TDS
TDS on Salary, Rent & Professional Fees: Rates, Thresholds & Filing Guide 2025
If you're paying salary, rent above ₹50,000/month, or professional fees above ₹50,000 — you're probably required to deduct TDS. Here's a complete guide to the rates, due dates, and filing process.
Tax Deducted at Source (TDS) is a mechanism where the payer deducts tax before making a payment and deposits it with the government. It's not optional — failing to deduct or deposit TDS on time leads to penalties, disallowed business expenses, and interest charges.
Common TDS sections and rates:
Section 192 — Salary: Rate based on the employee's applicable income tax slab (no fixed rate). Threshold: No minimum; deduct if annual salary exceeds basic exemption limit.
Section 194C — Contractor/Sub-contractor payments: 1% (individual/HUF) or 2% (others). Single payment threshold: ₹30,000; annual aggregate: ₹1 lakh.
Section 194J — Professional/Technical fees: 10% for professional fees (2% for technical services). Threshold: ₹50,000 in a financial year (from 1 April 2025).
Section 194I — Rent: 10% for land/building; 2% for machinery. Threshold: ₹50,000 per month.
Section 194Q — Purchase of goods: 0.1% if buyer's annual turnover > ₹10 crore. Threshold: Purchase > ₹50 lakh from one seller.
When to deduct and deposit TDS
Deduct TDS at the time of payment or at the time of credit — whichever is earlier. Deposit to the government by the 7th of the following month (except March, where the deadline is April 30). For government deductors, it's the same day of deduction.
Quarterly TDS returns
You must file quarterly TDS returns: 24Q for salary, 26Q for non-salary payments to residents, 27Q for payments to non-residents, 27EQ for TCS. Due dates: Q1 (Apr-Jun) → July 31 | Q2 (Jul-Sep) → October 31 | Q3 (Oct-Dec) → January 31 | Q4 (Jan-Mar) → May 31.
Form 16 and 16A
After filing quarterly returns, you must issue Form 16 (for employees) and Form 16A (for others) showing the TDS deducted and deposited on their behalf. Employees use this to file their ITR. Failure to issue Form 16 on time attracts ₹100 per day penalty.
What happens if you don't deduct TDS?
30% of the expense is disallowed (100% for payments to non-residents) — meaning you can't claim it as a business deduction until the TDS is paid. You also owe interest at 1% per month (failure to deduct) or 1.5% per month (failure to deposit), plus a penalty of ₹10,000 to ₹1 lakh under Section 271H. The income tax department does scrutiny assessments specifically for TDS defaults, especially on rent and contractor payments.
TDS compliance might seem tedious, but it's one of the areas where businesses get caught most often. Keeping a simple TDS calendar and working with a qualified professional for quarterly filing is the smartest investment for any business paying more than a few lakh rupees a year.