1. What is Tax Deducted at Source?
Tax Deducted at Source (TDS) is a mechanism introduced by the Income Tax Department to collect tax directly at the origin of income. When a payer makes certain payments (like professional fees, rent, or contractor payments) exceeding statutory thresholds, they must deduct a prescribed percentage and deposit it with the Central Government on behalf of the recipient.
The recipient can claim this credit against their annual income tax liability through Form 26AS.
2. Key Business TDS Sections
Businesses operating in India routinely encounter these four critical sections:
- Section 194C (Contractors & Sub-contractors): 1% deduction for payments to individual/HUF contractors, 2% for corporate contractors. Threshold: Single bill >₹30,000 or aggregate >₹1,00,000 annually.
- Section 194J (Professional / Technical Fees): 10% for professional services (legal, medical, architectural, accounting); 2% for technical fees and call center operators. Threshold: >₹30,000 annually.
- Section 194I (Rent): 10% on land, building, or furniture rent (>₹2,40,000 annually); 2% on plant and machinery hire.
- Section 194H (Commission & Brokerage): 5% on commission payments exceeding ₹15,000 annually.
3. Payment Deadlines & Challan 281
All TDS deducted in a calendar month must be deposited by the 7th of the following month (e.g., tax deducted on July 20th must be deposited by August 7th). An exception is made for March deductions, which can be deposited up to April 30th.
Deposits are made using Challan ITNS 281 on the official Income Tax e-filing portal (e-Pay Tax).
4. Consequences of Non-Deduction or Non-Payment
1. Interest Liability: Failure to deduct attracts 1% interest per month from the date deductible. Failure to deposit after deduction attracts 1.5% interest per month under Section 201(1A).
2. Expense Disallowance: Under Section 40(a)(ia), 30% of the expenditure paid to a resident is disallowed as a business deduction in your income tax calculation if TDS was not deducted or paid, directly increasing your taxable business profit.