Tax Deducted at Source (TDS) is a system introduced by the Income Tax Department to collect tax directly at the point where income is generated. It requires the payer, such as an employer, bank, or tenant, to deduct a certain percentage of tax before making payments like salary, interest, commission, or rent.
This amount is then deposited with the government. TDS ensures a steady flow of revenue throughout the year and reduces the chances of tax evasion by tracking income at the source. Keep reading to know more.
TDS Full Form and Basic Meaning
TDS stands for Tax Deducted at Source. It is a method used by the Indian government to collect income tax at the point of income generation. Instead of waiting for individuals to pay their taxes at the end of the year, a certain percentage of tax is deducted upfront by the payer—known as the deductor—before making payments like salary, rent, commission, or professional fees to the receiver—known as the deductee.
For example, if a company pays ₹80,000 as monthly office rent, and TDS is applicable at 10%, then ₹8,000 will be deducted and deposited with the government. The landlord receives ₹72,000. Later, the landlord can claim ₹8,000 as TDS credit when filing their return.
Why is TDS Deducted?
TDS is deducted to maintain a steady flow of revenue for the government and ensure that taxpayers meet their obligations throughout the year. It also provides visibility into income being earned by individuals and entities, as deductors are required to file quarterly TDS returns. This makes it easier for the tax department to track undeclared income.
For the deductee, the deducted TDS becomes a tax credit while filing ITR and can be adjusted against their total tax liability. If the deducted amount exceeds the actual liability, it is refunded.
How TDS Works in Real Life
TDS is deducted by the person or entity making specific types of payments—this could be an employer, a bank, a company, or a tenant. The person who deducts TDS is called the deductor. It is their responsibility to deduct the correct amount and deposit it with the Income Tax Department. The person receiving the payment is called the deductee.
When is TDS Applicable?
TDS is applicable when a payment crosses the threshold limit set by the Income Tax Act and falls under specified categories. Common cases include:
- Salary payments (Section 192)
- Rent payments (Section 194I)
- Professional or technical fees (Section 194J)
- Commission payments (Section 194H)
- Interest other than interest on securities (Section 194A)
TDS must be deducted at the time of credit or payment, whichever is earlier, and at rates specified by the department.
Examples of TDS Deduction
Some real-world examples of TDS deduction are:
- Salary: If your annual salary exceeds the basic exemption limit, your employer will deduct TDS every month based on estimated yearly income and applicable tax slabs.
- Fixed Deposit: Senior citizens can claim a tax deduction of up to ₹50,000 on interest income earned from Fixed Deposits (FDs) while filing their income tax return under the old tax regime.
- Property Sale: If an individual sells a property for ₹60,00,000, TDS of 1% (₹60,000) will be deducted under Section 194IA. However, if the sale amount is below ₹50,00,000, no TDS is required.
- Freelancers: Freelancers are required to pay advance tax if their total tax liability for the year exceeds ₹10,000.
These deductions are deposited to the government under the deductee’s PAN and can be viewed in Form 26AS on the income tax portal.
How to Make TDS Payment Online
You can pay TDS online through the Income Tax Department’s e-filing portal. Here’s a step-by-step guide:
- Log in to the e-filing portal using your Tax Dedication Account Number (TAN).
- On the dashboard, go to ‘e-File’ > ‘e-Pay Tax’.
- Click ‘New Payment’ and proceed with the appropriate TDS payment option.
- Select the Assessment Year and relevant payment category.
- Fill in the tax breakup details and confirm.
- Choose your payment method – net banking, debit card, UPI, RTGS/NEFT, or pay at the bank counter.
- Preview and verify the details before proceeding.
- Click ‘Submit to Bank’ and complete the transaction via the chosen payment gateway.
- Download the challan receipt for future records.
You can also pay TDS in pre-login mode using only your TAN, mobile number, and preferred payment method.
Details Needed for TDS Payment
To make your TDS payment online, you must keep the following ready:
- Valid TAN
- Correct Assessment Year
- Type of deductee (Company / Non-Company)
- Payment category (salary, rent, interest, etc.)
- Valid banking method (Net Banking, Debit Card, UPI, etc.)
- Mobile number to receive OTP for verification.
TDS Payment Due Dates You Should Know
Here’s everything you need to know about the TDS due dates and the penalty for missing them:
Monthly Payment Deadlines
Tax Deducted at Source must be deposited with the government by the 7th of the following month for deductions made between April and February. That being said, for TDS deducted in March, the due date is 30th April.
For example:
- TDS deducted in July 2025: Deposit by 7th August 2025
- TDS deducted in March 2026: Deposit by 30th April 2026
In the case of the purchase of immovable property, the due date is 30 days from the end of the month in which TDS was deducted.
Quarterly Return Filing Dates
After depositing TDS, you must file a quarterly TDS return using Form 24Q, 26Q, or 27Q, depending on the nature of the transaction. The due dates for FY 2025–26 are:
| Quarter | Period | TDS Return Due Date |
| Q1 | 1 April – 30 June 2025 | 31 July 2025 |
| Q2 | 1 July – 30 September 2025 | 31 October 2025 |
| Q3 | 1 October – 31 December 2025 | 31 January 2026 |
| Q4 | 1 January – 31 March 2026 | 31 May 2026 |
What Happens if You Miss a Due Date?
Missing a TDS deadline can attract both penalties and interest:
- Late Filing Fee (Section 234E): ₹200 per day of delay (capped at the total TDS amount).
- Penalty (Section 271H): ₹10,000 to ₹1,00,000 for late or incorrect TDS return, in addition to the late fee.
- Interest on Late Deduction (Section 201(1A)(i)): 1% per month from the due date to the actual date of deduction.
- Interest on Late Payment (Section 201(1A)(ii)): 1.5% per month from the date of deduction to the date of deposit.
Note: Interest is calculated every month, even a delay of a few days counts as a full month.
Benefits of TDS for Taxpayers and Government
TDS benefits both taxpayers and the government by streamlining the tax collection process. It ensures that tax is collected in real-time as income is earned, reduces the chances of default, and supports better compliance and transparency.
Some more benefits of TDS for taxpayers and the government are:
Helps Track Tax at Source
TDS enables the government to monitor income at the source itself. As deductors are required to report each deduction through TDS returns, it helps track payments made to individuals and organisations, leaving little room for unreported income.
Encourages Tax Compliance
Since TDS is deducted automatically and linked to the deductee’s PAN, it becomes part of the individual’s tax records. This acts as a compliance nudge for taxpayers to report the income and claim the TDS credit while filing their income tax return.
Easier for the Government to Collect Revenue
TDS provides a steady and timely stream of revenue to the government. Instead of waiting for annual tax payments, the government receives partial tax amounts throughout the year, helping in better fund allocation and reducing the risk of tax evasion.
TDS Returns, Refunds, and Form 26AS
TDS returns are filed quarterly by anyone who deducts tax, such as employers or companies. Returns must be filed using the correct form:
- Form 24Q: For salary payments.
- Form 26Q: For non-salary payments to residents.
- Form 27Q: For payments to non-residents.
Steps to file a TDS return online:
- Log in to www.incometax.gov.in with TAN credentials.
- Go to ‘e-File’ → ‘Income Tax Forms’ → ‘File Income Tax Forms.’
- Select the appropriate form and upload your TDS return.
- Complete the process by verifying it via OTP or Digital Signature (DSC).
Missing the due date may attract a late filing fee of ₹200 per day (Section 234E) and additional penalties (Section 271H).
Claiming a TDS Refund
If the TDS deducted is more than your actual tax liability, you can claim a refund by filing your Income Tax Return (ITR).
When can you claim a refund?
- TDS is deducted at a higher rate than your tax slab.
- Excess tax deducted due to missing investment proofs.
- TDS deducted on FD interest despite submitting Form 15G/15H.
- Senior citizens with no taxable income but interest TDS was deducted.
Steps to claim a refund:
- File your ITR on www.incometax.gov.in.
- Enter all income and TDS details.
- Provide your bank name and IFSC code.
- E-verify your return to complete the process.
Refund timeline: Most refunds are processed within 1 to 6 months after successful verification of your ITR.
What is Form 26AS?
Form 26AS is a consolidated tax statement linked to your PAN. It reflects all tax-related details such as:
- TDS is deducted from your income
- Advance tax or self-assessment tax paid
- Income tax refunds received
- High-value financial transactions like mutual fund purchases or property sales
You can access Form 26AS via the TRACES portal or the Income Tax e-filing website. It helps verify if TDS deducted from your income has been correctly deposited with the government.
Wrapping Up
TDS is an important aspect in the Indian tax framework by simplifying tax collection, improving compliance, and helping the government monitor high-value transactions in real time.
For taxpayers, it reduces the year-end tax burden and makes it easier to claim credit or refunds while filing returns. Understanding how TDS works is essential to avoid penalties, track tax deductions accurately, and manage your finances better.
FAQs
What is the full form and basic meaning of TDS?
The full form of TDS is Tax Deducted at Source. TDS refers to the income tax that is deducted by the payer (like an employer or a bank) before making payments such as salary, interest, or commission. This tax is then deposited with the government on your behalf.
How can I make my TDS payment online?
To make your TDS payment online, log in to the Income Tax (I-T) e-filing portal using your TAN. Go to ‘e-File’ > ‘e-Pay Tax’ > ‘New Payment’. Choose the correct tax type, enter the assessment year, add the tax breakup, and proceed to payment. After confirmation, you’ll get an email and SMS for verification.
What are the TDS payment due dates?
TDS payment due dates are as follows:
- For deductions from February to April, by the 7th of the following month.
- For deductions in March, by 30th April.
- For property purchases, by the 30th of the month following the month of the transaction.
How do I know if TDS has been deducted from my income?
To check if TDS has been deducted from your income, log in to the Income Tax portal and view Form 26AS. You can also visit the TRACES portal using your PAN and the deductor’s TAN to verify filings and certificate details.
Is the TDS refundable if extra tax is deducted?
Yes, the TDS is refundable if extra tax has been deducted. You must file your Income Tax Return (ITR) to claim the refund. After processing, the excess amount will be credited to your bank account via ECS.
What is the TDS on salary?
The TDS on salary is covered under Section 192. It requires the employer to deduct tax if your estimated annual salary exceeds the basic exemption limit. The deduction depends on your applicable income tax slab, and the details are provided in Form 16 issued by your employer.
Disclaimer
The information provided in this article is for educational and informational purposes only. It should not be considered as financial or investment advice. Investing in stocks involves risk, and it is important to conduct your own research and consult with a qualified financial advisor before making any investment decisions. The author and publisher are not responsible for any financial losses or gains that may result from the use of this information.
