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Compliance|December 202514 min readChecklist

TDS Compliance Essentials: Sections, Rates, and Due Dates

A reference for finance teams — the sections you'll actually use, the FY 2025-26 rate and threshold changes, the monthly-and-quarterly cadence, and the disallowance risk that dwarfs the TDS itself.

Key takeaways

Section 206C(1H) TCS on sale of goods over ₹50 lakh has been abolished with effect from 1 April 2025. The buyer-side obligation under Section 194Q (0.1% TDS on purchases over ₹50 lakh) continues unchanged.

Section 194T (effective 1 April 2025) introduces 10% TDS on payments by partnership firms and LLPs to partners when aggregate payments exceed ₹20,000 in a financial year — deduction triggered at the earlier of credit or payment.

FY 2025-26 threshold changes: Section 194I rent threshold shifted to ₹50,000 per month (from ₹2.4 lakh per year); Section 194H commission TDS rate cut to 2% (from 5%); Section 194J professional fee threshold raised to ₹50,000 per year.

Quarterly TDS return due dates: 31 July, 31 October, 31 January, and 31 May. Section 234E imposes a ₹200 per day late fee (capped at the total TDS for the quarter).

Non-deduction or non-payment triggers the 30% expenditure disallowance under Section 40(a)(ia) — typically a larger cost than the TDS itself. This is where ‘TDS slip-ups’ become material tax bills.

Why TDS Compliance is an Asymmetric Bet Sections You'll Touch Most — FY 2025-26 Reference The Structural Changes in FY 2025-26 You Must Track Monthly Deposit and Quarterly Return Cadence Certificates and Payee Communication The Penalty Architecture: Four Layers of Cost The Monthly TDS Workflow

01Why TDS Compliance is an Asymmetric Bet

TDS is a pay-as-you-go collection mechanism, but the compliance cost of getting it wrong is disproportionate to the TDS amount itself. A missed deduction on a ₹10 lakh contractor payment at 1% TDS is a ₹10,000 deduction omission — but the Section 40(a)(ia) disallowance at 30% of the expense adds another ₹3 lakh to taxable income, plus interest and potentially a penalty. The economics are lopsided: get it right and you lose nothing; get it wrong and the cost is 30x the TDS.

The FY 2025-26 landscape added three moving parts: the new Section 194T (partner payments), the abolition of Section 206C(1H) (TCS on sale of goods), and threshold reshuffles in Sections 194I, 194J, and 194H. This article is the reference finance teams can work off.

02Sections You'll Touch Most — FY 2025-26 Reference

The table below covers the TDS sections that account for the bulk of day-to-day deductions. Rates shown are for payments to residents (Section 195 rules separately govern non-resident payments).

TDS sections, rates and thresholds — FY 2025-26 (resident payees)

Section	Nature of payment	Threshold	Rate
192	Salary	Taxable income above basic exemption	Slab rates
192A	EPF premature withdrawal	₹50,000	10% (20% if PAN not furnished)
194A	Interest other than on securities (banks)	₹50,000 (₹1,00,000 for senior citizens)	10%
194C	Payments to contractors	₹30,000 single / ₹1,00,000 aggregate p.a.	1% (individual/HUF); 2% (others)
194H	Commission or brokerage	₹20,000 p.a.	2% (reduced from 5% w.e.f. 1 Oct 2024)
194I	Rent — land, building, furniture	₹50,000 per month	10%
194I	Rent — plant, machinery, equipment	₹50,000 per month	2%
194J	Professional / technical services	₹50,000 p.a.	10% (professional); 2% (technical/call centre)
194O	E-commerce operator to e-commerce participant	₹5,00,000 p.a. (individual/HUF)	0.1%
194Q	Purchase of goods	Purchases over ₹50 lakh p.a.; buyer T/O > ₹10 crore	0.1%
194R	Benefits or perquisites in business/profession	₹20,000 p.a. per recipient	10%
194T	Salary/interest/commission/remuneration to partners	₹20,000 p.a. per partner	10% (effective 1 April 2025)
195	Payments to non-residents	No threshold	Rate as per Act or DTAA, whichever is beneficial

No PAN, higher rate

Under Section 206AA, if the payee does not furnish PAN, TDS is deducted at the rate in the Section, 20%, or the rate in force — whichever is highest. For specified payments, Section 206AB further prescribes a doubled rate for ‘specified persons’ who have not filed returns for the specified preceding year. Keep PAN collection disciplined at the vendor onboarding stage.

03The Structural Changes in FY 2025-26 You Must Track

Section 206C(1H) abolished (effective 1 April 2025)

TCS on the sale of goods at 0.1% on consideration exceeding ₹50 lakh — which had led to considerable duplication with Section 194Q buyer-side TDS — has been withdrawn from 1 April 2025. Sellers no longer collect TCS on goods sales; the buyer-side Section 194Q obligation continues. Update ERP TCS configurations and invoice templates accordingly.

Section 194T introduced (effective 1 April 2025)

–Firms and LLPs must deduct TDS at 10% on payments to partners — salary, remuneration, commission, bonus, or interest — where aggregate payments exceed ₹20,000 in a financial year.

–Deduction is triggered at the earlier of credit or payment. Credits to the partner's current account or capital account trigger TDS even if cash has not moved.

–Operational impact: Every partner needs a PAN on file; payroll or accounting systems must deduct and remit within the normal TDS timelines; quarterly return (Form 26Q) must capture these deductions.

Threshold and rate re-calibrations

–Section 194I: The rent threshold has moved from ₹2,40,000 per year to ₹50,000 per month. Month-by-month assessment rather than annual aggregate.

–Section 194J: The threshold for professional or technical fees has moved from ₹30,000 p.a. to ₹50,000 p.a. per payee.

–Section 194H: The TDS rate on commission or brokerage has been reduced from 5% to 2% (effective 1 October 2024); the threshold is ₹20,000 p.a.

–Section 194A (bank interest): The threshold for senior citizens has been raised to ₹1,00,000 p.a. (₹50,000 for others).

194Q vs 194O when both apply

If a transaction falls simultaneously under Section 194Q (buyer TDS on goods) and Section 194O (e-commerce operator TDS), Section 194O takes precedence — the e-commerce operator deducts, not the buyer. Build the precedence rule into your ERP so you do not double-deduct or miss both.

04Monthly Deposit and Quarterly Return Cadence

Monthly TDS deposit

–TDS deducted in any month must be deposited by the 7th of the next month.

–For TDS deducted in March, the deposit due date is 30 April of the following financial year (a one-month relaxation over the normal rule).

–Deposit using the relevant challan on the income tax portal; quote the correct Section code and assessment year.

Quarterly TDS/TCS return forms

TDS/TCS return forms and due dates

Form	Purpose	Q1 (Apr-Jun)	Q2 (Jul-Sep)	Q3 (Oct-Dec)	Q4 (Jan-Mar)
24Q	TDS on salary (Section 192)	31 July	31 October	31 January	31 May
26Q	TDS on payments to residents (non-salary)	31 July	31 October	31 January	31 May
27Q	TDS on payments to non-residents (Section 195)	31 July	31 October	31 January	31 May
27EQ	TCS returns	15 July	15 October	15 January	15 May

The four-week internal lock

Lock your TDS workings four weeks before each return date. The last week is for reconciliation, CSI file download, and consolidated file generation. Teams that start at the last minute routinely miss small deductions that trip the Section 234E clock.

05Certificates and Payee Communication

–Form 16 (salary TDS): Annual certificate issued to employees — due by 15 June of the immediately following financial year.

–Form 16A (non-salary TDS): Quarterly certificate issued to payees — due within 15 days from the due date of the quarterly return.

–Form 16B / 16C / 16D / 16E: For specific sections (sale of immovable property, rent by individuals, certain contract payments, and transfer of VDAs respectively).

–All certificates are generated via the TRACES portal (tdscpc.gov.in) after successful processing of the quarterly return. Manually issued certificates are not valid.

Under ITA 2025 (from TY 2026-27), Form 16 maps to Form 130 and Form 16A to Form 131. Section-code mappings also change under the consolidated Section 393 table. Update certificate templates and payee correspondence well before the TY 2026-27 cycle begins.

06The Penalty Architecture: Four Layers of Cost

Get TDS wrong and you can face up to four separate cost layers. Understanding the stack is the best way to prioritise corrective action.

Layer 1 — Interest under Section 201(1A)

–Late deduction: 1% per month (or part of month) from the date on which TDS was deductible to the date on which it was deducted.

–Late deposit: 1.5% per month (or part of month) from the date of deduction to the date of payment to the Government.

–Computed on a simple-interest basis, month-on-month. The 1% / 1.5% split means late deposits are materially more expensive than late deductions.

Layer 2 — Late filing fee under Section 234E

₹200 per day for each day beyond the quarterly return due date until the return is filed. Capped at the total TDS amount for that quarter — it cannot exceed the deduction itself. Unlike 201(1A) interest, this fee is mandatory and not waivable.

Layer 3 — Penalty under Section 271H

For failure to file quarterly returns or for furnishing incorrect information (wrong PAN, wrong tax amount, etc.), the assessing officer can levy a penalty ranging from ₹10,000 to ₹1,00,000. The penalty is not automatic — the officer has discretion — but it is often invoked for persistent errors.

Layer 4 — 30% disallowance under Section 40(a)(ia)

The biggest single cost. If TDS is not deducted or not deposited before the due date of filing the return of income, 30% of the expense is disallowed in computing business income. The disallowance can be reversed in a subsequent year when TDS is finally deducted and deposited — but the working capital impact in the year of disallowance is immediate.

Compound cost arithmetic

On a ₹10 lakh contractor invoice with missed 1% TDS: Layer 1 interest ~₹4,500 (3 months × 1.5%); Layer 2 late filing fee up to ₹200 × 90 = ₹18,000; Layer 3 potential ₹10,000–1,00,000; Layer 4 disallowance at 30% = ₹3,00,000. A ₹10,000 deduction oversight can easily become a ₹3.3 lakh cost.

07The Monthly TDS Workflow

Week 1 — Capture

–Review all vendor invoices for TDS applicability before payment release.

–Check PAN status on the income tax portal for every vendor; apply Section 206AA higher rate where PAN is missing.

–Check Section 206AB applicability for vendors flagged as ‘specified persons’.

–For partners (firms/LLPs), include credits to partner accounts in the deduction run — not just cash payments.

Week 1–2 — Deduct and remit

–Deduct TDS at the time of credit or payment, whichever is earlier.

–Deposit by the 7th of the following month (30 April for March-month deductions).

–Retain the challan reference and map it to the vendor ledger for Q-end reconciliation.

Quarter-end — File and issue

–File the applicable quarterly return (24Q/26Q/27Q/27EQ) by the due date.

–Download Form 16A from TRACES and issue to payees within 15 days of the return due date.

–Reconcile Form 26AS of the company itself (TDS as the deductor perspective) and resolve any flags.

Year-end — Close out

–Issue Form 16 to employees by 15 June.

–Reconcile TDS ledger with the tax audit report schedules.

–Document any 234E or 201(1A) exposure and compute disallowance under Section 40(a)(ia) for the tax return.

–Plan the TY 2026-27 migration to Section 393 codes and the new form numbers (130/131/138/140/143/144).

One owner, one dashboard

Assign a single TDS owner in finance who runs a one-page monthly dashboard: deductions made, deposits made, pending challans, return filing status, and any notices or defaults on TRACES. Ten minutes of senior review each month prevents almost all multi-lakh disallowance surprises at year-end.

CA Siddharth A Shah

CA Siddharth A Shah & Associates, Vadodara

This article is for informational purposes only and does not constitute professional advice. Tax laws are subject to change. Readers should consult a qualified Chartered Accountant for advice specific to their situation. Published December 2025.

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