What is TDS (Tax Deducted at Source)

TDS is a way of collecting income tax at the point where income arises. The person making certain payments, such as salary, rent or professional fees, deducts tax before paying the balance and deposits it with the government. The receiver then claims credit for that tax in their own return.

Why it matters for your business

If your business pays salaries, contractors, rent or commission, you may become a deductor. That brings duties: deduct, deposit, file quarterly statements and issue certificates. To do this you need a TAN, which you can get through TAN registration. Many founders learn about this only after a notice arrives.

Where TDS applies

• Salary paid to employees.
• Payments to contractors and professionals.
• Rent, commission and similar payments.
• Interest paid by banks and other payers.

Rates and thresholds differ by payment type and change with each Finance Act, so check current rules before deducting.

How the process works

• Deduct tax at the applicable rate when you pay or credit the amount.
• Deposit it with the government within the prescribed time.
• File quarterly TDS statements. Our TDS filing service covers this.
• Issue Form 16 for salary and Form 16A for other payments to the receiver.

The receiver can see the credit in Form 26AS. If the details do not match, a TDS return correction may be needed. Someone whose income is low can sometimes apply for a lower TDS certificate, so less tax is cut upfront.

Common mistakes

• Deducting tax but not depositing it on time.
• Quoting a wrong PAN for the receiver, so credit does not show up.
• Skipping quarterly statements.
• Not issuing certificates, which leaves the receiver unable to claim credit properly.

Related guides: GSTR-1 and GSTR-3B, GST due dates calendar, MCA and ROC

FAQs

Who has to deduct TDS?

Any person or business making specified payments above the applicable limits, including employers, companies and firms.

What is the difference between Form 16 and Form 16A?

Form 16 is the TDS certificate for salary. Form 16A covers non-salary payments such as professional fees or interest.

Do I need a TAN to deduct TDS?

Generally yes. A few cases, such as an individual deducting tax on rent under a specific section, may use PAN instead.

Unsure whether TDS applies to your payments? Talk to a Taxhint expert before your next payment goes out.