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TDS

Tax

Tax Deducted at Source

A system where the payer deducts tax at the time of making a payment and deposits it directly with the government on behalf of the payee.

Definition

Tax Deducted at Source (TDS) is a mechanism under the Indian Income Tax Act where the entity making a payment (the deductor) deducts a specified percentage of tax before making the payment and deposits it with the government on behalf of the payee. This ensures tax collection happens at the source of income rather than at the end of the year.

TDS was introduced to prevent tax evasion and to spread the government's tax collection across the year. It applies to a wide range of payments: salaries, professional fees, rent, interest on bank deposits, contractor payments, commission, lottery winnings, and more.

The deducted tax is linked to the recipient's PAN and is visible in their Form 26AS, which they can verify before filing their ITR.

Formula

TDS Amount = Payment Amount × TDS Rate

Different sections of the Income Tax Act specify different TDS rates for different types of payments. Some common ones:

Payment Type Section TDS Rate
Salary 192 As per income tax slab
FD interest 194A 10%
Professional fees 194J 10%
Rent (individual) 194IB 2% if >₹50,000/month
Commission 194H 2%

Worked Example

A freelance designer receives a professional fee of ₹1,00,000 from a company. Under Section 194J, the company deducts TDS at 10%.

  • TDS deducted = ₹1,00,000 × 10% = ₹10,000
  • Amount received by designer = ₹90,000
  • The company deposits ₹10,000 with the government under the designer's PAN

When the designer files their ITR, they declare the full ₹1,00,000 as income. The ₹10,000 TDS credit reduces their final tax liability. If the designer's total tax liability is only ₹7,500, they get a refund of ₹2,500.

Use the TDS calculator to estimate TDS on different payment types.

Key Things to Know

  • Verify in Form 26AS: Always verify that all TDS deducted is reflected in Form 26AS before filing your ITR. Discrepancies mean either the deductor has not deposited the tax or there is a PAN mismatch.
  • TDS ≠ final tax: TDS is an advance tax collection mechanism. Your actual tax liability is determined when you file your ITR. If TDS exceeds liability, you get a refund; if it falls short, you pay the balance.
  • No PAN, higher rate: If you do not provide your PAN to the deductor, they are required to deduct TDS at 20% or the applicable rate, whichever is higher.
  • GST vs TDS: TDS is an income tax mechanism (direct tax). GST is an indirect tax on supply of goods/services. They are completely separate — GST does not reduce TDS liability or vice versa.
  • Form 15G / 15H: If your total income is below the taxable threshold, you can submit Form 15G (age < 60) or Form 15H (senior citizens) to the bank to prevent TDS on FD interest.

Related Calculators

TDS Calculator →Calculate TDS deduction for FD interest, rent, professional fees, property purchase and more. Instant results for Indian taxpayers.
Income Tax Calculator →Calculate income tax for FY 2025-26 under old and new tax regimes. Includes 87A rebate, surcharge, cess, and deductions (80C, 80D, HRA). India income tax.

Related Terms

HRAHouse Rent AllowanceSection 80CSection 80C — Income Tax DeductionGSTGoods and Services Tax
Frequently Asked Questions
What is Form 26AS?
Form 26AS is a consolidated annual tax statement available on the Income Tax e-filing portal. It shows all TDS deducted against your PAN by various deductors (employers, banks, tenants, etc.), advance tax paid, and self-assessment tax paid.
What is the TDS rate on salary?
TDS on salary is not a fixed rate — it equals the estimated income tax liability for the year divided by 12. Your employer calculates this based on your income, declarations, and the tax regime you choose. The effective rate varies by individual.
What is TDS on FD interest?
Banks deduct TDS at 10% on FD interest when it exceeds ₹40,000 per financial year (₹50,000 for senior citizens). If you submit Form 15G (below 60 years, no tax liability) or Form 15H (senior citizens), the bank will not deduct TDS.
How do I get a TDS refund?
If more TDS has been deducted than your actual tax liability, you can claim the refund by filing your Income Tax Return (ITR). The excess amount is refunded to your registered bank account, usually within a few weeks to months.
What is TDS on rent?
If you pay rent exceeding ₹50,000 per month, you (the tenant) must deduct TDS at 2% under Section 194IB. This applies even to individuals and HUFs who are not required to get their accounts audited.