TDS & Income Tax
TDS Return Filing — Quarterly Returns, Challan Support, and Form 16 / 16A Coordination
TrustLedger manages your TDS computation, deposit, and quarterly return filing for salary and non-salary payments. Know when to deduct, at what rate, and what happens if you miss.
What is TDS?
Tax Deducted at Source (TDS) is a mechanism under the Income Tax Act where the payer of certain types of income deducts a portion of the payment as tax and deposits it directly with the government on behalf of the recipient. The deducted amount is credited to the recipient's tax account and reflected in their Form 26AS and AIS.
TDS is not an additional tax — it is a prepayment of the recipient's income tax liability. For the payer, it is a legal obligation that comes with its own deadlines, deposit requirements, and quarterly return filings. Failure to deduct, deposit on time, or file returns carries penalties that can exceed the original TDS amount.
Who is Required to Deduct TDS?
Any company, firm, LLP, or partnership that makes the following types of payments is required to deduct TDS:
- Salary payments to employees (Section 192) — applicable to all employers whose employees' taxable income exceeds the basic exemption limit
- Professional fees, consultancy fees, or technical services (Section 194J) — deduct 10% if aggregate payment exceeds ₹30,000 in a year
- Contractor or sub-contractor payments (Section 194C) — deduct 1% (individual/HUF contractor) or 2% (all others) if single payment exceeds ₹30,000 or aggregate exceeds ₹1 lakh in a year
- Rent on land/building/machinery (Section 194I) — deduct 10% (land and building) or 2% (machinery) if annual aggregate exceeds ₹2.4 lakh
- Commission or brokerage (Section 194H) — deduct 5% if payment exceeds ₹15,000 in a year
Important exception: Individual and HUF payers not subject to tax audit in the immediately preceding financial year are generally exempt from TDS obligations on most non-salary payments. This exemption does not apply to salary (Section 192) or rent payments exceeding ₹50,000 per month (Section 194-IB).
Key Due Dates
TDS deposit: By the 7th of the month following the month of deduction. For TDS deducted in March: by 30 April.
Form 24Q (Salary TDS return): Q1 by 31 July; Q2 by 31 October; Q3 by 31 January; Q4 by 31 May.
Form 26Q (Non-salary TDS return): Q1 by 31 July; Q2 by 31 October; Q3 by 31 January; Q4 by 31 May.
Form 16 (Salary): Issued to employees by 15 June of the following financial year.
Form 16A (Non-salary): Issued within 15 days of the due date of the quarterly return.
Our Process
Step 1 — Payment Review: We review all payments made during the quarter to identify which are subject to TDS, under which section, and at what rate. We flag any payments that should have had TDS deducted.
Step 2 — TDS Computation: We compute the amount to be deducted per payee, including applicable surcharge and health and education cess where required.
Step 3 — Challan Preparation: We prepare the ITNS 281 challan for payment — with correct section codes, BSR codes, and assessment year. You deposit the amount at the bank or through net banking.
Step 4 — Return Preparation and Filing: We prepare Form 24Q and/or Form 26Q with payee-wise breakup and challan details, and file on the TRACES/TIN-NSDL portal.
Step 5 — Certificate Issuance: Post filing, we generate Form 16 (salary) and Form 16A (non-salary) for distribution to respective deductees.
Penalties for TDS Default
- Late deduction: Interest at 1% per month from the date the amount was payable to the date of actual deduction
- Late deposit after deduction: Interest at 1.5% per month from the date of deduction to the date of deposit
- Late filing of TDS return: ₹200 per day (Section 234E), subject to a maximum equal to the TDS amount
- Failure to file: Additional penalty of ₹10,000 to ₹1,00,000 under Section 271H
- Non-deduction: 30% of the payment is disallowed as a business expense in your income tax computation — this can significantly increase your tax liability
⚠ Interest on late deposit, the Section 234E fee, and expense disallowance together can cost far more than the original TDS amount. Correct, timely deduction and deposit is the lower-cost path.
Frequently Asked Questions
We are a small startup — do we need to deduct TDS on payments to consultants?
If your business is a company or an LLP, yes — TDS obligation applies regardless of size or stage. If you are a sole proprietor or HUF and were not subject to tax audit in the previous year, most non-salary TDS sections don't apply to you. Salary TDS applies to all employers.
A consultant we paid doesn't want us to deduct TDS. Can we skip it?
No. The obligation to deduct TDS is on the payer — it is not optional and cannot be waived at the payee's request. If a consultant has zero or lower tax liability, they should claim it when filing their own ITR. If they have a lower deduction certificate from the IT Department, they can provide it to you. In the absence of such a certificate, you must deduct at the applicable rate.
What happens if we deducted TDS but forgot to deposit it on time?
Deposit it immediately. Interest at 1.5% per month applies from the deduction date to the deposit date. The longer you wait, the higher the interest. And the 30% expense disallowance only applies if TDS was not deducted or not deposited at all — a late deposit still preserves the deduction.
A vendor gave us Form 15G / 15H — do we still need to deduct?
Form 15G (for individuals below 60 and certain other entities) and Form 15H (for senior citizens above 60) are self-declarations that the payee's income is below the taxable threshold and TDS should not be deducted. If the form is validly submitted with PAN, you are not required to deduct TDS. Keep the form on record — if the IT Department queries the non-deduction, the form is your documentation.
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