What is TDS and how is it calculated?
TDS (Tax Deducted at Source) requires the payer to deduct income tax at a prescribed rate before making certain payments — contractor bills, professional fees, rent, commission, interest and more — and deposit it with the government against the payee's PAN.
TDS = Payment amount × Section rate ÷ 100 → Net payment = Amount − TDS
Common TDS sections and rates (FY 2025-26)
| Section | Nature of payment | Rate | Threshold |
|---|---|---|---|
| 194C | Contractor — individual/HUF | 1% | ₹30,000 single / ₹1,00,000 yearly |
| 194C | Contractor — others | 2% | ₹30,000 single / ₹1,00,000 yearly |
| 194J | Professional fees | 10% | ₹50,000 per year |
| 194J | Technical services | 2% | ₹50,000 per year |
| 194H | Commission / brokerage | 2% | ₹20,000 per year |
| 194I | Rent — land & building | 10% | ₹50,000 per month |
| 194I | Rent — plant & machinery | 2% | ₹50,000 per month |
| 194A | Interest other than securities | 10% | ₹10,000 (₹1,00,000 senior citizens, banks) |
| 194Q | Purchase of goods | 0.1% | On value above ₹50 lakh |
If the payee does not furnish a PAN, section 206AA forces deduction at the higher of the section rate or 20%. TDS on payments to a GST-registered vendor is deducted on the value excluding GST when GST is shown separately on the invoice.