April 2027 | 31 May 2027 |
For Deductees (Those Receiving Payments with TDS)
- Verify TDS deducted in Form 16A, Form 26AS and AIS
- Report TDS in your ITR in the TDS schedule
- Claim TDS credit against your tax liability
- File your ITR to claim a refund if TDS exceeds your tax
TDS Defaults: Interest, Fees and Penalties
| Default | Consequence (1961 Act) | How to Avoid |
|---|---|---|
| Failure to deduct TDS | Interest 1% a month from the date deductible to the date deducted (Section 201(1A)); penalty up to the TDS not deducted (Section 271C); 30% of the expense disallowed for resident payments (Section 40(a)(ia)) | Track thresholds per payee |
| Late deposit of TDS | Interest 1.5% a month from the date deducted to the date deposited (Section 201(1A)) | Deposit by the 7th of the next month |
| Late TDS return | Fee of Rs 200 per day, capped at the TDS amount (Section 234E) | File by the quarterly due date |
| Return not filed within one year, or incorrect | Penalty Rs 10,000 to Rs 1,00,000 (Section 271H) | File on time and reconcile challans |
| TDS certificate not issued | Rs 100 per day, up to the TDS amount (Section 272A(2)(g)) | Download Form 16A from TRACES on time |
From tax year 2026-27 the corresponding provisions of the Income-tax Act, 2025 are Section 398 (interest), Section 427 (late fee), Section 448 (penalty for failure to deduct) and Section 461 (penalty for statements).
TDS Calculation: Step-by-Step Process
| Step | Action | Example |
|---|---|---|
| 1 | Identify applicable TDS section | Payment to an individual contractor → Section 194C |
| 2 | Check threshold limit | Single payment of Rs 1,50,000 exceeds Rs 30,000 |
| 3 | Verify deductee's PAN | PAN provided → Apply normal rate |
| 4 | Take the full amount (excluding GST shown separately) | Rs 1,50,000 |
| 5 | Apply TDS rate | 1% × Rs 1,50,000 = Rs 1,500 |
| 6 | Deduct TDS | Payment = Rs 1,50,000 − Rs 1,500 = Rs 1,48,500 |
| 7 | Deposit TDS | By the 7th of the following month |
| 8 | File TDS return | Form 26Q for the quarter (Form 140 from tax year 2026-27) |
| 9 | Issue TDS certificate | Form 16A within 15 days of the return due date |
Key Takeaways
-
TDS = Amount × Rate, applied to the whole amount once the threshold is crossed.
-
Threshold limits vary: 194A Rs 50,000 (banks), 194C Rs 30,000 / Rs 1 lakh, 194J Rs 50,000, 194-IA Rs 50 lakh.
-
PAN is critical: Without a valid PAN, TDS is generally 20%.
-
Deposit monthly: by the 7th of the following month, 30 April for March.
-
Certificates and returns are quarterly: Form 16A follows each quarterly return.
-
Deductees can claim credit: TDS is credited in the ITR and refunded if tax liability is lower.
-
Non-compliance is costly: interest, late fees, disallowance and penalties add up quickly.
Where Tax Garden Helps
TDS compliance is intricate. One miscalculation can trigger notices and penalties.
Tax Garden's tax experts help you:
- Identify which TDS section applies to your payments
- Calculate correct TDS amounts with PAN and deductee verification
- Deposit TDS on time with proper challan management
- File quarterly TDS returns (Form 24Q, 26Q, or Forms 138 and 140 from tax year 2026-27)
- Issue TDS certificates (Form 16, Form 16A) accurately
- Recover excess TDS through ITR filing
Looking for expert help with TDS calculation, TDS formula, TDS rates 2026, TDS sections 194, 194a, 194c, 194d, TDS calculator, how to calculate TDS? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant. End-to-end filings, notices, and deadline tracking, all in one place.
Sources: Income Tax Act, 1961; Rules 37BA, 37BB, 37BC, 37D; CBDT Circulars; Income Tax Department e-TDS portal (etds.tin.nsdl.com). Verify current TDS rates and sections on incometax.gov.in before deducting, as rules may be updated. This article is general information on TDS calculation and not a substitute for professional tax advice.
Frequently Asked Questions
How is TDS calculated on a payment?
TDS is the payment amount, excluding GST where it is shown separately on the invoice, multiplied by the rate for the applicable section. The threshold only decides whether TDS applies at all. Once a payment or the yearly total crosses it, TDS is generally deducted on the whole amount, not just the excess. A Rs 1,00,000 professional fee under Section 194J therefore attracts Rs 10,000 of TDS at 10%.
What are the TDS rates and thresholds for common sections in FY 2025-26?
Section 194C contractors: 1% for individuals or HUFs and 2% for others, above Rs 30,000 per payment or Rs 1 lakh a year. Section 194J: 10% on professional fees and 2% on technical services, above Rs 50,000 a year. Section 194H commission: 2% above Rs 20,000. Section 194-I rent: 2% on plant and 10% on land or building, above Rs 50,000 a month. Section 194A interest: 10% above Rs 50,000 for banks, Rs 1 lakh for seniors, Rs 10,000 otherwise.
What TDS rate applies if the deductee does not give a PAN?
Under Section 206AA, TDS is deducted at the higher of 20% or the rate otherwise applicable, with a lower rate of 5% for Sections 194Q and 194-O. For a contractor under Section 194C, that means 20% instead of 1% or 2%. The deductee can still claim credit in the return once the PAN-linked details are corrected, but the higher cash deduction hurts in the meantime.
When must TDS be deposited and returns filed?
TDS deducted in a month must be deposited by the 7th of the next month, except tax deducted in March, which is due by 30 April. Quarterly TDS returns in Form 24Q for salaries and Form 26Q for other resident payments are due by 31 July, 31 October, 31 January and 31 May. From tax year 2026-27 these returns are filed in Forms 138 and 140 on the same dates. Form 16A must be issued within 15 days of each quarterly return due date.
What happens if I fail to deduct or deposit TDS on time?
Interest under Section 201(1A) runs at 1% a month from the date tax was deductible to the date of deduction, and 1.5% a month from deduction to deposit. For payments to residents, 30% of the expense is disallowed under Section 40(a)(ia) until the TDS is paid. A late return attracts Rs 200 a day under Section 234E, and a penalty equal to the TDS not deducted can be levied under Section 271C.
How is TDS calculated on the purchase of a property?
Under Section 194-IA, the buyer deducts 1% of the full sale consideration or the stamp duty value, whichever is higher, when that amount is Rs 50 lakh or more. For a Rs 75 lakh flat, TDS is Rs 75,000, not 1% of the amount above Rs 50 lakh. The buyer pays it using their own PAN through Form 26QB (Form 141 from 1 April 2026) within 30 days from the end of the month of deduction, and does not need a TAN.
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