Tax Deducted at Source (TDS) is a key mechanism under the Income Tax Act, 1961, in India. It ensures tax collection at the source of income, helping prevent tax evasion and providing steady revenue to the government. The payer (deductor) deducts tax before making payment to the recipient (deductee) and deposits it with the authorities.
TDS Full Form: Tax Deducted at Source.
For the Financial Year (FY) 2025-26 (Assessment Year 2026-27), the TDS rates and thresholds have been updated via the Finance Act 2025. Key changes include higher thresholds for several sections, removal of higher TDS rates for non-filers (Section 206AB omitted), a new Section 194T for payments to partners, and reduced rates in specific cases.
Key Changes in TDS for FY 2025-26 (Effective from April 1, 2025)
- Increased Thresholds: Higher limits for rent (Section 194-I to ₹6 lakh annually), interest for senior citizens (Section 194A to ₹1 lakh), commission/brokerage (₹20,000), and more to reduce compliance burden on small transactions.
- New Section 194T: 10% TDS on payments (salary, interest, bonus, commission) to partners by firms/LLPs if exceeding ₹20,000 annually.
- Omission of Section 206AB/206CCA: No higher TDS/TCS for non-filers of ITRs.
- Other Updates: Reduced TDS on certain securitization trust income (Section 194LBC to 10% for residents); per-transaction basis for lottery/horse race winnings.
TDS Rates Chart for FY 2025-26 (Section-wise for Residents)
| Section | Nature of Payment | Threshold Limit | TDS Rate (Individual/HUF) | TDS Rate (Others) |
|---|---|---|---|---|
| 192 | Salary | Basic exemption limit | As per applicable slab rates (old/new regime) | As per applicable slab rates |
| 192A | Premature EPF Withdrawal | ₹50,000 | 10% | 10% (20% if no PAN) |
| 193 | Interest on Securities | ₹2,500 | 10% | 10% |
| 194 | Dividend | ₹10,000 (increased) | 10% | 10% |
| 194A | Interest other than on Securities (Banks/Post Office/Co-op) | ₹50,000 (₹1,00,000 for seniors) | 10% | 10% |
| 194A | Other Interest | ₹10,000 | 10% | 10% |
| 194B | Lottery/Crossword/Puzzle Winnings | ₹10,000 (per transaction) | 30% | 30% |
| 194BB | Horse Race Winnings | ₹10,000 (per transaction) | 30% | 30% |
| 194C | Contractor/Sub-contractor | ₹30,000 (single) / ₹1,00,000 (aggregate) | 1% | 2% |
| 194D | Insurance Commission | ₹20,000 (increased) | 2% (individuals) | Varies (often 10%) |
| 194G | Commission on Lottery Tickets | ₹20,000 (increased) | 5% | 5% |
| 194H | Commission/Brokerage | ₹20,000 (increased) | 2-5% (updated in some cases) | 2-5% |
| 194I | Rent (Land/Building/Furniture) | ₹6,00,000 annually (₹50,000 monthly) | 10% | 10% |
| 194I | Plant/Machinery | ₹6,00,000 | 2% | 2% |
| 194J | Professional/Technical Fees | ₹50,000 (increased) | 10% (professional) / 2% (technical) | 10%/2% |
| 194O | E-commerce Transactions | ₹5,00,000 (some exemptions) | 0.75-1% | 0.75-1% |
| 194T | Payments to Partners (New) | ₹20,000 | 10% | 10% |
| 194BA | Online Gaming Winnings | No threshold | 30% on net winnings | 30% |
Notes:
- Rates are without surcharge/cess (add 4% health & education cess where applicable).
- If PAN not provided, TDS at higher rate (up to 20%).
- No TDS on payments to Government, RBI, or certain exempt entities.
- Form 15G/15H can be submitted for nil/lower deduction if income below taxable limit.
Section-wise TDS Deduction Rules
- Section 192 (Salary): Deduct based on employee's estimated annual taxable income and chosen tax regime. Employer issues Form 16.
- Section 194A (Interest): Banks deduct on FD interest exceeding threshold. Seniors get higher limit. No TDS on savings account interest below limits.
- Section 194C (Contracts): Applies to works contracts, labour, advertising, etc. No TDS if recipient furnishes declaration for transporters (≤10 vehicles).
- Section 194I (Rent): Deduct on rent payments. Separate rates for property vs. machinery.
- Section 194J (Fees): Higher rate for professional services (royalty, non-compete); lower for technical/call centre.
- Lottery/Winnings (194B/BB/BA): Flat 30% on excess amount. Deduct at payout time.
- New Section 194T: Firms must monitor aggregate payments to partners annually.
Compliance Tips
- Deposit TDS by 7th of next month (30th April for March).
- File quarterly TDS returns (Form 24Q/26Q/27Q).
- Penalties: Interest @1-1.5% p.m. for late deposit; ₹200/day late fee for returns.
- Check TDS credit in Form 26AS on e-filing portal.
Staying updated with these TDS rules helps avoid penalties and ensures smooth compliance. Consult a tax professional for specific cases, as rates may vary for NRIs or companies.
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