TDS Compliance for Small Business: Quick Checklist (FY 2025-26)
- Paying contractors, professionals, commission, rent or interest above the section threshold? Deduct TDS and file Form 26Q every quarter. Form 24Q is only for salary.
- Deposit TDS by the 7th of the next month (March deductions by 30 April).
- File Form 26Q by 31 July, 31 October, 31 January and 31 May.
- Late return: Rs 200 per day under Section 234E, capped at the TDS amount.
Many small business owners only look at TDS after a notice arrives. This guide covers who must deduct, the common sections and thresholds for FY 2025-26, deposit and return due dates, certificates, and what a delay costs. FY 2025-26 is governed by the Income-tax Act, 1961; the Income-tax Act, 2025 applies only from 1 April 2026.
Looking for expert help with TDS compliance small business, TDS return filing, Form 26Q, TDS due dates, Section 194C, Section 194J, Section 234E? 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.
Who Must Deduct TDS
There is no blanket exemption for small businesses:
- Companies, firms and LLPs must deduct once a payment crosses the section threshold.
- Individuals and HUFs running a business or profession must deduct under Sections 194C, 194J, 194H, 194A and 194-I only if their turnover from business exceeded Rs 1 crore, or gross receipts from profession exceeded Rs 50 lakh, in the preceding financial year.
- Individuals and HUFs below those limits still have two catch-all sections: Section 194-IB (rent above Rs 50,000 a month, at 2%) and Section 194M (contract work, commission or professional fees above Rs 50 lakh a year, at 2%).
Every deductor needs a TAN (apply in Form 49B) before deducting TDS.
If you do not have one yet, our guides cover who needs a TAN and where to quote it, the online Form 49B application on the Protean portal, and the Section 272BB penalty for deducting without a TAN.
Common TDS Sections, Rates and Thresholds (FY 2025-26)
| Section | Payment | Threshold | Rate |
|---|---|---|---|
| 194C | Contractors and sub-contractors | Rs 30,000 for a single payment, or Rs 1,00,000 in the year | 1% (individual or HUF payee), 2% (others) |
| 194J | Professional fees | Rs 50,000 in the year (Rs 30,000 until 31 March 2025) | 10% |
| 194J | Fees for technical services | Rs 50,000 in the year | 2% |
| 194H | Commission or brokerage | Rs 20,000 in the year (Rs 15,000 until 31 March 2025) | 2% |
| 194A | Interest paid by a business (not a bank) | Rs 10,000 in the year (Rs 5,000 until 31 March 2025) | 10% |
| 194-I | Rent of land, building or furniture | Rs 50,000 for a month or part of a month (Rs 2,40,000 a year until 31 March 2025) | 10% |
| 194-I | Rent of plant, machinery or equipment | Rs 50,000 for a month or part of a month | 2% |
| 192 | Salary | Taxable salary above the basic exemption limit | Slab rates (file Form 24Q) |
If the payee has not furnished a PAN, Section 206AA requires the higher of 20% or the normal rate. Section 206AB (higher TDS for non-filers) was omitted from 1 April 2025, so you no longer need to check whether the payee filed a return.
For section-wise detail, see the guides on TDS on contractor payments under Section 194C, TDS on professional fees under Section 194J and TDS on rent.
Which TDS Return to File
| Form | Covers | Due dates (quarterly) |
|---|---|---|
| Form 24Q | TDS on salary (Section 192) | 31 July, 31 October, 31 January, 31 May |
| Form 26Q | TDS on all other payments to residents (194C, 194J, 194H, 194A, 194-I and others) | 31 July, 31 October, 31 January, 31 May |
| Form 27Q | TDS on payments to non-residents | 31 July, 31 October, 31 January, 31 May |
The four due dates cover the quarters ending June, September, December and March. Under the Income-tax Act, 2025, the quarterly statements get new form numbers from tax year 2026-27 (for example, Form 140 in place of Form 26Q), but every return for FY 2025-26 and earlier is still filed in Form 24Q, 26Q or 27Q.
If you prepare these statements in-house, our comparison of the best TDS software tools in India weighs Saral TDS, Winman, CompuTax and Express TDS against managed filing.
For the full section-by-section rate table and deadline calendar in one place, see our TDS compliance master guide for FY 2026-27.
TDS Deposit Due Dates
- TDS deducted in any month: deposit by the 7th of the following month.
- TDS deducted in March: deposit by 30 April.
- Pay online through Challan ITNS 281 using e-Pay Tax on the income tax e-filing portal or your bank's net banking. Keep the challan identification number (BSR code, date, serial number); it goes into the return. See how to pay TDS with Challan 281.
Example: In June 2025 a firm pays an individual contractor Rs 1,00,000 for repair work. TDS under Section 194C at 1% is Rs 1,000. The firm deposits it by 7 July 2025, reports it in Form 26Q for April to June by 31 July 2025, and issues Form 16A by 15 August 2025.
Filing the Quarterly Return: Step by Step
- Collect payee details: name, PAN, nature of payment, amount paid or credited, date, and TDS deducted.
- Match challans: each deduction must be linked to the challan through which it was deposited.
- Prepare the return in the Return Preparation Utility (RPU) published by Protean (NSDL) or in TDS software.
- Validate the file with the File Validation Utility (FVU). Invalid PANs or challan details cause rejection.
- Upload the validated file on the income tax e-filing portal using the TAN login, verified with DSC or EVC, or submit it through a TIN facilitation centre.
- Download Form 16A from TRACES after the return is processed and issue it to each payee.
TDS Certificates
- Form 16A (non-salary TDS): every quarter, within 15 days of the return due date for that quarter (for example, by 15 August for April to June). It must be generated from TRACES.
- Form 16 (salary TDS): once a year, by 15 June after the end of the financial year.
Payees see your TDS in their Form 26AS and AIS only after your return is processed. If the PAN or amount is wrong, they cannot claim the credit until you file a correction statement.
Interest, Fees and Penalties
| Default | Consequence | Law |
|---|---|---|
| TDS not deducted, or deducted late | Interest at 1% per month or part of a month, from the date it was deductible to the date it is deducted | Section 201(1A) |
| TDS deducted but deposited late | Interest at 1.5% per month or part of a month, from the date of deduction to the date of payment | Section 201(1A) |
| Return filed late | Fee of Rs 200 per day until the return is filed, capped at the TDS amount for that return | Section 234E |
| Return not filed, or filed with incorrect details | Penalty of Rs 10,000 to Rs 1,00,000. No penalty if the TDS, fee and interest are paid and the return is filed within one month of the due date (for returns due from 1 April 2025) | Section 271H |
| TDS not deducted or not paid by the return due date | 30% of the expense is disallowed for that year (allowed in the year the TDS is paid) | Section 40(a)(ia) |
Interest example: Rs 10,000 of TDS deducted on 1 June and deposited on 15 July attracts 1.5% for two months (June, and part of July), which is Rs 300.
Late fee example: A Form 26Q for April to June due on 31 July and filed on 20 August is 20 days late. The Section 234E fee is Rs 200 x 20 = Rs 4,000, or the total TDS in that return if lower. See Section 234E and 271H and Section 201(1A) interest for detail.
Common Mistakes Small Businesses Make
- Filing Form 24Q for contractor payments. Form 24Q is only for salary; contractor, professional, commission, rent and interest TDS go in Form 26Q.
- Wrong or missing PAN. The payee loses the credit, and an invalid PAN means TDS at 20% or more under Section 206AA. Verify PANs before filing.
- Using an old threshold. From 1 April 2025, Section 194J starts at Rs 50,000, 194H at Rs 20,000, non-bank 194A at Rs 10,000, and 194-I at Rs 50,000 a month.
- Depositing late. Interest under Section 201(1A) runs at 1.5% per month from the date of deduction, and a part month counts as a full month.
- Not issuing Form 16A. The payee needs it to reconcile credits, and it must be downloaded from TRACES.
- Not reconciling challans with returns. A challan that is not linked to deductee entries leaves an unconsumed balance and a short-payment demand.
Getting Help
Tax Garden's TDS filing service handles TDS computation, challan payment, quarterly Form 24Q and 26Q returns, Form 16A from TRACES, and correction statements. See plans and pricing for current fees. TDS is one part of our tax compliance services for small businesses, alongside GST, income tax and ROC filings.
For what a quarterly fee should cover and what is usually billed extra, see our breakdown of TDS return filing fees charged by CAs in 2026.
Looking for expert help with TDS compliance small business, TDS return filing, Form 26Q, TDS due dates, Section 194C, Section 194J, Section 234E? 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 (Sections 192, 194A, 194C, 194H, 194-I, 194-IB, 194J, 194M, 200, 201(1A), 203A, 206AA, 234E, 271H, 40(a)(ia)); Income-tax Rules, 1962 (Rules 30, 31 and 31A); Finance Act 2025 (revised thresholds and omission of Section 206AB from 1 April 2025); Finance (No. 2) Act 2024 (194H, 194-IB and 194M rates cut to 2% from 1 October 2024; Section 271H relief window cut to one month from 1 April 2025). Verify current rules on incometax.gov.in before acting. This article is general information and not a substitute for professional advice.
Frequently Asked Questions
Which TDS return does a small business file for contractor and freelancer payments?
Form 26Q. It covers TDS on payments to residents other than salary, such as contractors (Section 194C), professional fees (194J), commission (194H), interest (194A) and rent (194-I). Form 24Q is only for salary TDS and Form 27Q is for payments to non-residents. For FY 2025-26 these forms continue under the Income-tax Act, 1961.
When must TDS be deposited and the quarterly return filed?
TDS deducted in a month must be deposited by the 7th of the next month, except March deductions, which can be deposited by 30 April. Quarterly returns are due by 31 July, 31 October, 31 January and 31 May for the four quarters of the financial year.
What TDS rates apply to common small business payments?
For FY 2025-26: contractors under Section 194C at 1% if the contractor is an individual or HUF and 2% for others, professional fees under 194J at 10% (2% for technical services), commission under 194H at 2% and non-bank interest under 194A at 10%. If the payee has not furnished a PAN, Section 206AA requires 20% or the normal rate, whichever is higher.
Does every small business have to deduct TDS on every payment?
No. TDS applies only above thresholds: for FY 2025-26, Rs 30,000 per contract or Rs 1 lakh a year under 194C, Rs 50,000 a year under 194J, Rs 20,000 under 194H and Rs 10,000 of non-bank interest under 194A. Individuals and HUFs deduct under these sections only if their business turnover exceeded Rs 1 crore, or professional receipts exceeded Rs 50 lakh, in the preceding year. Companies, firms and LLPs have no such exemption.
What is the penalty for late TDS payment or late TDS return filing?
Late deduction attracts interest of 1% per month and late deposit after deduction attracts 1.5% per month under Section 201(1A). A late return attracts a fee of Rs 200 per day under Section 234E, capped at the TDS amount, and Section 271H allows a penalty of Rs 10,000 to Rs 1 lakh for late or incorrect returns. No 271H penalty applies if the TDS, fee and interest are paid and the return is filed within one month of the due date.
When must TDS certificates be issued to deductees?
Form 16A for non-salary TDS is issued every quarter, within 15 days of the due date for filing that quarter's TDS return, and must be downloaded from TRACES. Form 16 for salary is issued once a year by 15 June. Without a matching TDS return, the deductee will not see the credit in Form 26AS and cannot claim it in the ITR.
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