- The cycle: register TAN → deduct at the right rate → deposit → file the quarterly statement → issue certificates.
- Deposit falls due by the 7th of the following month (30 April for March deductions); quarterly statements fall due after each quarter closes.
- Three costs stack up on default: interest, a late-filing fee, and the disallowance of a part of the expense in the payer’s own return.
- Rates and thresholds depend on the nature of payment and the payee’s status, and are reset by Finance Acts and notifications — verify for the year in question.
The TDS cycle
- 01
Register
Apply for a Tax Deduction and Collection Account Number (TAN); quote it on every challan, return and certificate.
- 02
Deduct
At credit or payment, whichever is earlier, apply the rate for the nature of payment; check PAN and any lower-deduction certificate.
- 03
Deposit
Pay to the government by the 7th of the next month (30 April for March).
- 04
File
Quarterly TDS statement for each of the four quarters, reconciled to challans.
- 05
Certify
Issue TDS certificates to payees — salary certificate once a year, non-salary certificates quarterly.
Who has to deduct
Any person making specified payments — salary, contractor and professional fees, rent, commission, interest, and payments to non-residents among them — is a “deductor” if the payment crosses the threshold for that category. Companies and firms have no residual exemption: a small private company paying a freelance designer must be set up to deduct as well. The obligation is to deduct tax, not merely to pay the payee, which means the invoice and the payment instruction should show the gross figure, the deduction and the net.
Typical payment heads
| Payment | Typical deductee | Considerations |
|---|---|---|
| Salary | Employee | Estimated tax on the employee’s slab; Form 16 annually |
| Contractor or sub-contractor payments | Individual / HUF, others | Higher rate where the payee is a company or firm; single-payment and annual thresholds apply |
| Professional and technical fees | Professional, consultant | Includes directors’ fees; threshold applies per payee per year |
| Rent | Landlord | Different rates for plant and machinery vs land, building and furniture |
| Commission and brokerage | Agent | Threshold-linked |
| Payments to non-residents | Non-resident | Rates on the face of the Act or the applicable treaty; Form 15CA/15CB for remittances; coordinate with FEMA compliance |
| Purchase of immovable property | Seller | Buyer deducts on payment above a threshold and files a separate challan-cum-statement |
Deposit and filing deadlines
| Item | Deadline |
|---|---|
| Deposit of tax deducted | 7th of the following month; 30 April for deductions made in March |
| Quarterly statement — April to June | 31 July |
| Quarterly statement — July to September | 31 October |
| Quarterly statement — October to December | 31 January |
| Quarterly statement — January to March | 31 May |
| Salary certificate for the year | 15 June |
| Non-salary certificate | Within 15 days after the due date of the quarterly statement |
What happens when it goes wrong
| Default | What follows |
|---|---|
| Tax not deducted | Payer is treated as an assessee in default for the tax; interest runs from the date deduction was due |
| Deducted but not deposited | Higher interest for the period; prosecution provisions apply where tax deducted is retained |
| Deducted or deposited late | Interest per month or part of a month; a part of the expense may be disallowed in the payer’s income until deposit |
| Quarterly statement filed late | Late-filing fee per day until filed, capped at the tax deductible; penalty for failure to file within a year |
| Wrong PAN or missing PAN | Higher rate of deduction; payee cannot claim full credit — a recurring source of reconciliation failures |
| Certificate issued late | Fee per day of delay |
Controls that prevent most defaults
TDS control list
- Vendor master holds PAN, TAN where relevant, residency status and lower-deduction certificate on file
- Payment categories are mapped to rates in the accounting system, with annual rate review
- Deduction journal entries are reconciled to the TDS challan before the 7th of each month
- Quarterly statement is prepared from the ledger, not from memory, and reconciled to challans
- Certificates are issued from the portal and a copy is kept with the vendor file
- Notices on defaults and demands are tracked against the TRACES portal
Frequently asked
Is TDS applicable on GST amounts shown separately on an invoice?
Where GST is indicated separately in the invoice, the general administrative position has been that tax is deducted on the amount excluding GST. Confirm for the payment category and year, since treatment can differ for items such as rent and for specific notified clarifications.
Can a payee ask for a lower or nil deduction?
Yes, on application to the Assessing Officer for a lower-deduction certificate where the payee’s expected tax liability is lower than the TDS that would otherwise be deducted. The certificate has a fixed validity and amount.
What is a TAN and how is it different from PAN?
PAN identifies a taxpayer; TAN is the Tax Deduction and Collection Account Number that identifies the deductor on challans, returns and certificates. A deductor needs a TAN even if it has a PAN.
Does TDS apply to payments to foreign vendors?
Often yes: payments to non-residents are subject to deduction at rates under the Act or the applicable tax treaty, and remittance requires the prescribed accountant’s certificate and declaration. These are also FEMA-regulated cross-border payments, so the tax and foreign-exchange paperwork should be aligned.
Rates, thresholds, forms and due dates for TDS are reset by Finance Acts, rules and CBDT notifications, and form numbers changed with the Income-tax Act, 2025. Verify the current notified position before deducting. Not a substitute for advice from an advocate or chartered accountant on your facts.