TDS & TCS - INCOME TAX

Complete Reference Guide (Sections · Rates · Thresholds · Due Dates · Forms · Penalties · New Changes)

TDS — Tax Deducted at Source

TDS is a mechanism through which the Government collects tax directly at the source of income. This deduction occurs at a specified percentage of the income.

Under the provisions of the Income Tax Act, 2025, payers are required to deduct TDS at the source of income if the payment for goods or services exceeds a certain threshold.

The Government of India determines the rates and thresholds for TDS for various categories of goods and services for each financial year

TCS — Tax Collected at Source

TCS means tax is collected by the seller from the buyer at the time of sale of specified goods or services.

Purpose of TDS/TCS

• Ensures regular flow of revenue to the government

• Prevents tax evasion

• Tracks income at the source itself

• Reduces burden on taxpayer at year-end

What is TAN ?

Tax deduction Account Number (TAN) is a 10 digit alphanumeric number issued by the Income Tax Department and every person deducting/collecting tax at source is required to obtain and quote it in every correspondence/ communication related to TDS/TCS.

TAN require for the deductor.

Common Expenses incur in business Attracting TDS

• Salary payments – covered under Section 192 (based on employee taxable income)

• Contract payments / Job work / Labour charges – Section 194C (very common in business)

• Professional and technical fees (CA, lawyer, consultant, freelancer) – Section 194J

• Rent (office, building, machinery, warehouse) – Section 194I

• Commission or brokerage – Section 194H

• Interest on loans / unsecured loans / deposits – Section 194A

• Payment to non-residents (services, royalty, interest, etc.) – Section 195

Common Transactions Attracting TCS

• Sale of goods (general business sales) – Section 206C(1H)

Applicable if seller turnover exceeds ₹10 crore and receipt from a buyer exceeds ₹50 lakhs

• Sale of motor vehicle – Section 206C(1F)

Applicable if value exceeds ₹10 lakhs per vehicle

• Sale of scrap – Section 206C(1)

• Foreign remittance under Liberalised Remittance Scheme (LRS) – Section 206C(1G)

• Overseas tour packages – Section 206C(1G)

TDS Compliance Checklist

Before deducting TDS, the first requirement is to correctly identify the nature of payment and the applicable section under the Act, such as salary, contract, professional fees, rent, or interest.

Once the section is identified, the next step is to verify whether the payment exceeds the prescribed threshold limit. If the payment is below the limit, TDS is not required.

After confirming applicability, it is important to collect and verify the PAN of the deductee. In case PAN is not available, TDS must be deducted at a higher rate as per the provisions.

THE TIME LIMIT FOR DEDUCTING TDS/TCS

TDS must be deducted at the earlier of:

• At the time of credit of income to the payee’s account, or

• At the time of actual payment, whichever is earlier

WHAT IS THE DUTY OF DEDUCTOR/COLLECTOR, IF THE DEDUCTEE DOES NOT FURNISH HIS PAN?

If the deductee does not furnish PAN or furnishes incorrect PAN to the deductor / collector, the deductor / collector shall deduct tax at source at higher of the following rates:

• the rate prescribed in the Act; or

• at the rate in force, i.e., the rate mentioned in the Finance Act; Or

• at the rate of 20%.

Detailed TDS Comparison (with Limits & Rates)

Below is the expanded comparative table showing how each old TDS section maps into the new Act, along with the threshold / applicability limit and rate for FY 2026-27:

Threshold

Income-tax Act 1961	Nature of Payment	Income-tax Act 2025	Limit (FY 2026-27)	TDS Rate (FY 2026-27)
192	Salary	Sec 392(1)–(6)	Calculated under income tax slabs	Variable, per income tax slab
194C	Contractor payments	Sec 393(1) Table Sl 6(i),(ii)	₹30,000 single / ₹1,00,000 aggregate (certain payers)	1% (Ind./HUF), 2% (others)
194H	Commission / brokerage	Sec 393(1) Table Sl 1(ii)	₹20,000	2%
194I	Rent	Sec 393(1) Table Sl 2(i)	Rs. 50,000 for a month or part of a month	2%
194IA	Property transfer	Sec 393(1) Table Sl 3(i)	More than ₹50,00,000	1%
194IB	Rent by individual/HUF	Sec 393(1) Table Sl 2(ii)	Rs. 50,000 for a month or part of a month	10%
194J	Fees for professional/technical services	Sec 393(1) Table Sl 6(ii),(iii)	₹50,000	10%
194T	Payment to partners	Sec 393(3) Table Sl 7	₹20,000	10%

📌 Note: Salaries are taxed based on the normal slab rates applicable for FY 2026-27 (not a fixed TDS percentage). Employers deduct TDS as per chosen tax regime (Old or New).

Due Date for Payment of TDS

Month of Deduction	Due Date
April to February	7th of next month
March	30th April

Due Date for Filing TDS Returns (Quarterly)

Quarter	Period	Due Date	Form type (Income Tax Act 1961)	Form type (Income Tax Act 2025)
Q1	Apr – Jun	31st July	24Q / 26Q / 27Q	138/ 140 / 143
Q2	Jul – Sep	31st October	24Q / 26Q / 27Q	138/ 140 / 143
Q3	Oct – Dec	31st January	24Q / 26Q / 27Q	138/ 140 / 143
Q4	Jan – Mar	31st May	24Q / 26Q / 27Q	138/ 140 / 143

Detailed TCS Comparison (with Limits & Rates)

Threshold

Nature of Receipt	Old Section (1961)	New Law Ref (2025)	Limit (FY 2026-27)	TCS Rate	Key Change/Status
Scrap	206C(1)	Sec 394	No threshold	2%	Increased from 1% to 2%.
Motor Vehicles	206C(1F)	Sec 394	> ₹10 Lakh	1%	No change in rate or threshold.
LRS (Other purposes)	206C(1G)	Sec 394	Above ₹10 Lakh	20%	Continues at 20% for non-essential remits.
Overseas Tour Packages	206C(1G)	Sec 394	None	2%	Major Change:  Flat 2%, threshold removed.

Due Date for Payment of TCS

Month of Collection	Due Date
All months	7th of next month

Due Date for Filing TCS Returns (Quarterly)

Quarter	Period	Due Date	Form type (Income Tax Act 1961)	Form type (Income Tax Act 2025)
Q1	Apr – Jun	15th July	27EQ	Form 143
Q2	Jul – Sep	15th October	27EQ	Form 143
Q3	Oct – Dec	15th January	27EQ	Form 143
Q4	Jan – Mar	15th May	27EQ	Form 143

WHAT ARE THE CONSEQUENCES OF TDS/TCS DEFAULTS AND NON-PAYMENT TO GOVERNMENT?

Failure to deduct tax or short deduction of tax or failure/delay in payment of the tax deducted to the credit of Government by the due date, would make the deductor an assessee in default in respect of such tax and also liable to penalty which is equal to the amount for which the assessee is a deemed defaulter.

Section	Default Type	Interest Payable	Period
201A	Non-deduction of Tax at source in whole or in part	1% per month*	From the date on which the tax was supposed to be deducted to the actual date of deduction
	Non-payment of tax after deduction (in whole or in part)	1.5% per month*	From the date of tax deduction to the date of deposit

Note:

• The above interest should be paid before filing of TDS return.

• The interest is to be calculated on a monthly basis and not on the number of days i.e. part of a month is considered as a full month.

Under Section 398(3), in case of late deposit of TDS after deduction, you have to pay interest. Interest is calculated at the rate of 1.5% per month from the date on which TDS was deducted to the actual date of deposit.

Forms for Filing TDS and TCS Returns

Form type (Income Tax Act 2025)	Form type (Income Tax Act 1961)	Purpose
Form 138	Form 24Q	TDS on salary payments
Form 140	Form 26Q	TDS on payments other than salary
Form  144	Form  27Q	TDS on payments made to NRI
Form 143	Form 27EQ	TCS collected from suppliers

Note:

The deductor should provide the challan-cum-statement within 30 days from the end of the month in which TDS is deducted. As an exception, no return is required separately in such cases.

Penalty for Late Filing of TDS/TCS Returns

Under Section 427, (Section 234E of the Income Tax Act, 1961) a fee of Rs. 200 for every day would be charged for late furnishing of TDS/TCS statements from the due date of furnishing of the statements till the date of furnishing of the statements. The total amount of the fee cannot exceed the total amount of TDS or TCS.