PILLAR GUIDE VERIFIED

TDS & Withholding Tax Guide.

Tax Deducted at Source is money your employer, bank, or client deducts before paying you. If they deduct too much, you get a refund when filing ITR. Here's every section, rate, and threshold for FY 2026-27.

What is TDS?

TDS (Tax Deducted at Source) is the mechanism where the payer — your employer, bank, tenant, or client — deducts tax before making a payment to you. Instead of you paying the full tax at year-end, the government collects it in instalments throughout the year.

shield Prevents Evasion

Income is taxed before it reaches you — harder to hide.

calendar_month Spreads Burden

Tax is collected monthly or at transaction time, not in one lump sum.

autorenew Refund if Excess

If TDS > actual liability, you claim a refund when filing ITR.

THE CORE RULE

TDS is not an extra tax. It is advance collection of your income tax. Your final liability is determined when you file ITR. TDS > liability → refund. TDS < liability → you pay the difference.

TDS on Salary (Section 192)

Your employer estimates your annual income, applies the applicable slab rates, and deducts the total tax in 12 equal monthly instalments. This is unlike other TDS sections which use flat rates — salary TDS is always slab-based.

Section	Rate	Threshold	Who Deducts
192	Slab rates (both regimes)	Salary > basic exemption limit	Employer

FORM 16 — YOUR PROOF

Form 16 is your annual TDS certificate from your employer. Part A shows TDS details (PAN, TDS amount, quarter-wise breakdown). Part B shows salary breakdown and taxable income. Cross-check it against Form 26AS and AIS — mismatches are scrutiny triggers.

TDS on Interest (Section 194A)

When you earn interest on bank FDs, RDs, or deposits, the bank deducts TDS before crediting the interest to your account. Budget 2025 raised the threshold significantly.

Section	Rate	Threshold	Who Deducts
194A	10%	₹50,000 (₹1,00,000 for senior citizens)	Bank / Post Office

GENERAL

₹50,000

Interest below ₹50,000 per year from a single bank is not subject to TDS.

SENIOR CITIZEN (60+)

₹1,00,000

Budget 2025 doubled the limit for senior citizens from ₹50,000 to ₹1,00,000.

TDS on Rent (Section 194I / 194IB)

If you pay rent as a business or as an individual/HUF above certain thresholds, you must deduct TDS before paying the landlord. Two separate sections apply depending on what is being rented.

Section	Rate	Threshold	Who Deducts
194I(a)	10%	₹6,00,000 per annum (Budget 2025 raised from ₹2,40,000)	Tenant (non-individual/HUF)
194I(b)	2%	₹6,00,000 per annum (plant & machinery)	Tenant (non-individual/HUF)
194IB	5%	₹50,000 per month (individual/HUF residential rent)	Individual / HUF tenant

BUDGET 2025 THRESHOLD HIKE

Section 194I(a) threshold was raised from ₹2,40,000 to ₹6,00,000 per annum. This means small businesses paying moderate rent may no longer need to deduct TDS on rent.

TDS on Professional Fees (Section 194J)

If you pay a freelancer, consultant, or professional for services, TDS applies above ₹50,000 per year. Budget 2025 raised this threshold from ₹30,000.

Section	Rate	Threshold	Who Deducts
194J(a)	10%	₹50,000 per year (professional / technical fees)	Payer
194J(b)	2%	₹50,000 per year (technical services, call centre)	Payer

2% vs 10% — WHICH APPLIES?

194J(b) at 2% applies to technical services and fees paid to call centres. 194J(a) at 10% applies to all other professional and technical fees. If your work involves both, the payer may apply 10% to be safe.

TDS on Dividend (Section 194)

Since FY 2020-21, dividends are taxable in your hands. The company deducts TDS before crediting the dividend to your bank account.

Section	Rate	Threshold	Who Deducts
194	10%	₹10,000 per company per year	Company / Issuer

If you hold shares of 5 different companies and each pays you ₹5,000 dividend, no TDS is deducted because each is below ₹10,000. But if one company pays ₹12,000, TDS applies on the full ₹12,000 — not just the ₹2,000 above threshold.

TDS on Crypto & VDA (Section 194S)

Virtual Digital Assets (crypto, NFTs, etc.) attract a flat 1% TDS on every transfer above ₹50,000 per year. For specified persons (non-filers), the threshold is ₹10,000.

Section	Rate	Threshold	Who Deducts
194S	1%	₹50,000 (₹10,000 for specified persons)	Exchange / Buyer

TDS IS NOT THE FINAL TAX

Crypto income is taxed at 30% flat (Section 115BBH) plus 4% cess. The 1% TDS is advance tax — you will owe the remaining ~29% when filing ITR. Losses from crypto cannot be set off against any other income.

TDS on E-Commerce (Section 194O)

E-commerce operators (Amazon, Flipkart, Meesho, etc.) must deduct TDS on net sales of e-commerce participants. This applies to sellers, service providers, and affiliate marketers on these platforms.

Section	Rate	Threshold	Who Deducts
194O	1%	₹5,00,000 (net of returns and commissions)	E-commerce operator

If you sell goods worth ₹8,00,000 on Amazon but returns amount to ₹3,00,000, TDS applies on the net ₹5,00,000 — exactly at the threshold. GST collected is excluded from the TDS calculation.

TDS on Property Sale (Section 194IA)

When you buy immovable property (other than agricultural land) worth ₹50 lakh or more, the buyer must deduct TDS before paying the seller. This applies to both residential and commercial property.

Section	Rate	Threshold	Who Deducts
194IA	1%	₹50,00,000	Buyer

SELLER'S PAN IS MANDATORY

If the seller does not provide PAN, TDS jumps to 20% under Section 206AA. On a ₹60L property, that is ₹12,00,000 deducted instead of ₹60,000. Always collect PAN before closing the deal.

TDS on EPF Withdrawal (Section 192A)

When you withdraw your Employee Provident Fund (EPF) before completing 5 years of continuous service, the EPFO trustee deducts TDS on the accumulated balance.

Section	Rate	Threshold	Who Deducts
192A	10%	₹50,000 (if withdrawn before 5 years of service)	EPFO Trustee

No TDS is deducted if you withdraw after 5 years of continuous service, or if you submit Form 15G/15H (for low-income earners), or if you use the withdrawal for specific exemptions (house construction, medical illness, etc.).

PAN-Aadhaar Link Penalty

Under Section 206AA, if your PAN is not linked to Aadhaar, TDS is deducted at the higher of: the prescribed rate, 20%, or twice the prescribed rate. In most cases, this means 20% TDS instead of the normal 1-10% rate.

NORMAL RATE (PAN LINKED)

1% – 10%

PENALTY RATE (PAN UNLINKED)

20%

block ITR Filing Blocked

You cannot file Income Tax Return with an inactive PAN.

block Refunds Withheld

Any refund due will not be credited until PAN is linked and active.

HOW TO CHECK & LINK

Check status: incometax.gov.in → Profile → PAN-Aadhaar Status.
Link online: Aadhaar e-KYC at incometax.gov.in or visit any Aadhaar enrolment centre. Linking is free — no penalty if done before deadline.

How to Verify TDS

The Income Tax Department maintains three statements that track all tax deductions and financial transactions. Cross-checking these is essential to avoid scrutiny.

description Form 26AS ANNUAL STATEMENT

Annual tax statement showing TDS deducted, TCS collected, refunds issued, and self-assessment tax paid. This is the primary document for cross-checking employer, bank, and client TDS claims.

info AIS — Annual Information Statement COMPREHENSIVE

Shows all financial transactions — salary, interest, dividends, mutual fund purchases, property, foreign remittances. This is what the department sees. Any unreported transaction here is a red flag.

summarize TIS — Taxpayer Information Summary SIMPLIFIED AIS

Simplified version of AIS showing aggregated values by category. Useful for quick reconciliation — compare TIS values with your ITR figures.

MISMATCH = SCRUTINY TRIGGER

If Form 16 shows ₹8,00,000 salary but AIS shows ₹10,00,000, the department will ask questions. Always cross-check: Form 16 ↔ 26AS ↔ AIS ↔ ITR. Report all income, even if TDS was not deducted.

TDS Refunds

If the total TDS deducted during the year exceeds your actual tax liability, you are entitled to a refund. But the department does not automatically send you a cheque — you must file your ITR to claim it.

WHEN YOU GET A REFUND

check_circle Total TDS > actual tax liability
check_circle Self-assessment tax paid > final liability
check_circle Advance tax instalments exceeded final tax

REFUND PROCESS

check_circle File ITR → verify within 30 days
check_circle CPC processes → issues refund order
check_circle Refund credited directly to your bank

INTEREST ON DELAYED REFUND — SECTION 234D

If the department delays your refund beyond the processing timeline, you earn 0.5% interest per month (or part thereof) on the refund amount under Section 234D. The interest is taxable as income from other sources.