What is TDS? Tax
Deducted at Source
The payer deducts a slice of tax before paying you and deposits it with the government against your PAN. Here is how TDS works, who deducts it, the current-year rates and how you claim it back in your ITR.
TDS (Tax Deducted at Source) is a mechanism where the payer of certain incomes deducts a fixed percentage of tax before paying you and deposits it with the government against your PAN. Your employer does it on salary, your bank on FD interest, your client on professional fees. The deducted tax shows in your Form 26AS and AIS, and you claim it as credit when filing your income tax return — if more was deducted than your actual tax, the excess comes back as a refund.
How TDS Works — Step by Step
TDS moves the point of tax collection from you to the person paying you. The deductor withholds tax, deposits it, files a return, and the credit lands against your PAN.
When you file your ITR, the TDS already deducted is treated like advance tax paid. Net payable = total tax liability − TDS credited. If that is negative, you get a refund with interest under Section 244A.
Before filing, check your Form 26AS and AIS on incometax.gov.in against your own records. A TDS mismatch — where the deductor failed to file or quoted a wrong PAN — means you lose the credit and can trigger a notice or a delayed refund. Chase the deductor to correct their TDS return.
Common TDS Sections, Rates & Thresholds
The most-used TDS sections for resident payees for FY 2025-26 (AY 2026-27), reflecting the Budget 2025 threshold increases. For every section in one place, see the full TDS rate chart 2025-26.
| Section | Nature of payment | TDS Rate | Threshold (annual unless stated) |
|---|---|---|---|
| 192 | Salary | Slab | Above basic exemption |
| 194A | Bank FD / interest | 10% | ₹50,000 (₹1,00,000 senior citizens) |
| 194 | Dividend | 10% | ₹10,000 |
| 194C | Contractor payment | 1% / 2% | ₹30,000 single / ₹1,00,000 a year |
| 194H | Commission / brokerage | 2% | ₹20,000 |
| 194I | Rent — land / building | 10% | ₹6,00,000 |
| 194J | Professional / technical fees | 10% / 2% | ₹30,000 |
| 194-IA | Purchase of immovable property | 1% | Consideration ≥ ₹50 lakh |
| 194Q | Purchase of goods (buyer) | 0.1% | ₹50 lakh |
| 194N | Cash withdrawal | 2% | Above ₹1 crore |
Budget 2025 raised several thresholds — bank interest to ₹50,000 (₹1L for seniors) and 194I rent to ₹6,00,000 a year. 194H commission was cut to 2% w.e.f 1 Oct 2024. No surcharge or cess on TDS for resident payees.
If you do not give a valid PAN, TDS is deducted at 20% under Section 206AA — far higher than the normal rate. The old higher rate for non-filers of returns under Section 206AB was omitted with effect from 1 April 2025 (Finance Act 2025), so deductors no longer check your ITR-filing status — only a missing PAN triggers the 20% rate now.
TDS Certificates — Form 16, 16A & 16B
The deductor must give you a certificate showing the tax deducted. It is your primary proof and should match your Form 26AS to the rupee.
| Certificate | Issued by | Covers | Due date |
|---|---|---|---|
| Form 16 | Employer | TDS on salary (s.192) | 15 June of the next FY |
| Form 16A | Bank / company / client | TDS on non-salary (interest, fees, rent) | 15 days from TDS-return due date |
| Form 16B | Property buyer | TDS on immovable property (s.194-IA) | 15 days from TDS deposit |
A salaried person needs Form 16; a freelancer or FD holder relies on Form 16A. All of it should also reflect in Form 26AS / AIS.
If you are the one deducting TDS
Businesses paying salary, contractors, rent or professional fees are deductors and carry the compliance. The core checklist:
- Obtain a TAN before deducting
- Deduct at credit or payment, whichever is earlier
- Deposit the challan by the 7th of the next month
- File quarterly returns — 24Q (salary), 26Q (non-salary)
- Issue Form 16 / 16A on time
- Reconcile against 26AS on TRACES
Running payroll or paying vendors? Get your TDS deduction and returns handled end to end.
Get TDS Return Filing →How to Claim a TDS Refund
If the tax deducted exceeds your actual liability — common for those below the taxable limit or with heavy FD interest — the excess is refunded once you file your ITR. There is no separate refund form; the refund flows from your return.
FD interest — refund example
Freelancer — refund example
- File your ITR claiming the TDS credit (auto-populated from Form 26AS / AIS)
- Pre-validate your bank account and link PAN on the portal
- The excess is credited directly, usually within 4–12 weeks of processing
- Interest at 6% p.a. under Section 244A is added where the refund is large enough
TDS vs TCS vs Advance Tax
| Concept | Who pays | When | Example |
|---|---|---|---|
| TDS — Tax Deducted at Source | Payer deducts from your payment | At the time of payment | Employer deducts from salary |
| TCS — Tax Collected at Source | Seller collects from buyer | At the time of sale | Dealer collects on a car above ₹10L |
| Advance tax | Taxpayer pays directly | Quarterly (Jun/Sep/Dec/Mar) | High-income earner pays in instalments |
All three are credited against the same final tax liability in your ITR — TDS and TCS reduce what you self-pay as advance tax.
TDS is not an extra tax — it is a pre-payment of your own tax. If your total income is below the taxable limit, you can avoid FD-interest TDS by filing Form 15G (or 15H for senior citizens) with the bank, instead of deducting first and claiming a refund later.
What is TDS — Frequently Asked Questions
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